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Defensives provide most of selling, while NDX remains resilient

April 22, 2016


2077-8, 2060-1, 2047-9, 2020-2021Support
2093-4, 2106, 2115-6, 2123-5, 2135                        Resistance


S&P Futures: Long SPM6- Tough to know honestly whether today was the start of the pullback, or whether one final stab back to 2110-5 can happen before a larger correction, but Thursday definitely caused momentum to begin to wane in a fashion that would suggest a larger pullback should be right around the corner.  For now the Defensives provided most o the selling while NASDAQ barely gave up any ground, two important reasons to expect possible near-term stabilization.  Look for 2071-4 to have importance on the downside, and under would result in a selloff down to 2060 and then 2048-50 before rebounds occur.

EuroSTOXX 50-  Still postive but showing some signs of being stretched with counter-trend signals of exhaustion per Demark TD Sell Setups present on daily charts which argue for a possible stalling out.  We'll see.  3200-25 important while a reversal down under Thursday's lows would provide some consolidation to this rise.

Hang Seng China Enterprise index- Bullish-Upside likely contained near-term at 9500-9550.  Under 9000 on a close likely leads down to 8750. Until 8750 is violated, the trend from mid-February remains bullish and pullbacks would be used to buy.

Attractive Technical Risk/reward Longs

Bullish, but extended- Buy Pullbacks-  X, MBT, AEM, NEM, FCX, GDX, GG, TRXC, EBF, DG, CHD, OC, PM, MCD, AVGO, SONC, POOL

Attractive Technical Risk/reward Shorts:  TSLA, WDAY, CIEN, QLIK, RT, LC, SQ, DF, ADS, GPS, BBBY, FL, MNK,  P, RL, CROX, CF, FOSL, JWN, HOG, HTZ

Well, Thursday proved to be an exact "About face" to Wednesday's trading, with stocks falling the most in two weeks, WTI Crude giving up ground, the metals reversing early gains, as the US Dollar firmed throughout the day following Draghi's comments.  While the thoughts of Thursday being positive failed to materialize, it's important to note that the NASDAQ showed very little, if no real weakness whatsoever, and closed right near levels which have held over the last week.  Demark's counter-trend TD Combo and TD Sequential indicators continue to suggest a move up to 4650 is possible before we see any peak. Furthermore,  Gold and the EURUSD also didn't breakdown materially, and if anything, still look primed to be able to rise back to recent highs. 

Losses in Treasury yields globally where probably the biggest surprise, given that both stocks and bonds fell together, which has been a rarity of late.  The US 10-year Treasury yield largely took its cue from the German Bund yields in staging a decent pop in the last couple days, and yields maintained their gains throughout the session.   Given the breakout in 10-year yields above trendline resistance, it still looks likely that yields probably trend up to 1.91 before peaking out.  The activity Friday should be particularly important in this regard given the importance of how the weekly charts shape up.

Healthcare was the best performing sector in today's trading of the major S&P groups, and the only one to finish positive given the outperformance in BIIB, ILMN, VRTX, CELG, and ENDP.  the mean reversion in this sector continues, as the remains the top performing sector in the last month, while one of the worst performing on a three month basis, with just over 6% returns during each period.  (Today's outperformance helped Healthcare move up one rung on a 3-month basis, and this group is now edging out Consumer Staples by a small margin.)

Overall, it remains right to be selective at this juncture given nearly a 15% rally over the last 10 weeks.  The Bullish factors such as broadbased participation, Defensive sector selling, bullish patterns in Treasury yields and WTI Crude, strong weekly momentum, and good intermediate-term breadth are being offset by overbought and waning short-term momentum, prices up against resistance, (Sectors and Equity indices) along with bearish April/May seasonality in Election years.  Bottom line, the weekly breadth and momentum gains combined with less than exuberant sentiment likely win out over the near-term concerns.  Even to have a bearish stance, we'll need to see the NASDAQ, Russell 2k, Transports all move to multi-day lows, which hasn't yet happened.   For now, its right to use 2071 as support for S&P futures and if prices hold and turn up tomorrow into next week, the rally likely has a bit more to go before peaking.

 Charts and comments below.

The same chart as yesterday, showing the NDX holding key trendline support, which argues against GOOGLand MSFT's after hours selling as having any lasting effect, for now.   Movement back higher to 4650 area is still expected.

US 10-year Yields spiking up above 1.80% helped yields follow through to exceed the entire trendline from early this year and suggests a probable move up to 1.90-1 before any stallout.  Given that bond yields and stocks have moved together quite a bit in the last few years, this breakout is seen as mildly encouraging for US Equities in the near-term.

The metals pullback seemed to lack sufficient strength on Thursday to think that additional selling should take this down under key support at 1210.  Daily charts with Ichimoku clouds show this area to be quite important at 1250, and argue for strength up to 1300, with 1310 also standing out as being important.  Overall, it still looks early to give up on the Metals.

The defensive sectors got hit hard on Thursday, but proved to be one reason not to take the selling too seriously, and XLP has now neared an attractive level of support to consider buying some of the former highflyers which have recently come down to earth-  (PM, KO, GIS, HRL, MCD) There are some which have made more severe structural breakdowns (WFM, CLX), but for now, most of the group has pulled back to structural support based on the large base intact in the group through much of last year (2015 highs should now become support on pullbacks)   Overall, given the near-term oversold nature of XLP, while the larger structure remains intact, this looks to be one sector to consider covering shorts on this decline and buying the bullish names which look to be near support.


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