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China breaking out while the Defensives also showing good strength

February 9, 2017


2284-6, 2273-5, 2260-2          Support
2294-5, 2298-2300, 2310-2    Resistance


S&P Futures: (2-3 Days)   Bullish-  S&P's undercutting of prior two days lows followed by a close up well into the prior days' range is a positive and should drive prices higher to 2298-2300 area.  Buy dips at 2282-4.

SX5E- EuroSTOXX 50- Mildly Bullish-  A mild bounce looks possible for Thursday/Friday but would need to get over 3282 to expect a larger move to test and exceed highs.  For now, the trend remains down, but rallies can happen solely based on Wednesday's rally back to the unchanged level from earlier lows.

HSCEI- Bullish- Movement back over 9910 helped create a breakout for HSCEI which should allow for higher prices in the days/weeks to come.  Rallies up to test last September's highs look likely at 10209, while movement over that level would be quite positive for the intermediate-term, leading prices up to near 10750-850.

Longs/Shorts for a 3-5 day period:

Technical Shorts:  DV, BBBY, FOSL, CROX, KR, VZ, SPLS, WMT, TAP, XRT, KSS


Wednesday's drop to multi-day lows early on (which then led back to regain losses and close up moderately positive) reinforces the near-term bullish view that a rally back to new highs should happen first, preceding any type of correction.  While the Bears correctly point out that a low VIX is a potential concern and/or Investment Intelligence stats have widened out to dramatic levels between Bulls and Bears, (Investors Intelligence Bulls show highest readings since 2005, +62.7% Bulls,  while the Bears are the lowest since 2014) others like the AAII poll, still show more Bears than Bulls, not a resounding statement of Optimism.  This pessimism can be seen not only through Market polling, but when witnessing the anger and uncertainly felt by many are who are participating in Rallies and marches by the Thousands.   This kind of events look to rarely happen in markets where sentiment gauges are "off the charts" high and optimistic, like the Investors Intelligence survey showed.   For now, this resilience in snapping back price-wise bodes well for near-term strength, so we'll keep the bullish stance a bit longer.

The Following Key Developments look important to discuss: 
1) China's Hang Seng China Enterprises index broke out to the highest level since last September, exceeding a five-month downtrend
2) Gold rallied to within Striking distance of its 50% retracement since last July's highs while registering signs of exhaustion
3) Treasury yields both in US and in Europe fell to near key support, while also registering downside evidence of price exhaustion
4) Financials have sold off hard for the last two days, but remain range-bound since December, and now very close to support to buy at a time when yields could stabilize
5) Utilities have broken out on a daily close to the highest levels since last October, while REITS have also broken minor downtrends
6) WTI Crude oil continues to hang steady near the last four week's lows, despite very high inventory numbers per API
7) Small caps have underperformed, yet IWM, RTY have not broken down under support and also remain range-bound on absolute basis.

Additional thoughts and charts found below

A mild positive on Wednesday as S&P undercut the last two days lows while rallying back over the prior close from the last two days, roughly equaling the closing price from Monday.   This is seen as constructive, and certainly paints a much different picture than what was seen early Thursday morning when 2284 was initially broken.  Overall, this range remains very much intact, with 2283 on the downside and 2295 on the upside, but the resilience of late "should" lead prices turning back higher.  For the days ahead, getting above 2295 would be meaningful, leading to a test and breakout above 2300.

HSCEI, the liquid tradable index of China, broke out Wednesday above a meaningful trendline from last Fall which looks to have bullish implications for Chinese equities in the near future.  Targets lie initially up near 10209, but above, could experience a meaningful rally higher given the structural improvement while helping prices reach the highest levels since late 2015.  For now, this move is bullish enough to recommend buying/owning the FXI for further gains, and looking to buy dips if given the chance. 


Utilities made a meaningful breakout move back up above a range that's held for the last few months which would seem to suggest this group can move higher in the short run.  While a bottoming out in yields and upturn would most certainly be negative for the group, for now, this group along with the S&P Real Estate index have both turned higher and broken minor trendlines, and suggests that at least a bit more outperformance can happen in the short-run.  XLU could reach $50, but as always, important to keep focused on Treasury yields and signs of bottoming as yield and Utilities likely both won't work together for too long.




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