February 22, 2017
S&P MARCH FUTURES (SPh7)
2348-50, 2336-7, 2316-8, 2290-2 Support
2363-6, 2375 Resistance
S&P Futures: (2-3 Days)- Tough being short here until 2349 breached. Upside limited- Shorts stopped over 2356- For now, no reason to consider that much has changed despite Friday/Tuesday's failure at turning back lower. A Hit and Run approach is likely with no conviction in the indices to continue the trend much longer without at least a minor peak.
SX5E- EuroSTOXX 50- Neutral- Gains should hold near prior highs at 3330, though no real evidence is present to suggest buying SX5E. Over 3330 should allow for a brief move to 3365-75
HSCEI- Stallout and downturn expected sometime this week. 9-13-9 pattern is present via Demark indicators and pullbacks look likely in the days ahead from an extended state. A minor correction down to 10250 appears likely, but the breakout move overall is viewed as bullish, so one should look to buy into any weakness into early March, with key areas at 10250 and then 10090-10100.
Longs/Shorts for a 3-5 day period:
Technical Longs: VXX, DXJ, XBI, GDX, GLD, SRE, XLF, MAR, YHOO,AMZN
Technical Shorts: TRIP, FOSL,SIG, BBBY, KSS, KORS
Well, taking a bearish stance and trying to fight the trend regardless of the growing number of technical concerns proved to be premature. While factors such as rampant overbought conditions, evidence of negative momentum divergence on multiple time frames, counter-trend signs of exhaustion per Demark indicators, excessive Stock market optimism, and bearish seasonality all came together to suggest we should be close to stalling out and beginning at least a minor pullback, price trends failed to confirm any of these factors. As we know, price ITSELF is the most important indicator , and should be given far more weight than anything to do with breadth or momentum, sentiment or seasonality. If price doesn't turn down to change the technical trend, than the trend remains bullish. Certainly not a great risk/reward, but for the near-term, trends remain resilient.
As of yesterday's close, prices had moved higher during the day in such a fashion to "stop out" shorts by moving back above 2356 and then above 2360. While this doesn't suggest equities have a lot more upside, it does make watching this trend for evidence of real reversals increasingly important. Given the degree of overbought conditions at present, when the actual pullback gets underway, it likely should prove abrupt and swift. For now, we'll need to see evidence of moving down under 2349 at a minimum at this point to think the bearish view is back on the front burner, and really a move down under 2336 would be much more convincing. For now, trying to "Hit singles" and not getting caught up on trying to sell the exact highs without confirmation makes more sense at this juncture, given that last week's failed attempt.
Heading into the last three trading days of this shortened week, overbought conditions are still an issue, and momentum is waning, as RSI is not as high as it was last week, despite price being higher. Though still quite lofty (Current 14=period RSI on daily charts is now higher than what was registered post Election along with post Jan/Feb 2016 surge off the lows which drove breadth indicators to record highs) Defensive sectors gained the most ground during Tuesday's session, while the VIX remains higher than where it traded back in late January, despite a 5% surge in Equites higher from those lows. Demark signals proved to be potentially the biggest disappointment this time around, despite the overwhelming number of various completed Setups and Countdowns present on different timeframes which were all lining up to suggest a trend reversal was near. This can still happen of course, but Tuesday's advance makes it necessary to have things line up again En-masse, and many look to be embarking on new uptrends on daily charts, while the weekly charts also require more work (i.e. Upside) Monthly and quarterly signals are present in some indices, but as we've learned, without confirmation, most of these signals many time can prove "hit-or-Miss" . Violations of uptrends, on the other hand, tend to be far more reliable, and can confirm what many of these warnings are suggesting. For now, unless an immediate reversal of trend occurs over the next couple days, the trend very well might push higher into early to mid-March
Additional thoughts and charts found below
S&P's push higher Tuesday was a bit surprising technically speaking, given the start of the prior stalling out post run-up which coincided with some of the highest RSI readings in years along with a completed TD Sell setup per Demark while momentum failed to reach levels of the prior week. The one constant to lean on concerns the action in Financials, which has shown some good outperformance lately and remains premature in its counter-trend counts than the indices which largely have all lined up. Given the lack of confluence in sectors this time around, this is another reason which largely serves to explain why reversals of trend weren't imminent. For the final three days of the week, prices look very difficult to chase, and while 2375 is a possibility, the upside from here should prove limited. Movement back under 2349 will be necessary at a minimum and then under 2336. For now, being very selectively long within Financials and various parts of Healthcare remains prudent, while not looking to reach for the Benchmark indices.
One positive technical development concerned the move in WTI Crude Tuesday, which moved to multi-day highs and at one point in yesterdays session, had risen to the highest levels since early January. This went in direct opposition to what the inventory numbers might have suggested, while the OPEC compliance with the output cuts might have not been factored into prices to the extent they have occurred of late, which is certainly a bullish development in the short run. Seasonality should also start to favor WTI moving higher in Q2, so the combination of these with price successfully breaking out above the one-month trend bodes well for gains in the weeks/months ahead before any larger inventory led decline. Overall, Tuesday's move seemed telling as compared to most of the price action seen in the last few months and is thought to lead Crude higher.
Crude, in its relationship to Gold, broke out of its own two-month downtrend on Tuesday, suggesting that Crude should be favored over Gold in the weeks ahead. This relationship had been trending lower since December given the US Dollar's attempted decline. However the stabilization attempt in the Dollar in turning back higher vs Euro, Yen and Sterling could have a bigger detrimental effect going forward on commodities. For now, the metals seem to be backing off a bit given the Dollar's turn back higher, and if rates begin to break back out to the upside (TNX back over 2.53%) this would occur at an accelerating pace. However, unless Crude's decline is immediately given back on Wednesday-Friday, this move above this two month trendline suggest that WTI should perform much better than Gold in the weeks ahead.
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