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Consumer Durables Breakout helping to boost Discretionary relative strength

August 24, 2016


2175-6, 2165-6, 2160, 2139-41      Support
2190-1, 2200-2, 2208-10                Resistance



S&P Futures: (2-3 Days)  Bullish-  Despite the late day pullback, S&P still managed to close at the highest levels since last Monday's 2190 in Cash index, with 2186 being important in the September Futures contract.  Movement up to challenge 2200 look likely ahead of this week's Jackson Hole conference, and for now, it remains premature to have any kind of bearish stance.  2172 can be used as a new stop for longs, with thoughts that 2200 is challenged in the days ahead.

SX5E-Bullish, with targets near 3100-3150 into late August-  Tuesday's positive close at the highest levels since last week suggest this minor pullback likely has run its course.  Rallies up to 3100 look likely.   Only bearish on move under 2890.

HSCEI- Bullish- Advance up to 10,000 looks likely in the days ahead.

Longs/Shorts for a 3-5 day period:

Technical Longs: LEN, PHM, PX, EA, FLR, PCLN, YUM, FLT, PXD, TLT
Technical Shorts: EEM, UUP, TBT, RCL, TRIP, GOOGL, MO


S&P managed to give back just a fraction of early day gains, and by day's end, still managed to close up at the highest levels since last week.  Key developments focused on the breakout in Consumer Durables, led by Homebuilders following Tuesday's bullish New Home sales data, and Retail also outperformed given favorable movement in Best Buy, Office Depot, Signet Jewelers, Staples and others. 

Overall these bullish sub-sector moves helped Consumer Discretionary close at new multi-day highs, an important move given that this sector is the fourth largest within SPX at 12.29% weight.  Further relative strength looks likely in the days ahead which is important, and a likely positive force for stocks which should serve to keep prices afloat awhile longer, despite the increasingly choppy nature of this advance.

Tuesday also brought about a reversal in the early weakness in the Dollar, while WTI Crude also lifted from early lows and finished well up on the day.  This Dollar reversal led to a huge "outside" day in Emerging markets, which increasingly look to require some backing and filling after their run higher in July.  EEM has been lower five of the last six days, though still looks to have a bit of downside over the next couple days into Jackson Hole.  Given that the next large move in the Dollar still looks to be lower, one should consider covering any shorts in the days ahead, as a larger pullback in the Dollar could have bullish implications for Emerging markets.

Some charts and additional comments below


S&P's advance Tuesday was largely constructive, and despite a late-day pullback, prices never breached any areas of support that were important.  Movement back to new highs looks likely into Jackson Hold, with only a breach of 2172 postponing the rally.



Consumer Durables was one of the most important technical moves for Tuesday, as S&P 500 Consumer Durables index broke out to new all-time highs given the strength in both Homebuilders following Tuesday's bullish New Home Sales data along with Retailing.  This sector looks to continue higher, despite the near-term overbought conditions brought about by Tuesday's advance.  Long positions should be favored in Durables along with Consumer Discretionary in the short run, as both Retailing and Durables have helped this sector to show much better relative strength, despite the dismal Media and Autos serving as a minor drag.



As mentioned, Homebuilders served as one of Tuesday's best performing sub-groups with stocks like Lennar, Pulte Homes and Toll Brothers all returning more than 3% on the day. ITB, the ETF for Home Construction, bottomed right where it needed to above $28 and moved up sharply to new multi-day highs on Tuesday, something which has followed the breakout in Lumber above its multi-year downtrend which was first made back in May.  Additional outperformance looks likely.




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