December 22, 2016
S&P MARCH FUTURES (SPh7)
2253-4, 2242-3, 2232-4, 2222-3 Support
2271-2, 2279, 2286-8 Resistance
S&P Futures: (2-3 Days) Bullish- Pullbacks have reached lows of hourly symmetrical triangle support. Movement up above 2264 should help S&P push higher to test 2279 and above. On the downside, 2242 is support, and under would bring about a 2-3 day pullback.
SX5E- EuroSTOXX 50- Bullish- Movement up to test late December 2015 highs near 3316 look likely into year-end. Until/unless 3209 is breached, it looks likely that prices can still move higher and test this important peak from nearly exactly one year ago.
HSCEI- Neutral- Good to have stabilized a bit in the last day, but more is needed to have proof of a real low. For now, still no real evidence yet of an immediate bounce.
Longs/Shorts for a 3-5 day period:
Technical Longs: BOIL, KRE, TBT, QQQ, OIH, NVDA, AKAM, NTAP, CTXS, ADI
Technical Shorts: TDC, GPN, WYNN, AET, HUM, XRX, CRM, YHOO, AWI, DDD, FOSL
Equities have begun to take on a bigger sideways pattern in the last few days as part of this uptrend from November, along with similar price action in both the US Dollar index and US Treasury yields. All three moved up in unison from June lows in the summer, consolidated before making sharp advances in early November up until early December. This recent 5-day grinding action doesn't necessarily imply "TOPS" for each of these, but it will be important to watch how they each move as they've had a history this year of moving in tandem. For now, any near-term selloff in the next 1-2 days should be a buying opportunity for US equities and the US Dollar, while a chance to sell Treasuries for a move up to 2.70-5%.
One interesting point regarding the bond market of late is how persistently weak the US Market has been relative to the rest of the world. US Treasury yields have barely experienced any of the recent pullback seen in German Bund yields. While this ratio looks to be getting stretched per Demark indicators in a way that could lead to some mean reversion early next year, for now, its proper to still own German Bunds while selling Treasuries.
Demark wise, there have been a plethora of signals that have arrived in recent days on daily charts of most of the US Benchmark indices, along with the US Dollar index and even ones for TNX itself amidst US Fixed income. For now, it remains difficult to put lots of trust into daily exhaustion signals, when the weekly charts for most of these instruments still suggest that additional upside is needed to complete larger weekly 9-13-9 patterns, and/or some have TD COMBO signals that remain just 1-2 weeks away. Often when daily signals are present, but yet weekly remain close but not triggered, it remains right to hold off on getting too aggressive in trying to fade the daily exhaustion, and much more precise to hold off until daily and weekly are in alignment. Such a setup would occur on further strength into end of year. This reason alone makes it likely that any holiday selloff attempt proves short-lived, allowing for rallies back to new highs into end of year.
One sector which is certainly not immune to any selling is Healthcare, which just moved back to new multi-day lows on daily charts (XLV) as Biotech continues to struggle in bottoming out. For now, the drawdown in this group should prove short-lived, but yet could still continue another 2-3 days. Therefore its prudent to await signs of XBI strengthening before getting too aggressive in buying dips. Both Pharmaceutical stocks and Medical Devices had made more recent progress in breaking back above one-month downtrends than Biotech, which remains stalled out.
S&P futures hourly charts failed to follow through Wednesday, but the extent of the pullback failed to do much technical damage. As the chart shows above, prices now lie near the lows of this symmetrical triangle pattern and should muster a bounce in the days ahead to breakout above 2272. Only in the event that 2242 is breached would this be in jeopardy. For now, ahead of the holidays, pullbacks like Wednesday's should turn out to be excellent buying opportunities.
With the start of Winter for the Northern Hemisphere brought about decent price improvement for Natural Gas on Wednesday, as prices managed to close above key downtrend line resistance ahead of Thursday's EIA numbers, which reflect a Survey guess of -204.13 bcfDrawdowns. This move looks to extend up to test and take out prior highs near 3.77 from early December with initial targets up near 4.25. Stocks like SWN which are heavily tied to Natural gas could benefit from such a move, and should be favored near-term for outperformance.
Healthcare as a group remains vulnerable when seeing prices move back to new multi-day lows and additional weakness seems likely to near 67.50-68 before any legitimate bottom is in place. For now, Biotech has struggled to keep pace with the Pharma and Medical Devices move, and XBI will need to stabilize and turn back higher in a way that allows this group to breakout above its existing downtrend before thinking this sub-group can outperform. For the near-term, additional weakness looks likely into year-end.
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