June 15, 2016
S&P JUNE FUTURES (SPm6)
2063-5, 2052-3, 2042-3 Support
2082-4, 2120-1, 2125-6, 2135-6 Resistance
S&P Futures: Mildly Bearish- Tuesday's followthrough took S&P down to near key support levels and prices should be on the verge of stabilizing and turning back higher. For now, despite a few encouraging signs of holding in Treasury yields and USDJPY , additional pullbacks should prove to be buyable in the next 2-3 days. Factors such as ongoing strong intermediate-term momentum and breadth should allow US indices to continue to hold up stronger than Europe, or Japanese equities.
EuroSTOXX 50- EuroSTOXX has broken what looks to be important support from May, but looks to be extended here and unlikely to break February lows. Any further downside to February lows would be used to cover shorts.
Hang Seng China Enterprise index- No change. A bit more weakness could happen in the short run, with key areas near 8360 to buy dips. For now, the larger pattern won't turn too bearish unless May lows are violated, at 8175 so it should be right to cover shorts in the next few days on further weakness.
Equities- Attractive Technical Risk/reward Longs
WAT, MDT, TXN, WBMD, HAS, PM, AYI, MO, 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, CL,TSN, NXPI, CVC, WB, LGND, SBUX, SAFM, BCR, BSX, DVA
Bullish, but extended- Buy Pullbacks- AET (117), EA (70), HSIC (176-7) IGT- (18.50) BSFT (40.50), TAP ($100), AVY (74.50), CB ($122) , FISV (105) , NOC (212), LLL (140), JEC (49), BGS (43.50), NSP (70), LMT 235), VMC (110), FIS (71.50), AEM (48) CHD (98.50), OC (47.25)
Attractive Technical Risk/reward Shorts: STX, SGMS, ERIC, ROP, AAL, CS, DV, CONN, KMX, SHLD, HZO, GME, KONA, HOG, GES, ZUMZ, SIG, RT, TIF, RL, LC, WDAY, BBBY, XRT, MOH, FL, SPLS,TAN, FOSL, AAP, VSLR, PTEN, GT, GPS, HTZ, CF, SHLD, AWI, CIEN, SQ, CROX, EFOI, CSIQ, FSLR, FIT
Prices look to be nearing support, but still difficult to think the lows are in ahead of FOMC. Additional weakness possible, but should not break May lows. Tuesday's weakness failed to accelerate too dramatically and managed to bounce a bit off the lows. Yet, the downtrend from 6/8 remains intact, and we'll need to see additional strength to expect that the worst is over.
A few bullish takeaways were possible mid-day on Tuesday, but ended up disappearing by end of day. The VIX backwardation ended up being erased by the close, while the high TRIN readings, with more than 4/1 Declining to advancing volume also faded. Now we have a case of mild oversold readings on hourly charts, some evidence of positive divergence, while S&P has moved down nearly in a straight line from 6/8, Overall, given that Treasury yields and USDJPY seem to be at/or near support, along with above-average feelings of uncertainty, it's unlikely that S&P gets under May lows, and stabilization seems to be right around the corner.
Treasury yields will be key to bottom out and turn higher, given that Equities largely followed yields down after a meaningful period of divergence. While FOMC results are expected to show "No action", the pullback in yields likely was more severe than justified given just one poor Jobs report, which doesn't take away from the bullish rhetoric that both Yellen and some of the outspoken Fed governors shared a few weeks ago. Yields have largely pulled back more than expected, which in turn have caused technical damage in Financials. Yields now show evidence of being oversold near support, with counter-trend buys on intra-day timeframes, so some evidence of a bounce looks to be right around the corner. This in turn should help Financials to stabilize near support (which looks likely on relative charts, shown below) and in turn could help Equities turn back higher.
Charts and additional comments below
S&P futures got al the way down to near 2060 before attempting a mild rally into the close. Given the lower low, lower close and insufficient progress off the lows, it remains premature just yet to think a low of any magnitude is in place. However, prices have retraced about 60% of the prior rally from mid-May, and have begun to show some evidence of positive divergence on intra-day charts. Until prices can clear 2082 on a daily close, we could still see some evidence of lows being retested. Attractive areas to buy dips lie near 2060, with a maximum move down to 2041, which should allow for a move back up to highs in July.
Many blamed BREXIT for the cause of US selling, but fears of a BREXIT have been ongoing for the last few months, while US indices have been far more resilient than most of the world, with Europe and Japan lagging substantially compared to the US. The chart shows how SPX has held up much better than either Europe, or Japan, and there's nothing thus far to think that recent weakness in US has been more pronounced in a manner that should lead to mean reversion that would allow the US to be weaker in the weeks or months to come. For now, it remains right to be bullish on US, and buy dips in the days ahead, thinking a move back to new highs occurs.
US 10-year Treasury yields began to show signs of turning up in the last couple hours of trading Tuesday, after hitting key support. This could allow for stabilization that results in a bounce following the FOMC non-action after Wednesday's results are revealed and subsequently allow Equities to rally. (the majority of Equity selloff was largely due to the Surge in Treasuries, so any signs of Treasuries stalling out and turning back lower could prove to be the impetus for Equities to turn back higher.
Financials have neared key support on a counter-trend basis vs SPX, which should allow for some upcoming stabilization after a severe pullback this week, and subsequently a sharp rally in the weeks ahead. The move in Treasuries higher after the weak NFP was the key catalyst for why this group suffered over the last couple weeks. However, now in relative terms, daily charts show XLF vs SPX nearing prior support with evidence of exhaustion based on Demark TD Buy setups above TDST.
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