June 3, 2016
S&P JUNE FUTURES (SPm6)
2084-7, 2075-7, 2065, 2053-5 Support
2104-6, 2110-3, 2125-7 Resistance
S&P Futures: Trend bullish, but prices now right up against April highs, so important that price make a clean breakout above 2105 in S&P Futures on a closing basis to think trend can extend right away without any stalling out. Overall, its right to be bullish and use any pullback to add to longs for a move back to new all-time highs into early July. (SPX cash 2111, extending to 2130-5) Lows from Wednesday near 2082 will be important, but should hold as firm support, and would need to be violated on a close to change thoughts of an immediate follow-through.
EuroSTOXX 50- A minor rollover in Wednesday's trading, but pullbacks likely don't violate 3000 before turning up for gains to 3150. Trend since March remains choppy, as part of an overall downtrend. SX5E remains weaker than SPX. Movement back above 3300 is necessary to help Europe begin outperforming US stocks.
Hang Seng China Enterprise index- No change- Mildly bullish for a move to 9000, but skeptical HSCEI can exceed 9200 and make an attempt at April highs. So, similar to Europe, this remains in weaker shape than US right now, and near-term rallies could be used to sell.
Equities- Attractive Technical Risk/reward Longs
WAT, MDT, ABBV, AET, ALXN, HSIC, AMZN, TWTR, EA, IGT, WBMD, HAS, AYI, MXL, THO, CRL, SWHC, INTU, WOOF, CRM, MKTX, DY, CETA, LAMR, ORIG, AMZA, FET, TMO, RTN, KAR, CB, HEI, IT, FIVE, CRL, 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- BSFT, 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: DV, CONN, KMX, SHLD, HZO, GME, KONA, HOG, GES, ZUMZ, SIG, RT, TIF, RL, LC, WDAY, BBBY, XRT, ANF, MOH,FL, SPLS,TAN, FOSL, AAP, VSLR, PTEN, GT, GPS, HTZ, CF, SHLD, AWI, CIEN, SQ, CROX, EFOI, TSLA, CSIQ, FSLR, FIT
S&P managed to hit new three month highs on a closing basis Thursday, while the NASDAQ Composite exceeded April highs to join the Russell 2000. Healthcare broke out in trading Thursday to join the recent move in Technology and Small-caps while Advance/Decline for NYSE "All Stocks" also managed to get back above April highs. All positives. Breadth and momentum remain supportive of a move back to new all-time high territory along with the degree of sector rotation that's now causing mean reversion in important sectors like Healthcare which have lagged badly all year thus far. The trends shifted last week from short-term neutral to bullish, and despite being up against key levels, it's thought that any stalling out and/or backing and filling should prove temporary before a push to new highs. Heading into NFP, history has been kind to stocks which have risen to new three-month highs one day ahead of the Jobs report, which produced only one instance of a "down day" in 10 years of trading in this instance out of 16 occasions.
Given that scenario, it is important to point out a few negatives, as there are a couple factors which have cropped up which do merit talking about. First, Bond yields have not really been supportive of the equity rally and in the past, it's been difficult for equities to extend meaningfully higher when Bonds are also moving up. German Bund yields seem to be leading US Treasury yields, and just moved to near fresh monthly lows down near the bottom of the channel at 11 bps. Treasury yields followed suit on the long end, with 10-yr yields getting down under 1.80 and seemingly are headed for 1.75-6 before reversing back higher. This divergence battle historically has been won by the Bond market. Second, a few short-term cycles highlight this week for a change in trend. The last few days had attempted to pullback and failed and it's still difficult to make the case for a big pullback given recent price action, outside of just thinking prices stall near prior highs. However, Fibonacci and Gann based factors based on prior highs and lows DO suggest this week we could see a turn, so despite the bull trend, it's worth keeping that in mind. Third, sentiment has moved quickly from bearish to back to near bullish in a hurry, with Equity put/call readings now hitting new monthly lows, which often signals a slowdown, as everyone who was caught off guard and now trying to jump on the rally is typically wrong. However, until this reaches extremes.. and only the Equity put/call shows extremes now, not any of the other sentiment polls, the move towards bullish historically has still been "OK" for stocks to rally into/during. But this too bears mentioning. Finally, indices are up against important levels, which was mentioned previously in the case of the SPX and NDX, DJIA, but does not obviously apply to the Nasdaq Composite, which already broke out. So a few reasons for the Bears to think we might stall, and for the Bullish sooner than later scenario, we'll need to breakout above 2105 and close above April highs in the SPX, DJIA and NDX to have real conviction that this is happening right away. (In this case the SPX likely gets to 2250) For now, it's worth being a bit more selective until it happens.
Key Developments heading into Friday's NFP
1) Healthcare followed through on our thoughts yesterday of a breakout in XBI likely leading the rest of the sector higher, and XLV got back above $72, which is a very positive development for this S&P SPDR ETF. DRG, the Amex Pharmaceutical index, along with XBI, the S&P Biotech ETF, both managed to eclipse April highs, along with the entire downtrend from last Summer. All bullish. While in the media focused on the IBB, or BTK not accomplishing the same feat just yet, it's important to view the positives, and position before hand, given that the XLV did successfully break out and did so also on a relative basis vs SPX in the near-term.
2) WTI Crude managed to show real resiliency, closing well off its lows for the second straight day after early pullback attempts, with quite the roar about how this "needed" to go down, given no firm OPEC lid on production, while the Net Spec longs continue to increase in CFTC data (and commercial hedgers are getting shorter) Valid points, but until the trend shows evidence of breaking, and 47.75 is really the first area of concern, it's just difficult to find too much fault with the trend, despite some wobbling in momentum of late.
3) Bond yields certainly didn't cooperate for Equity bulls again, and given the positive correlation that's been mentioned, this remains a concern. With the 2-year yield failing to have broken out yet, and 10, 30 year yields plummeting in the short run, its important to see some degree of stabilization and see these turn back to the upside. For now, still a bit premature.
Charts and additional comments below
SPX now rests right up against key make-or-break for a likely upcoming breakout back to new all-time highs. This area is important and closes over 2111 are key for the Cash index and over 2105 for S&P futures.
XLV managed to exceed $72 which suggests further upside in the near-term for Healthcare and the start of some mean reversion after being the worst of the major sectors this year in performance. Closing above 72 on a weekly close will matter more than just daily, but overall a good move and this remains one of the better risk/rewards out there given the lengthy long-term outperformance coupled with YTD underperformance which now looks to be ending. Stocks to favor include : MDT, ABBV, AET, ALXN, HSIC, based on Thursday's breakout alone while WAT is setup for a very favorable risk/reward base that should allow for an upcoming breakout, technically speaking.
NASDAQ Composite, as mentioned, has taken the lead in moving back up over the downtrend from last Winter's highs and Thursday's 4971 close was the highest of the year. I expect SPX, DJIA and NDX to join in the weeks ahead.
Soybeans extended their advance, as the Grains continue to work well within the Commodity space. While most grains do tend to see seasonal peaks in the mid-to-latter part of June, for now, it clearly looks early for both Soybeans and Corn, and the DB Agriculture ETF, DBA, has just broken out above 21.50 and looks to extend further (I have a long position in this)
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