June 23, 2016
S&P SEPT FUTURES (SPm6)
2070-3, 2065-6, 2049-50, 2040-2 Support
2092-3, 2100-3, 2112-3, 2132-4 Resistance
S&P Futures: (2-3 days)- Bullish- No reason to sell ahead of BREXIT just based on two of three days closing well off early highs, as prices still lie just 45 points away from all-time high territory, or less than 2.2%. Any "BREMAIN" vote for UK to remain in the EU likely results in 2110 being tested and exceeded. Look to buy dips in the days ahead, if given the chance. Resistance lies at 2092, 2100-3, then 2112-3
EuroSTOXX 50- Bullish-A bit stretched near-term, but that's no reason to sell here also ahead of BREXIT and the fear level likely subsides and gives way to rallies up to 3150.
Hang Seng China Enterprise index- Rally up to near 9000-9174 looks likely in the near-term. Over would cause a much
Attractive Technical Risk/reward Equity Longs
LRCX, IDCC, TXN, A, TSN, AMT, CRL, WAT, MDT, HAS, INTU,CRM, HEI, FIVE,VSAT
Attractive Technical Risk/reward Shorts:
NEM, SCTY, FL, UAL, TIF, ROP, AAL, GES, ZUMZ, BBBY, GME, SIG, RL,TAN, FIT
1) US Equities still have shown fairly amazing resilience ahead of this BREXIT vote Thursday, which has been overhyped to levels that have created meaningful fear, as shown in FTSE100 options (UKX) as the Put skew reached the highest levels since 2008. Volatility looks far cheaper in the US, and we saw VIX reach the highest levels since February on a closing basis, despite three-month ATM implied volatility still around a 16, or lower than average in the last year. Overall, given that BREXIT fears look overblown, S&P likely should rally out of this given that "BREMAIN" polls still look to have the edge over "BREXIT", and once this uncertainty has passed, equities should experience meaningful relief, both for reasons of uncertainty being alleviated, along with Tech and Healthcare starting to participate. 2110 is important, and over should cause a lift up to 2130-5. Note, Friday likely will be the key day, Not Thursday, as results won't be known just yet.
2) Pound Sterling seems to have reached key resistance, but a "BREMAIN" vote (UK Voting to stay in the EU) on Thursday could cause a meaningful breakout in "Cable" vs the US. For now, based purely on technicals, this area remains highly important between 1.48-1.4850 and should provide resistance, based on two different trendlines along with counter-trend sell signals.
3) Sector Participation looks to be picking up a bit in some of the "risk-on" sectors like Healthcare and Technology, with Financials soon to join, if the UK votes to remain part of the EU and risk assets rally, then Treasuries likely selloff and this rate rise should spur on the Financials to participate, which would be hugely bullish for stocks given the levels of underperformance thus far seen in Financials, Healthcare and Tech this year. These three sectors are Key to helping SPX move back to new high territory.
"Cable" (Pound Sterling) has officially moved to highs of the year vs the US Dollar, threatening the all-important 1.48-1.4850 area which lies near this downtrend going back over the last few years. However, it's difficult to call this an official breakout, as similar to Gold's pattern last week, GBPUSD has had a pattern of higher highs, which makes a mild advance over prior peaks possible without thinking this necessarily accelerates. Also important to note, Counter-trend sells per Demark indicators are now present on Daily charts using TD Combo with TD Sequential registering the same indicator likely by this Friday 6/24/16. This would suggest that breakouts might be hard to come by, but still difficult at this time to weigh in 100% on a BREXIT based on this pattern.
Healthcare has shown evidence of trying to bottom out near this key uptrend line from mid-February lows, and many sub-sectors within the space, such as the Biotechnology ETF's (IBB, XBI) and Pharma/Drugs(DRG) also show similar support and look to be trying to lift off it in recent days. Overall, I view Healthcare as being an attractive risk/reward technically, and stocks like AMGN, ABT, VRTX look like interesting candidates to consider long technically based on these attempting to bottom out in recent days. Given that Healthcare makes up over 14.4% of the SPX, the third largest sector by representation, some evidence of Healthcare lifting would definitely be considered a positive for US Stocks.
Semiconductors have also made progress within Technology in recent weeks and the SOX looks to be on the verge of further strength, which should provide a Tailwind for Equities and also alleviate some concern, given that this sector has been a laggard in recent months. Over the last three months, Technology underperformed all other nine major S&P sectors, with returns through 6/22/16 of -1.46% vs. +1.74% for the SPX as a whole. The SOX index has shown a couple negative near-term signs, similar to SPX of pulling back well off early highs in two of the last three days. But also similar to SPX, it remains within striking distance of near monthly highs, and wouldn't take much to lift this back over 712, the early June highs. Bottom line, bullish positioning looks right for SOX, looking to buy any pullbacks offered. Stocks like LRCX, TXN, IDCC, AMAT, LLTC all look attractive technically to move higher and should be OVERWEIGHTS.
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