May 18, 2016
S&P JUNE FUTURES (SPm6)
2029-31, 2018-9, 2007-9, 1988-90 Support
2069-70, 2075, 2080-1, 2097 Resistance
S&P Futures: Short-term Bearish- Additional weakness likely down to 2027-30, or under to 2007-8 before counter-trend rallies get underway. Resistance lies at Tuesday's highs on a closing basis, 2069-70. Look to use weakness over the next couple days back down to support to consider covering shorts. Over 2080 on a close needed for bullish stance.
EuroSTOXX 50- Neutral, but similar to SPX, expect near-term weakness which should challenge lows of recent range- 2883-2900. Above 3000 would be a bullish short-term development, while under 2880 is clearly negative.
Hang Seng China Enterprise index- Minor bounce from Ichi Cloud in the last couple days, but broader trend remains negative- Use bounces to 8600-8650 to sell, while any close back under 8300 allows for test and break of recent lows just under 8200.
Equities- Attractive Technical Risk/reward Longs
GDX, PAA, ABX, LGCY, ORIG, CDE, AMZA, FET, CPB, RTN, CELG, CRL, MDT, GPN, DG, TXRH, UNH, GD, MLM, VSAT, AVGO, CVS, NOC, CL,TSN, NXPI, TXN, CVC, WB, LGND, SBUX, SAFM, BCR, BSX, CCRN, FRPT, DVA, AMZN
Bullish, but extended- Buy Pullbacks- TAP, TWC, AVY, MO, CB, FISV, NOC, LLL, JEC, BGS, NSP, LMT, VMC, AMSC, FIS, MBT, AEM,TRXC, EBF, CHD, OC, PM, MCD, SONC, POOL
Attractive Technical Risk/reward Shorts: FXI, SPLS, TSLA, TAN, FOSL, AAP, VSLR, BBBY, PTEN, GT, GPS, HTZ, CF, SHLD, AWI, CIEN, SQ, ADS,MNK, RL,HOG
Bearish but extended- Sell Rallies-, CROX, EFOI, TSLA, LC, KONA, CSIQ, FSLR, FIT, MYL
The pullback got down to right above key near-term support at May lows near 2030, and this area is still likely to be challenged over the next few days before any low is in place. The "Head and Shoulers" chants seem to be growing louder by the day as SPX gets back down to the area of former lows, while the NDX and DJIA wrestle with similar patterns. Yet, the combination of massive equity outflows, high cash allocations, Equity put/call ratios (5 day mov Avg) that are as high as we've seen in three months, along with negative AAII sentiment all seems to argue that the selloff should prove muted. Additionally, we see a strong area of Ichimoku cloud support directly under 2030 for SPX, while momentum and breadth remain extremely strong on a weekly basis. So, despite the urge to label this a larger top, (and yes, the near-term trend does remain bearish, and could lead to a bit more selling between now and end of week), the combination of these factors seems to suggest further declines should likely prove limited, with any "head and shoulders" break likely lasting just a few days before reversing quickly to catch people off guard.
However, the movement in the Russell 2000 in relative terms to SPX does remain a concern, as this has been steadily weakening, along with former strong sectors like the Consumer Discretionary sector, which has been highlighted here before as an area of near-term weakness, primarily given Retail woes. One thing to note is that Technology also lies at a key make-or-break, after about a week of consolidation. Breaking down under recent lows would offer a final batch of sellingto AAPL, which looks to have bounced prematurely, along with other weak and/or extended names within the space, such as ATVI, EA, ADP, CA, NVDA, before stabilization arises in the days ahead.
For thosethat look at cycles, the upcoming few days are important not only given the one-year anniversary to former highs last year in SPX, but also based on several Fibonacci and Gann Based cycles from former highs and lows which are showing a confluence into this week. For example, we have 120 degrees from 1/20/16 lows, 240 from 9/16/15, 270 degrees from the August 2015 lows, 315 from last July highs, along with being a Fibonacci 233 calendar days from our 9/29/15 lows, 144 Fib days from our 12/29/15 highs, and 377 Fib weeks from the March 2009 bottom. Definitely a lot of time-based confluence coming together all during this time to suggest a possible turn. Prior lows from February and January had similar projections from past peaks and troughs, all highlighting those periods to be important.
So, what's to invest in, given all the doom and gloom? Metals stocks continue to look quite positive, along with anything commodity related, which looks to be firming up again as the US Dollar stalls out. Favoring Large caps over Small caps and Value over Growth also seems to be prudent during this time. A complete list of buys and sells, purely on technicals, is provided above. Overall, watching Treasuries and Bunds seems to be important, as suggested before, and today's reversal began to pick up steam on the downside as a bid came in to the Treasury market. Pullbacks to last week's lows in yield seems likely before yields turn higher, likely leading stocks as well. For now, lows still seem a bit premature.
Charts and comments below
Weekly SPX charts show the ongoing consolidation near all-time high territory, which given the bearish sentiment of late, would seem to be in a far more bullish position than one might realizeMinor consolidation down to 2000 into early June would still be a chance to buy dips for a move back to new high territory, and even then the negative sentiment would suggest people have given up after a three-month sharp rise.
BaML provided a source of Percentage Allocation to Net US Equities, which came under extreme fire this last week, with many still underweight US Equities.
Russell 2000 vs SPX is shown given the ratio charts break down to the lowest levels since the mid-2000s. This ratio began to peak at an exact time when Equities started to show breadth deterioration, so regaining former "LOWS" on the upside will be important.
Lumber made a breakout this week to the highest levels since early 2015, exceeding a three-year trendline in the process. Homebuilders have lagged, understandably so, in the last few months, but signs of housing demand that cause Lumber to rise, fundamentally also should have an eventual effect on the Building sector which could start to climb.
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