February 24, 2017
S&P MARCH FUTURES (SPh7)
2349-53, 2336-7, 2316-8, 2290-2 Support
2367-9, 2375-6*, 2390 Resistance
S&P Futures: (2-3 Days)- Same as yesterday. Neutral until 2346 breached, which turns to Bearish Thursday's pullback rallied back by the close, and while there are a number of bearish factors concerning a dropoff in breadth, one can't short the index itself until yesterday's lows are breached on a close. Upside looks limited.
SX5E- EuroSTOXX 50- Bearish - Closes Friday under 3312, or under 3339 by Monday's close would confirm Sell signals for SX5E, and should result in a move back down to near 3200.
HSCEI- Bullish- Structure still positive and minimal technical pullback last week has resulted in this challenging highs which could show some near-term upside follow-through. US Dollar pullback in the short run should be bullish for Emerging markets for a bit longer- 2-3 weeks, and during that time, HSCEI likely outperforms and can move higher.
Longs/Shorts for a 3-5 day period:
Technical Longs: BDX, YHOO, WM, INTU, LRCX, PM, VXX, GDX, GLD, SRE, MAR
Technical Shorts: TRIP, SIG, SPLS, FOSL, AN, TSCO, CSCO, ORCL, BBBY, KSS, KORS
Increasing signs of a near-term top in place, which are evident by former leading sectors like XLI and XLY dropping to new multi-day lows. While Technology and Financials managed to scramble back to near positive territory as of yesterday's close, volume was more heavily weighted in DOWN vs UP stocks, and the VIX recorded its third straight day of gains. However, the resilience of indices snapping back again doesn't give as much confidence to suggest Friday should be a big "down" day, and we'll need to see at least SOME evidence of prices pulling back to breach Thursday's lows on a close. Until then, indices very well could attempt to press higher Friday, but would be led by fewer and fewer stocks, and for those that study internals, we're starting to see signs of breadth gradually waning while more stocks are hitting new 52-week lows now than two weeks ago, despite these new "RECORDS" for the indices being set every day. Once we have price confirm this gradual sector deterioration, it will be right to expect a pullback, which very well could begin next week.
Looking at yesterday's trading, Thursday marked the first day in February where prices had pulled back under the prior day's lows, something which on a close would have given more confidence that a pullback could unfold. Importantly, counter-trend sell signals have now been registered using Demark indicators but not confirmed in four sectors of significance to this rally: Financials, Technology, Industrials, and Consumer Discretionary. Of those four, only industrials confirmed a daily sell signal on Thursday's close. However, for those studying Demark, his indicators had shown evidence last week of sells across the board for many indices, yet were conspicuously absent for most sectors. Hence, there was good reason perhaps, why these sells DIDN"T work out last week. However, at present, this seems to be an important piece of the puzzle which could lead to the actual drawdown, as these four sectors comprise around 60% of the SPX. If Financials finally start to pay attention to what yields have been doing in the last few days, a pullback in this sector, along with Technology would have far more weight.
For now, we're seeing the Dollar index show signs of stalling on its advance, with USDJPY beginning to pullback in earnest again, while Treasury yields continue their near-term weakness. Emerging markets and gold have flourished in this environment, yet both are getting close to areas to sell as we approach the month of March. If the US Dollar index turns back higher as suspected next month, this would create a huge exodus out of commodities most likely, outside of Crude oil, which seems to operate on its own "animal spirits" these days.
For now, as has been the case over the last week, one should exercise extreme selectivity when holding long positions in the near-term, as the market is beginning to look vulnerable, and would take only one hard and fast reversal day to suggest that a selloff is upon us. Stops should be kept tight on longs, and avoid getting complacent in thinking this resilient market is averse to any sort of drawdown. As the sectors and internals are starting to suggest, all these consecutive "GREEN" closes could be a bit of a mirage.
Additional thoughts and charts found below
Industrials showed their first real signs of weakness all month with Thursday's decline to multi-day lows, which confirmed TD Combo 13 Sells in the process yesterday. Transportation was down nearly 1.2% and stocks like URI, FLS, GWW, CAT, TXT, R, FLR, FAST, CMI were all down more than 2% in trading. This suggests that this sector has begun a topping process, and that one might consider hedging and/or adopting shorts, as further declines should lie ahead. Gains back to the highs would serve only to trigger 9-13-9 patterns on weekly charts and wouldn't signify any larger breakout, but serve as a chance to sell into gains. For now, this is the first real signal we've seen from a leading index (#3 out of 11 over the last six months, with gains of 10.24%, vs SPX gains of 8.09% through 2/23/17) However, this strength has been hard to come by of late, and we've seen gradual signs of weakening in the last couple months that bears watching carefully. Yesterday's decline though, seems like a warning signal which could eventually lead to similar weakness in Technology, Financials and Discretionary (Retail related)
XRT's downturn Thursday was sufficient to undercut the prior week's lows, making a test of recent monthly lows likely in the weeks ahead. Retailing has faced relentless pressure since mid-December, and the intermediate-term pattern from last Spring doesn't appear particularly constructive from a technical perspective. One should consider recent stocks listed as Technical shorts as ones to avoid and/or short technically, as this breakdown looks to extend, and many such as FOSL, BBBY, SPLS, TRIP, KORS, along with the others listed, remain above-average candidates for near-term technical shorts. If and when the mild uptrend on XRT is violated, this would provide even greater signs of weakness, which for now, is premature.
Gold has neared its upside target after surging higher on the combination of lower yields and US Dollar Thursday, and prices now have retraced 50% of the entire decline from last July. Counter-trend signs of exhaustion are close to forming on Spot Gold, while Gold is nearing the downtrend that extends from those prior highs. One should consider using this recent thrust to lighten up on longs in the metal, as the US Dollar index's gains on an intermediate-term basis remain very much intact, and any signs of yields turning back higher would erase these recent gains quickly. For now, we've recommended being long GDX and GLD in the last few "Daily Technical Comments" but would push to use movement higher into early next week to sell.
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