July 12, 2016
S&P SEPT FUTURES (SPm6)
2129-30, 2121-2, 2080-2, 2071 Support
2138-40, 2145-6, 2160-2 Resistance
S&P Futures: (2-3 Days) Bullish into late Tuesday/Wednesday, but for now, it still looks a bit early to fade this move after S&P managed to eclipse last May's highs to officially move back to new all-time high territory. Look to sell 2145-6 for trading then 2160-2. For now, the trend is bullish, but just stretched near-term, and many indices are nowhere near all-time highs. Therefore, this initial burst likely should prove sell-able, for trading purposes, in the next couple days as opposed to moving straight up through July.
S&P Back at new All-time highs- Is It an "ALL CLEAR"? No, not quite yet, but encouraging to see S&P make this move along with the DJIA being within 0.6%. Many indices remain well off highs, so it's still a bit misleading to say the market's back at all-time highs. Yet, it's a constructive move which happened on very good breadth, and once the S&P Mid-cap and Small-cap indices can join the S&P, it will be far easier to have more confidence in this rally. For now, there were ample reasons to think this consolidation would breakout to the upside and it was wise to position as such. A few of these are as follows:
1) Advance/Decline back at new all-time high territory for NYSE "All Stocks", which followed the NYSE Cumulative All securities hitting new all-time highs
2) An expansion in stocks hitting new 52-week highs to new 12-month highs in early June, while breadth indices such as the McClellan Oscillator and Summation index moved to new 12-month+ highs in late April. It was also telling that the % of Stocks above their 50-day and 200-day moving averages spiked up to their highest levels since at least 2014 in April and early June, far above last November/December peaks. This suggested that breadth was moving up AHEAD of price, something that typically happens in reverse at peaks, when breadth fails to confirm a price new high. This time around, breadth moved up aggressively ahead of price.
3) Sentiment had shown lukewarm readings at best in the last few months, with popular gauges such as AAII, or DSI showing very muted readings in sentiment despite indices being within striking distance of new all-time highs (SPX) . Issues like the BREXIT, or slowing Chinese growth, indecision regarding Fed policy all seemed very formidable factors which shed a lot of indecision on the market with prices so close to all-time highs. Additionally, the Total put/call ratio hit 1.40 in mid-June, an odd move to multi-month highs with SPX only 60 points from its all-time highs.
4) Sector rotation started to show sharp movement into Healthcare from mid-June while Technology, Industrials and Consumer Discretionary began to trend higher ahead of when the actual breakout occurred, while Utilities and Telecom began to trail off, despite yields remaining near lows
5) Junk Bonds had never shown much sign of technical damage when eyeing either JNK, or the spread between High Yield and investment grade, which likely would have widened out substantially ahead of a serious meltdown in equities.
Bond yields showed some additional signs of lifting Monday and very conceivable that yields could lift a bit as equities rise. The one disturbing issue with regards to celebrating the SPX move too heartily concerns the degree that yields globally remain low along with European and Asian equities being in far worse technical shape. Can the US truly rally and lead all others up, or is this move temporary? For now, it pays to trust this SPX move given the sector and breadth developments, but the long-term health of this rally from this point on will depend on a serious move higher in Transports and Small-caps with Mid-caps moving back to new high territory. Given that nearly 65% of ALL STOCKS weredown more than 20% from their 52-week highs typically doesn't bode well for an immediate snapback that has real longevity. For now, its paid to stay long and stick with this move, but continued participation and upward breadth acceleration will be vital now that indices are starting to claw back towards all-time highs led by the SPX. Stay tuned.
Charts and additional analysis below.
The DJIA pattern truly looks attractive when looking back only a year and seeing the two intermediate-term lows followed by consolidation near the highs which is now giving way to a breakout attempt, similar to what the SPX achieved today. The near-term remains bullish, but understandably stretched given such a sharp move in a short period of time. While some might choose not to focus on the DJIA, it's had a predictable 90-95% correlation with the SPX over time, so still important when this moves to new highs to confirm the move made by SPX. In this case, that level lies at 18351.36, or just 125 points higher. If indices like the DJIA and NDX, CCMP cannot join the SPX in the days/weeks ahead, it would lead to more meaningful consolidation before this big breakout happens across all indices. For now, most patterns are positive near-term and this sudden burst back to new highs doesn't immediately look "sellable"
The DJ Transportation Avg is another index which merits watching given that this has been a noticeable laggard compared to other US indices, but more reflective of the actual move in most US stocks which peaked in 2014 given the Small-cap market turning lower. Near-term, this bounce has been constructive, but faces resistance near 7835-40 which will initially be important on this rally from June. This adjoins a minor downtrend from April highs with additional levels up near 8000. If the larger trend from 2015 highs can be exceeded, it would truly paint a more constructive picture of the intermediate-term prospects for US Stocks. For now, the "Trannies" are one group which remain quite weak overall and are now nearing key upside resistance.
XRT as the gauge for Retail should be utilized far more than the S&P 500 Retailing, or S&P 1500, both of which are heavily weighted by stocks such as Amazon. Thus, the move back to new high territory in S&P Retailing is a bit misguided. As seen above, this rally still looks to have a bit more upside, but will need to contend with fairly important resistance near $44.75. Attractive retailing stocks to favor include ORLY, AZO, AAP, TJX, LKQ, and AMZN. Stocks to avoid or sell into, technically speaking, are URBN, GPS, KSS, KMX, and AN. Some of these latter have been the strongest performing in the last month, but remain within downtrends. Thus, selectivity remains extremely important within the Retailing sector. On an absolute and relative basis, this sector definitely is NOT bullish, and warrants caution as the XRT nears 44.75.
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.