June 30, 2016
S&P SEPT FUTURES (SPm6)
2034-6, 2001-3, 997-2000 Support
2075-6, 2086-8, 2105-7, 2119-20 Resistance
S&P Futures: (2-3 days)- Bearish-Prices have simply gone parabolic and momentum on intra-day timeframes has reached stratospheric levels that should make further upside very tough to come by during the final day of the month and quarter, something which has historically been negative the last 17 of 24 years. Upside technical targets lie at 2075-6 to SELL, and pullbacks back down to 2040-5 would still uphold the minor uptrend of the past few days, but yet help to alleviate overbought conditions
9 SHORT IDEAS to consider after this bounce: "Newton's Nine" Shorts- (1-2 week timeframe)
TIF Tgt $55, Stop 61-Today's bounce insufficient to regain Jan lows
GRMN Tgt $38.40, Stop $42- February pattern increasingly shaky while LT bearish
AAL Tgt $23.50, Stop 28.25- Airlines continue to underperform. This is one of worst
ANF Tgt $15.42, $14, Stop $17.66- Breakdown of May lows makes downtrend continue
OI Tgt $15.50- Stop $18.10- Breakdown of two-month base a negative
GPS- Tgt 18.50, Stop 21.75- Mild bounce since May as part of larger bearish pattern
RL- Tgt $79Stop 92.50 - Range since Feb likely to lead to downside breakout
URBN- Tgt $24.3Stop 27.5-Ongoing bearish laggard- Likely to break to downside
DV- Tgt 15.50, $12- Stop 17.80- Consolidation since Feb likely breaks down lower
BONUS Short idea- KSSTgt- 34.50- Mild neutral range as part of ongoing poor technical which likely has one final break to downside before any meaningful rally
S&P carved out back to back days that recorded more percentage wise in two days' time than anything of the past four months. While breadth and momentum are expanding on this move, which is a positive, it simply looks to have moved too far too quickly.
1) S&P, NASDAQ and DJIA have reclaimed June lows, something which structurally is a minor positive to this consolidation over the last few weeks.
2) High yield corporates have failed to show much, if any real sign of damage throughout the entire BREXIT breakdown, and remain locked in consolidation over the last few months. Given that JNK typically tends to turn down, and high yield widens out vs IG before times of financial strain for equities, I think its unlikely we've reached that point.
3) New NYSE highs reached nearly 300 on Wednesday, while the "All Stocks" Advance/Decline is within striking distance yet again, of all-time high territory. Meanwhile the Percentage of stocks trading above their 10 and 50-day moving averages had become compressed of late, registering in the low 20% as of Tuesday's session.
4) Financials have started to rebound in the last couple days from very depressed oversold conditions, Deutsche Bank for example had a lower multiple than during the Lehman crisis, and European Bank stocks look to be finding support near 2011 lows, which should be encouraging for US Financials, which largely followed suit.
5) Treasury yields have made initial attempts at trying to bottomout in the last day, with TNX closing at multi-day closing highs based on the final hour of trading Wednesday. While this might take a few days time, seeing some evidence of US yields trying to stabilize is encouraging.
1) Stocks are VERY overbought on a 1-2 day basis, as RSI (Relative strength index) moved in two-days time from 14 to over 80 on hourly charts, the highest levels of hourly overbought conditions for the whole month of June.
2) Momentum remains negatively sloped as per MACD on a daily and monthly basis while nearly slipping to negative on weekly charts. As for now, Wednesday's move helped this form a "fishhook" type turn, and barely positive, but still a concern during a weak period.
3) As mentioned in prior reports, a few Fibonacci and Gann based cycles target next week for a change of trend. Therefore, while Wednesday's gains can't be written off solely as short-covering, technically it's wise to initially sell into the sharp rally following a steep downtrend, and let the market stabilize a bit before attempting to think the lows are in.
4) Seasonality concerns center on this Thursday, the final day of 2Q which historically has been negative for stocks, with the last 17 of 24 yearsbeing negative, while NASDAQ has been down the last 6 of 10(Stock Traders Almanac) For now, we've seen a sharp bounce within a short-term negative trend which looks close to ending, but not quite there.
5) Much of Wednesday's trading was "Short-covering" as per Goldman's Most short rolling index being up 5% for the session. While breadth was indeed strong, much of the buying does appear to be covering shorts, not true buying, at least for Wednesday.
2075 remains the level to watch on the upside, which if exceeded at this point, calls for investing and following the move, thinking that 2119 highs from two trading days ago can be tested and exceeded.
Charts and additional analysis below.
Prices have now recouped nearly 70% of the whole post BREXIT meltdown with little or no resolution as to anything which has occurred. Most global bond yields remain plummeting to new lows, and the last day was marked by short-covering. Aside from that, breadth has been very strong on this advance, and as the daily chart shows above, prices are back over not only May lows but also June, at least with regards to the SPX. 2075-6 is very important for Sept futures and should hold prices on Thursday and allow for at least a bit of backing and filling before this advance can continue.
Hourly S&P futures charts overlaid with Demark indicators now show counter-trend sells present per the TD Sequential and TD Combo indicators while momentum indicators such as RSI has moved north of 82. Given that short-covering fueled much of this rise and prices have gotten so overbought just ahead of a typically bearish final day of month and quarter for June, it's logical to expect some consolidation in this move which could get all the way back to 2045 and do little or no damage to the overall pattern.
Goldman Sachs Most Short Rolling index, as a gauge for Short covering, was higher by 5% on Wednesday vs just 1.6% for Equity indices, a sign that this rally might not be the true buying that we'd want to see on the 5th straight day of +/- 1% gains. For now, I expect some attempts to consolidate this move, but would be forced to think prices extend further if ESu6 closes back over 2076 in trading on Thursday, no matter how stretched. For now, its right to wait for prices to come back rather than chase, technically.