August 2, 2016
S&P SEPT FUTURES (SPm6)
2150-3, 2139-41, 2130-2 Support
2172-4, 2182-4 Resistance
S&P Futures: (2-3 Days) Bullish- The movement in S&P Mid-caps to new high territory along with Bloomberg World index along with sectors like Technology and Healthcare steers the near-term opinion towards a bullish stance for the next few days. While the S&P extraordinarily range-bound, it looks likely that at least some attempt at pushing up to test 2180-5 could happen before any downturn occurs. Stops are placed at 2152 for Futures, and 2159 for SPX cash.
Longs/Shorts for a 3-5 day period:
Technical Longs: BIG, HD, PFE, ILMN, LKQ, OLED
Technical Shorts: PANW, SPB, FIVE, DVN, MUR, DO
Overall, still a very choppy, mixed market, but some underlying important moves worth discussing, as the market continues to offer some interesting rotational sector plays, despite not seeing much of this play out within the broader index volatility with a lengthy period of consolidation that's rivaled most of what stocks have shown in the last 20 years in terms of no net change. When eyeing the net volatility as expressed as an annual percentage, the last five days have produced an annualized range of 0.87% the lowest since 2005 and 5th lowest of all time according to Pension Partners. While movement like this ordinarily precedes a pickup in volatility in the Fall, it appears like a definite period for the record books during this lazy Summer period of consolidation.
A few sectors are worth highlighting:
Healthcare seems to be on the move again, which began back in March, but has shown some particularly sharp acceleration higher just in the last 45 days. Last week's breakout in XBI to multi-month highs was followed by IBB which on Monday advanced to the highest level since January. Stocks like ILMN, BIIB, PFE, CELG, REGN, AMGN, ALXN all have shown some real signs of acceleration of late, and relatively speaking, XLV has advanced to the highest levels since late January. Remember that Healthcare was the worst performing sector in the 1st quarter of the major 10 and now has rebounded sharply enough to lead all but Technology over the last 1 and 3 month periods. This sector continues to look like a better technical risk/reward than sectors like Consumer Discretionary, or the laggards like Financials and Energy. One specific point to note from a sub-sector basis: Healthcare Equipment and Services has underperformed Pharma and biotech in the last month, but still appears quite bullish on a two-year basis, given the uptrend from 2014. So the Equipment stocks and HMO's look like a better relative sector to own technically given this recent underperformance within an ongoing uptrend.
Energy still hasn't shown sufficient signs of bottoming in the short run. but looks to be getting close, after a horrendous last 30-day period of -5.69% in the rolling 30-day period ending 8/1/16 vs +3.23% for SPX. Energy actually underperforms the next worst sector by over 400 bps during this last 30-days, which is Telecomm. For now, Crude continues its slide, having finished Monday back under $40, or more than a 20% decline from June peaks. This kind of number certainly doesn't go unnoticed by the Media, who jump at the occasion to label something a "Bear market". Yet, Crude had formerly been up north of 60% off its lows, so giving up 20% of this prior rise certainly shouldn't justify this kind of label. For now, both XLE and OIH still look to have a bit more weakness in the days ahead, and the High Yield ETF should be watched carefully for signs of turning down more sharply (which at present, has been remarkably benign, in terms of actual net loss)
Looking overseas, Equity indices of Italy and Spain led the underperformance Monday as some of the Banks failed to satisfy investors with the stringency of the Stress Test results, and European Banks index was notably weak after a sharp rally throughout July. Both SX7P, the European Banks index, along with JNK, the High Yield ETF, are two areas to watch carefully in the days and weeks ahead, which could give some clue about possible deterioration that would affect the broader indices.
Some charts and additional comments below
NASDAQ Composite now looks to be within 0.50% of all-time high territory, with Monday's close within 50 points of last July's highs of 5132. Demark counter-trend indicators look to be two days away from registering exhaustion signals in the form of TD Sequential and TD Combo 13 Sells in unison, which likely means we could see a stalling out in the days ahead. For now, given the other indices like NDX having already pushed through to new highs along with MID, we'll have to let the market prove itself in terms of stalling, vs taking profits prematurely.
XBI, the S&P Biotech ETF, followed through on last week's breakout of the five-month channel, while NASDAQ Biotech IBB also followed suit as well, finishing at the highest levels since late January. The outsized moves in some of the well known names such as BIIB, ALXN, CELG, REGN, ILMN, AMGN, after lengthy periods of underperformance, looks interesting. This sector overall looks like an attractive risk/reward for longs after a lengthy one-year period of consolidation following the runup into last July.
European Banks index looks to be showing increasing signs of stalling out in the last couple weeks after the initial rally up off the lows. The SX7P got right to 130 before showing evidence of hitting resistance right near former lows from early April along with mid-June lows. Its subsequent rolling over in the last couple days is suggestive of a pullback to retest in the weeks ahead, which would occur on Treasuries rallying back, or in the case of SX7P, Bund and/or Gilt Yields. For now, European banks remain an area that is broken technically where initial bounces should be used to sell into.
Barclays High Yield bond ETF-JNK is something that looks to have stalled at the first meaningful area of resistance since this peaked last June- the area up at $36 is important for prices, given the ongoing downtrend from those former highs. The rally has just stalled out in the last week and now moved to new multi-week lows. A break of this uptrend would portend further weakness in High Yield which has been quite resilient given the move lower in WTI Crude in recent weeks. For now, the rally from Jan/Feb remains intact while the decline from last Summer also has not yet been violated, but price remains at a key area.
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