June 14, 2016
S&P JUNE FUTURES (SPm6)
2107-9, 2101, 2082-3, 2075-7, 2065 Support
2120-1, 2125-6, 2135-6 Resistance
S&P Futures: Bearish- Monday's break of support should take S&P down to at least the 50% if not 62% retracement of the rally from mid-May which would target 2070-2 down to 2059, or just fractionally below current levels. Difficult to expect a break of May lows given how little damage has been done thus far and momentum and breadth remain strong on an intermediate-term basis. Therefore, additional pullbacks should prove to be buyable in the next 2-3 days.
EuroSTOXX 50- Pattern in EuroSTOXX broke support at early May lows, and finished at the lowest levels since February which can result in bit more weakness in the short run. Downside targets lie near 2675-2750 in the next 3-5 trading days, and would be used to cover shorts.
Hang Seng China Enterprise index- Monday's decline looked important and negative and could allow for a bit more weakness 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, TWC, 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, NOC, CL,TSN, NXPI, TXN, CVC, WB, LGND, SBUX, SAFM, BCR, BSX, CCRN, FRPT, DVA, AMSC
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
Near-term US Equity weakness possible, but should NOT break May lows- Key developments for Monday revolved around the breakdown of support following the technical selling in Europe and Asia, (Particularly Japan) and while US damage thus far has proven very mild compared to the rest of the developed world, Monday's action was a negative and could allow for a bit more near-term weakness to unfold through the FOMC meeting until rallies begin again, leading S&P back to new highs. As of Monday's close, it remains difficult to have much faith in the Bearish view extending too dramatically given the improvements in breadth and momentum that have occurred in recent weeks. Therefore, its unlikely that May lows are broken and the next couple days should bring about evidence of stabilization at or near the 50-62% retracement area of the rally from mid-May (2059-2070)
Looking back on Monday's trading, there was lots of discussion centered around the fact that Implied volatility had a big jump, while US Equity indices had barely shown much decline. Our recent 1.7% decline on a VIX surge of 40% represented the least amount of decline ever on a jump in vol above 40% in two days. Jason Goepfert of Sentimenttrader writes that there have only been 3 days in 30 years that VIX > 20% when SPX < -.75%. A week later, SPX was -1.2%, -4.4%, -3.5%. Technically this resilience to me doesn't suggest that the SPX needs to play catchup to any big degree, as sentiment remains lackluster while momentum and breadth have been strong. Support looks to lie just below current levels, and my thinking is that buying dips into late Tuesday/Wednesday on weakness is the right call, technically speaking.
One key fact to note is that the surge in Bonds has reached levels of importance, when looking at 2 yr yields, along with 5, 10 and 30 over the last 24 hours. Signs of counter-trend exhaustion are present when utilizing Demark indicators, and 2 yr yields in particular have reached the bottom of this triangle pattern that most recently failed when testing the highs. Given that not much has changed with the economy in the past few weeks other than a sub-par NFP Jobs number of late, it's been a very sharp rally in Treasuries, with some of that following suit to the action in Bunds, Gilts, and JGB.
Overall, it's a must to be selective in this environment in the short run, and new high lists are being dominated by Defensive names out of the Utility and Staples space. Until yields reverse course hard from recent lows, the safe sectors are likely to offer above-average safety heading into the Fed meeting, and remain attractive to own technically on both an absolute and relative basis. Financials don't seem to yet be at support, but should be close, within a few days. Bottom line, US stocks remain the place to be, vs Europe, or Japan, and for now, this decline has been minimal and no saying that the US markets need to capitulate to the extent being seen abroad. Technically, it remains right to buy dips in US equities unless May lows are violated.
Charts and additional comments below
Ahead of FOMC, SPX has given back a bit less than 50% of the entire 20-calendar day rally from 5/19 lows. The area at 2070-3 has importance and under near 2059-62. Under 2059 on a close would suggest a good likelihood of a deeper retracement down to the low 2040's. For now, one should use weakness into Tue/Wed to buy, thinking the US markets should continue to hold up better than the rest of the world, and not join suit by violating May lows.
Two-year yields have pulled back to the lows of the recent range, and counter-trend buy signals are being registered on an INTRA-DAY basis for 10year yields. Given that economic data hasn't changed too dramatically in recent weeks, and yields have largely followed Bund and Gilt yields, this area should be important for 2-year yields and technically it appears unlikely that further yield weakness should happen.
Utilities vs SPX is something we've pointed out over the last week and this continues to look attractive given market volatility. If yields should stabilize and turn up, than this sector likely should not work, but technically, a breakout in the relative chart suggests additional outperformance. So, near-term, meaning 2-3 days, this sector remains attractive to own given the recent turbulence, and still looks to work.
Japanese NIKKEI is looking quite negative in the short run after violating the trend from February in Monday's session. The weekly chart peaked out last year and prices are 5,000 points lower in a year's time, or almost 24%, a bit more than the 20% that Europe is down. Both Japan and Europe remain underperformers, and the pressure seems to be on the BOJ to produce some type of effective plan to stem the rise in the Yen and weakness in Japanese equities. Additional pullbacks look likely down to 15,000 and potentially below ahead of the BOJ, so it will be important to stabilize here nearly immediately and turn up for the Bulls.
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