June 17, 2016
S&P SEPT FUTURES (SPm6)
2050-2, 2040-2, 2032-5 Support
2061-3, 2082-4, 2092-3 Resistance
S&P Futures: (2-3 days)- Bearish- Insufficient proof of any low at hand today (Thursday) and into expiration, there's a good likelihood of a retest of lows and minor new lows being made that lasts into early next week. As mentioned, stabilization is a definite work in progress. Watch TNX, USDJPY- For Sept S&P, look to buy at/near 2032-5 and SPX cash down at 2040-5.
EuroSTOXX 50- Similar to SPX, another 2-3 days of weakness also looks possible for EuroSTOXX, which should retest February lows before any bottom is in place. Demark signals will trigger buys based on TD Sequential early next week similar to SPX potentially getting TD Buy Setups.
Hang Seng China Enterprise index- HSCEI looks to have rebounded right near key trendline support just under 8450, but could still face a bit more weakness to 8240-8400 before lows are in place. 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.
Attractive Technical Risk/reward Equity Longs
TSN, AMT, MKTX, CRL, WAT, MDT, TXN, WBMD, HAS, INTU,CRM, DY, RTN, KAR, HEI, FIVE,VSAT, AVGO
Attractive Technical Risk/reward Shorts:
FL, UAL, TIF, ERIC, ROP, AAL, GES, ZUMZ, BBBY, GME, SIG, RL,TAN, FIT
1) Equities might bottom coinciding with a similar move in Treasury yields- Still very important to keep an eye on Treasury yields, Crude, and USDJPY, as equities seem to be tracking all of these quite closely in the short run. Thursday's break of Tuesday's lows led to a quick selloff under Tuesday's lows, but when yields made a sharp rally off the lows, Equities followed suit. While any larger bottom in 10year yields might need to be preceded by some type of bottoming in German Bund yields, it's important to note that 2yr, 5-year and 10-year yields all closed positive on Thursday, forming Technical "Hammer" type formations after showing Demark signs of exhaustion on intra-day charts.
2) VIX Futures contango an early sign- VIX remains stretched- VIX backwardation and a contango in the curve was present until Thursday's reversal caused a sharp pullback in Spot VIX, but we've still seen VIX get very stretched, outside its Bollinger Bands, and pulled back over 15% from intra-day highs alone on Thursday. While a move back to test these highs in implied vol is likely into early next week, we've gotten fairly stretched, while prices remain very much intact, well above May lows.
3) Commodities Selloff continues in the short run- Grains, Energy have both pulled back in recent days on a firming in the US Dollar, while the Metals pulled back sharply from earlier highs in Thursday's trading. Gold's $35 reversal from early highs looks important as a one-day reversal, and could very well decline in the days ahead after its recent sharp advance, particularly if the US Dollar index exceeds May highs near 96.
S&P futures managed to reverse sharply Thursday morning after brushing support to finish positive for the day, largely mimicking what happened in bond yields. For now, it remains premature to call for any low in this decline from 6/8, but indices do seem to be close to an area that could allow for a trend reversal to close out the month. In the short run, unless S&P finishes back over the area of the recent breakdown, near 2082, its more likely that lows should be retested, not only in Equities, but also in European equities, Treasury yields, and USDJPY in the days ahead, which would help form a more perfect low. However, given that US stocks closed within a few ticks of very good support, its not aMUST at this stage, so we'll be watching carefully to see if prices can close up sufficiently, while using any dips into early next week to buy.
2-year Treasury yields managed to reverse hard also off early lows Thursday, coinciding with near-perfect timing with TD Buy Setups, (Demark formation) which had previously marked lows in yields to the day back in early May along with February, along with highs in yield in April along with mid-May. Bottom line, an oversold bounce is likely in 2-yr yields along with 5's, 10's and 30s now that they've all gotten extended, and in the case of 2yr yields, reached important support near the bottom of their recent range. Economic data wasn't nearly as bearish to cause such a large rally in Treasuries in the last few weeks, and yields have largely mirrored what's taken place in Japan and Germany. However, given that US seems to be in better shape economically, both fundamentals and Technicals would seem to justify that yields have pulled back a bit too far too quickly, and some stabilization could help equities at a time when most feel the situation is growing more "dicey". Stay tuned.
Gold's reversal today was important, as it got just briefly over prior highs before pulling back hard nearly $35 from early highs to form a daily engulfing pattern with the prior few days. This key reversal looks likely to pullback further in the days ahead, and would accelerate lower additionally if the US Dollar index shows signs of exceeding May highs near 96. For now, it's worth pointing out that this pattern is far different than most simple consolidations where highs are exceeded, as our recent advance came after a higher high and lower low, making it a far trickier pattern to simply buy breakouts in normal fashion. For the days ahead, weakness looks more likely than gains given Thursday's reversal.
This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein, and may be subject to change without notice. Newton Advisors, LLC has no duty or obligation to update the information contained herein. Further, Newton Advisors, LLC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss. The information provided in this report is based on technical analysis. Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer. The investments discussed or recommended in this report may not be suitable for all investors. This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.
Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. Newton Advisors, LLC believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report: This report, including the information contained herein, has been prepared exclusively for the use of Newton Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Newton Advisors, LLC.