May 6, 2016
S&P JUNE FUTURES (SPm6)
2036, 2026-8, 2007-9 Support
2064-5, 2084-6, 2097, 2105-6 Resistance
S&P Futures: Short SPM6- No change-(Stop lowered to 2067) Target 2026, with outside chance of 2007 into early next week, but skeptical that 2000 is broken, and various cycles indicate an above-average chance to buy dips should be right around the corner. For now, the near-term trend remains bearish, and additional weakness looks likely.
EuroSTOXX 50- EuroSTOXX looks to be within 2-3 days of finding a low, but for now the trend is down, and additional weakness looks likely to 2883-5, with 2860 being max downside on this pullback.
Hang Seng China Enterprise index- Bearish- Similar to SX5E, the trend is lower but looks very close to finding support,which should arise just above early April lows with 8500-8550 being an ideal zone to think this bottoms. Following a low on Friday into Monday of next week, a long bias makes sense, cutting shorts and assuming long positions forarise back over 9000.
Attractive Technical Risk/reward Longs
LMT, AVGO, TAP, DG, MDT, CVS, AVY, NOC, CL,TSN, NXPI, TXN, CVC, WB,VNTV, NAVI, LGND, KMB, SBUX, SAFM, BCR, BSX, DVN, ELLI, NKE, CCRN, FRPT, AMSC, UNXL, CNSL,DVA, JEC
Bullish, but extended- Buy Pullbacks- VMC, FIS, MBT, AEM,TRXC, EBF, DG, CHD, OC, PM, MCD, SONC, POOL
Attractive Technical Risk/reward Shorts: AAP, DDD, TSLA, VSLR, BBBY, MAT, GT, RHI, ANF, GPS, HTZ, CF, SPLS,, AWI, WDAY, CIEN, QLIK, LC, SQ, DF, ADS,MNK, P, RL, CROX, FOSL, HOG, MYL
Bearish but extended- Sell Rallies- EFOI, KONA, CSIQ, FSLR, FIT
Equities sold off to near support, but remain just above, but technically i expect trading lows to appear between Friday and next Tuesday before a counter-trend rally gets underway.
The combination of near-term oversold conditions on intra-day charts, combined with counter-trend signals of downside exhaustion, along with short-term cycles all suggest that this pullback has nearly run its course. Breadth has begun to wane on the downside on this selloff, and both Healthcare and Technology look well positioned to bottom out in the next 2-3 days, which should provide a meaningful tailwind to Equities after this recent drawdown. Sentiment, as has been mentioned, remains subdued, and AAII data from 5/5/16 showed Bears with an 8 point lead over Bulls with 30 vs 22 percent. Given that equities remain just 3% off highs and most remain deeply pessimistic and/or uncertain about the economy, China and the upcoming Election, it seems logical that this minor pullback within the bull trend from mid-February should give way to a move back to new highs. For now though, the trend from mid-April is Bearish, but nearing support as part of a bull trend, and the next 3-5 days should be key in seeing how this is resolved.
In Treasury land, both US 10-Year Treasuries and German Bund yields showed signs of following the recent downturn in equities, and finished the day near the lows, with 10year yields all the way down to near 1.75 which was thought to be important, while bund yields plummeted down to 16 bps, and are in range of testing prior lows, which would arise in the days ahead before bottoming. If this equity rally is to begin next week, than much further selling in Bund and TY yields is unlikely past early next week, so the patterns in place in both could allow for some stabilization into early next week before a rally (In Yield terms)
The US Dollar rose for a 3rd straight session, but remains in a bearish downtrend, and for the first time in the last few weeks we saw commodity strength coinciding with the USD rise, as both Crude oil and Precious metals finished higher on the day, despite a strong Dollar. Overall, its tough to get too bullish on the Dollar after just a few days of gains, nor get too bearish on commodities just yet without sufficient proof. From a technical perspective, the base case scenario is for a stalling out in the US Dollar and pullback to challenge recent lows, which at that time, could provide some additional signs of basing which would lead to a more meaningful upturn. Gold, Silver, Copper, Crude oil should all lift into late next week before any high is in place for commodities, and i suspect a test and brief move above former highs can happen into late next week before a stalling out near 5/13. To reiterate what was mentioned in prior reports, the case for selling Silver is strong in mid-May into late June which has been lower the last 29 of 43 years,for a 69% success ratio. Given factors such as overbought conditions and rampant speculation now in the metals (NON-Commercial CFTC data shows Metals and Oil with significant long positions in the "Specs") technically it is likely that we witness a stalling out and turn back to the downside. For now, selling the metals looks premature and additional gains back to the highs looks likely first.
Charts and comments below.
S&P managed to close out right near its lows, and daily charts show momentum to be down and not oversold, with prices still above key support. The odds favor a final washout to this decline before any bottom can happen and i suspect this happens into early next week before any meaningful bounce, but at this point, shorts should be kept on a tight leash given the presence of counter-trend indications of exhaustion, not only in US indices, but Europe and Asia as well. This indicates at least a pause in the decline, which i feel happens in the upcoming days.
Europe has been showing even greater weakness in the last week, month and 3-month period than the US and its equity indices are now down to key make-or break support in the short run after the selloff in the STOXX 50 index back down to trendline support. Some type of tradable low is expected into next week with April lows at 2860 not likely to be violated on this first go-around technically before bouncing. ETF's such as FEZ are liquid ways to play this index which might be given further review.
Ten-Year Treasury yields have moved in a very similar pattern to equities and are much more positively correlated to Stocks than Crude oil, which has dropped down to nearly 0 correlation since the April 20 high in the S&P. Yields have backed down following a similar move in Bund yields, and should find strong support near April lows in the next 2-3 days that produces a bounce after the recent selling in yields since mid-April. Overall, given that yields and various US, European,and Asian equities all seem to be at or near trendline support and within striking distance of April lows in a less than sanguine environment, a low seems to be right around the corner, for both equities and Treasury yields.
AAII sentiment which came out this week now shows Bears to be 8 percentage points over Bulls in the American Association of Individual Investors polling, which despite being just one source, has predictably shown very pessimistic readings near market lows and uber-optimism near highs. The latest rise shows Bears-bulls at 8 which reached highs near 30 at mid-February of this year and in 2013, while being very complacent at a -40 in mid-2014, right when Small Caps peaked and the commodity decline began to start in earnest. Currently, a sharp uptick in Bearish sentiment doesn't seem to warrant a defensive stance given that indices are within 3% of all-time highs.
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