January 27, 2017
S&P MARCH FUTURES (SPh7)
2280-2, 2271-2, 2262-3, 2250-1 Support
2298-2300, 2310-2 Resistance
S&P Futures: (2-3 Days) Bullish- Long bias continues, and despite stallout, insufficient grounds to expect a larger correction just yet. Counter-trend sells remain about 3-5 days away, so still right to stay the course, looking to buy dips, for now. 2300 was important level for S&P futures, but expect prices can push higher to near 2315-20. Buy pullbacks at 2280.
SX5E- EuroSTOXX 50- Bullish- Tough to make anything of Thursday's minor consolidation and higher prices are likely up to 3360.
HSCEI- Stallout possible now that prices have broken out of minor range but up into area of trendline resistance from last September highs. OVER 9994 would make for a very constructive near-term projection. For now, prices are up to near resistance and tough to see much more near-term strength as US Dollar starts to turn back higher.
Longs/Shorts for a 3-5 day period:
Technical Longs: DXJ, BAC, BCS, ENDP, ABT, TECK, IYT, KMT, FDX, URI, MTB, UPS, TBT
Technical Shorts: MNST, STZ, HRL, TAP, XRT, PRGO, KSS, BBBY, WMT
Still no reason to expect we've reached any sort of serious peak that would lead to meaningful drawdown. Yesterday's touch of 2300 proved important, but the stallout didn't really produce much in the way of selling. Counter-trend sells remain 3-5 days away, not only in SPX, but NDX, INDU, TRAN, XLK, XLF, and these have traditionally been important in coinciding with peaks in price. Given lack of any real price damage in the sectors, it still looks likely technically that indices push up into early February before peaking.
Financials look to be a key piece of the puzzle that are starting to turn higher at a time when yields have begun to spike higher across the globe. The last few days have seen KRE breakout to new highs while XLF has lifted up to touch the highs from early December. A definite sign of near-term strength, this group alone is important to monitor along with Tech and industrials outside of just looking at overbought conditions along when expecting a peak.
Key developments on Thursday focused on action not only just in Financials but also in the Dollar index and what appears to be Healthcare getting close to support. With regards to the Dollar, there were some meaningful signs of the US Dollar index trying to bottom out and move higher We saw USDJPY successfully turn back higher technically by exceeding downtrends from early January. Meanwhile, both EURUSD and GBPUSD both signaled TD Sell setups and the Euro fell to new multi-day lows vs the Dollar. Technically, this should begin the process of a steep slide down to Parity vs US Dollar in the weeks/months ahead, as the Dollar rallies back up towards 110 (DXY)
Additionally, Healthcare looks to be close to bottoming again technically after its initial rise in early January was consolidated over the last couple weeks. Charts of the XLV vs SPX in relative terms have signaled signs of near-term exhaustion while many of the hardest hit stocks in the last few months appear to be stabilizing, such as ENDP, MNK, while others like BMY have fallen to long-term trendline support from 2008 lows while hitting a 61.8% absolute retracement of its all-time highs. While the near-term momentum and trend looks quite ugly in this, there look to be a few reasons to take a stab on an intermediate-term basis.
Charts and analysis below.
S&P acceleration hit a wall near 2300, but yet pullbacks should prove minimal given the lack of daily counter-trend sells present, and near-term support lies near 2280-4, with a max drawdown taking prices to 2273-5 before prices push up to 2315. Given that this sideways consolidation was in place from early December, a bit more strength is likely that takes S&P back over 2300 into early February. However, a lack of participation from groups like Tech, Industrials, and/or Small caps would be notable and something to watch for that could help create a near-term peak within 1-2 weeks.
Healthcare's recent turmoil looks unlikely to extend much longer, with DRG, BTK near good support while ratios of XLV to SPX have now reached prior lows from early December. TD Buy Setups are in place which should allow for at least some kind of counter-trend bounce to unfold. Stocks like ENDP, BMY, DEPO all look to be nearing support and/or stabilizing in a fashion that could give way to rallies in the near future. If S&P is nearing any kind of near-term peak, this might also give support to groups like Healthcare which perform notoriously well and outperform during market pullbacks.
Asia looks to have shown more signs of positive follow-through on Thursday with both China and Japan having pushed up to multi-day highs in a manner that could lead to further follow-through. Japan in particular looks ripe for additional strength which should test and exceed recent highs based on the ongoing bullish structure. Its correction from December took on a corrective ABC type pattern that should lead back to new monthly highs. the USDJPY has begun to turn back higher, and strength looks likely back to 20980, which would be the first meaningful area of upside resistance. Given the Yen depreciation, vehicles like DXJ which hedge currency exposure might be considered.
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