August 12, 2016
S&P SEPT FUTURES (SPu6)
2168-70, 2157-8, 2139-41, 2125-6 Support
2183-5, 2191-2, 2200-2 Resistance
S&P Futures: (2-3 Days) Bullish- Prices managed to move back to new intra-day and closing highs by end of day, while DJIA managed to join the SPX, and NDX at new highs all in unison for the first time since 1999. Rallies up to 2200 and slightly over look possible, and while being wary of any type of reversal, for now Thursday's move was constructive and indices look to close out the week near their highs.
SX5E-Bullish, with targets near 3100-3150 into late August- Minor structural improvement on the move above 3000 in the last few days that exceeded 4 month trendline resistance and should allow for further upward progress into end of month. Only bearish on move under 2890.
HSCEI- Stretched, but bullish- Long, looking to buy pullbacks at 9250-9300 for a move up to 9750-9800.
Longs/Shorts for a 3-5 day period:
Technical Longs: A, UTX, CTXS, VLO, CXO, FIS, DFS, SLB
Technical Shorts: PANW, TRIP, COH, STRA, AMT
A historic day for equities as SPX, NASDAQ Comp and DJIA all managed to move back to new all-time highs for the first time since 1999, something that many would have thought implausible a few months ago. Breadth was only moderately positive, while Energy and Consumer Discretionary managed to lead all other sectors while Consumer Staples was the lone sector to finish down on the day. Treasury yields shot up along with equities throughout the session, yet still have some work cut out if they hope to breakout in a fashion that would allow rates to begin trending steadily higher.
Overall, It's worth reiterating that only US Equities have really broken out to new all-time high territory, while Treasury yields remain very much range-bound within their downtrend. European equities still lie roughly 5% away from downtrend line resistance projected from peaks made last Spring and most European indices, with the exception of the German DAX, are not in uptrends. Given the historical pattern of much of the world having moved in unison in the last few decades, having peaked in 2000, 2007 and bottomed out in 2003, 2009, seeing such massive divergence is worth noting carefully, as at some point we're likely to see some mean reversion. While the European and Asian indices made more relative upside headway to close the gap a bit in recent days, they remain well off all-time highs, and in the case of EuroSTOXX 50, this remains down more than 40% off all-time highs.
Small-caps and Transports are also worth mentioning as two laggard groups which despite having made some recent progress, are nowhere near all-time high territory. Momentum and breadth, at present, remain in good shape, and have carried the load while sectors like Technology, Discretionary, Healthcare and Financials have all snapped back a bit in recent weeks. The Defensive sectors, meanwhile, like Utilities and Consumer Staples, have shown meaningful underperformance, which was exactly the opposite of what occurred back in late February-April.
For now, the rally continues, and the positives of Bullish sector participation, positive breadth and momentum are bigger "PLUSES" for this market than the negatives of seasonality a growing level of complacency, and some minor evidence of overbought conditions. For now, these latter points are minor concerns, but until they begin to cause price to turn down, its proper to stick with the trend. If counter-trend indicators line up in the next 2-3 weeks, one could make a stronger argument towards fading this move. For now, it clearly still looks a bit premature.
Some charts and additional comments below
Instead of concentrating on how "great" the US indices are, all being at new all-time highs, it's worthwhile seeing how poor the rest of the world is in comparison, which can be seen after just a quick glance at the MSCI World chart EX USA. Globally, equities have rallied, but remain only up near April highs, a far cry from new all-time high territory. Most of the world peaked in 2014 right when Small-caps and Crude oil began to turn down with a vengeance. For now, the near-term trend is positive for this bounce, but the MSCI Global EX-USA has barely recouped 38% of the decline since 2014.
Consumer Discretionary has made a remarkable comeback in the last couple months, which given the Retailing strength in recent days, doesn't look to be complete in its move higher vs the Consumer Staples group. This daily chart shows the ratio of S&P Consumer Discretionary index vs S&P Consumer Staples index which has just broken out above a downtrend from late last year. Near-term, further strength looks likely which could help Discretionary close the gap on Staples, the latter which is still outperforming by more than 350 bps this year, even with SPX higher by nearly 7% YTD.
The shift out of Defensive groups looks to have just started two weeks ago, but along with Treasury yields showing a bit more strength since June has resulted in Utilities starting to rollover in relative terms to the SPX. This shift has been particularly strong in the last week, where the "Utes" have lost 1.53% in the rolling 5-day period through 8/11, but yet still are hanging onto gains of nearly 17% in YTD performance, more than tripling the SPX returns. Much of the thinking to "sell" Utilities depends on Treasury yields, which for now remain range-bound. A move back over 1.61% would cause this group to fall further in relative terms to the market and for now, further underperformance looks likely given the break of this trend from last year.
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