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Crude Breakdown looks to extend, & could hurt Energy stocks near-term

January 10, 2017


2254-6, 2244-6, 2228-30                     Support
2269-70, 2277, 2286-8, 2295-2300     Resistance


S&P Futures: (2-3 Days)  Bullish- Insufficient evidence of any real weakness with prices having failed to breach last Friday's lows, while NDX still pushed higher to further its move to all-time high territory.  Movement up to near 2285 looks likely into 1/12 before any peak-  Under 2239 is a negative and leads to 2228 and lower to 2223.

SX5E- EuroSTOXX 50-  Bullish- While Italy showed more substantial weakness, that wasn't evident in SX5E, and prices should still push higher this week up to 3360.  Europe remains the weaker of the two vs US, so still right to underweight STOXX 50 vs US.  

HSCEI-  Bullish - Prices reached targets at 9624, but yet still no real evidence of exhaustion here, and it looks like another 2-3 days of gains should still occur based on lack of Demark sells/exhaustion.  Use minor weakness to buy and expect possible rallies to 9800-9900 max

Longs/Shorts for a 3-5 day period:

Technical Shorts:  SWN, RRC, COG, LB, FOSL, TSCO, GATX, KSS, SIG, M, DRI, XRT


Equities continue to churn near recent highs with NDX managing to show far better outperformance than SPX and DJIA.   Breadth continues to be milder on declines than on winning days as both 1/3 and 1/4 advances showed A/D with roughly 3/1 or greater breadth, while on mild down days we've seen 3/2 negative at best.  This is a somewhat convincing sign that we should still have a bit more upside.   Equities have shown just one day thus far closing beneath the 20-day moving average since the Election and SPX lies within 2 points of levels hit back on 12/13 which was largely when the rally began to show evidence of divergence.   Small-caps and Transports both peaked during that time, while NDX continued higher and DJIA moved up to within striking distance of 20k.  For now, until there is at least minor evidence of broader indices falling back down under at least a 5-day ma or moving to new multi-day lows, it pays to still favor a move back to new highs in the next few days for SPX.

Sector-wise, Healthcare and Technology remain in good shape, and have largely provided a tailwind for stocks in the last couple weeks, as these sectors together account for roughly 1/3 of the SPX market cap.  Healthcare is a sector which has been mentioned quite a bit lately as a mean reversion candidate, and the action in Biotech and Pharma lately in seeing their ETFs break out above declining trendlines has served to help these sub-sectors accelerate higher at a time when financials and industrials seem to be stalling out.   For now, the pullback in Treasury yields doesn't seem complete, so Financials might still come under some pressure in the days ahead, while the move higher in Healthcare and large cap tech could continue to offer a tailwind to stocks.

Energy on the other hand, has taken a turn for the worse with WTI and Brent Crude along with Heating Oil all selling off to violate last week's lows.  This looks to be an important and negative development for the Energy complex, which has already experienced five straight down January's, with Crude declining on average about 2.8%.    While Crude has already experienced two minor pullbacks since early December, Monday's decline looks to have a greater than average chance of extending given bullish sentiment as seen by high reading in CFTC Spec longs.  

Charts and analysis below.


S&P hourly chart still shows the ongoing consolidation in S&P which has failed to keep pace thus far with NDX in holding last week's gains back to new highs.  The trend remains supportive of buying dips unless 2254 is taken out on the downside, which has relevance based on both last Thursday's lows, along with Tuesday's high close on hourly charts.   Until/unless 2254 is taken out, its proper to expect movement back up to test 2285 up to 2300 before any peak.



This Crude breakdown Monday looks serious given the prior occasions which held, and now prices are down under last week's lows from 1/3/17 under $52.11.  This should result in additional weakness at a seasonally weak time for Crude, and is the first real evidence we've seen of a breakdown in the last month after breakout attempts failed to bring any more than consolidation at the highs.   Given that we're rapidly approaching a very important one-year anniversary of Crude's major low, it wouldn't be surprising to see a selloff which bottomed into this time, and this would turn out to be a tradable buying opportunity.  For now, Monday's close was bearish, and additional pullbacks look likely for WTI and Brent Crude, along with Heating Oil.

Biotech strength on the other hand, (XBI) has been a source of strength in the last couple days, as the Healthcare breakout extended from just Pharmaceutical stocks to now include Biotech.  While this group has gotten extended off this rise, it should still manage to carry higher to test and exceed the former highs from this past Fall.  Longs are recommended, looking to buy any dips that arise in the days ahead.  Two key stocks, Celgene (CELG) and Vertex Pharma (VRTX) were both featured in the Weekly Technical Perspective as of Monday 1/9/17.



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