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Tech Outperformance constructive, while S&P futures regaining 2160- Newton's Notes, Daily Technical Comment 080516

August 5, 2016


2153-5, 2139-41, 2125-6     Support
2168-70, 2177-9, 2183-5     Resistance

S&P Futures: (2-3 Days)  Neutral- Prices continue to straddle 2160 which continues to be important near-term and doesn't justify big bets until we see some more definitive resolution of this pattern that's contained prices since early July.  Failed bounces that then breach 2141.50, (SPX-2147)  could reach 2127, and/or 2076-81

Longs/Shorts for a 3-5 day period:

Technical Longs:  HD, LKQ, RTN, NEM, CME
Technical Shorts: GES, TIF, SIG, PANW, AAL, SPB, FIVE, FOSL


Still very little end to the consolidation that's kept Equities range-bound since mid-July.   S&P prices managed to bounce back from early week drawdowns and as of Friday morning, are back above the 2160 area, which would necessitate a long bias on a close.  

Most of this consolidation is not limited to the S&P either, but causing stagnation in the bond market while a number of Equity ETFs wrestle with former highs created last year.  Sectors like Consumer Discretionary, along with Financials have failed to show the same follow-through as the Industrials space, while Technology continues to be one of the better sectors to overweight given this group's ability to clear former highs with above-average strength out of the Semiconductors space and parts of Hardware.

Commodities have attempted to stabilize given the breakdown in the US Dollar index which was seen initially in the Metals and Softs, but now has helped Energy to begin to hold support and bounce just in the last couple days. 

For the next few trading days, it will be important to pay attention to how the US Dollar index moves, along with 10-year Treasury yields, High Yield Bond ETF JNK, along with action in some of the Equity ETFs as they continue to challenge former highs of importance.  For now, this consolidation isn't necessarily a bearish development given the move that stocks have enjoyed since late June.  However, some resolution will be necessary in the weeks ahead back to new highs to have confidence.  Failure to definitively breakout where divergences continue to dominate trading will potentially pose problems heading into the Fall.  For now, the range continues.
Some charts and additional comments below



This hourly chart of the S&P since early July shows the degree of consolidation that's occurred in the last month. Similar to yesterday, S&P continued to find ample resistance near the 2160 line for Futures.  The early attempts at exceeding failed, while Friday morning Futures have yet again managed to rebound back above this area.  Being above 2160 is a positive on a close, while below is negative. 



Technology continues to be an area that's working very well in this market.  Tech managed to outperform all other nine S&P sectors in Thursday's trading, and as this relative chart of MSH/SPX shows, Tech began to accelerate after getting back above former highs in relative terms to the market, and still shows little signs of exhaustion that would signal this move is coming to its end.  Further rallies look likely back to the highs of this relative chart, which were made last November.


European banks continue to be one of the more important areas to watch following the recent breakdown and then snap-back up to important resistance which has seen prices grind sideways for nearly a full month.  Much of the action looks to be dependent on swing in Bond yields and the ability of Bund yields to get back over 0 would help this group start to outperform more meaningfully



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