February 23, 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)- Neutral until 2346 breached, which turns to Bearish- Still a very difficult spot for S&P, as upside looks limited, but yet still very little to go on when deciding to short the market, as price trends remain resilient. For now, extreme selectivity needed with any move back under 2346 being negative and confirmation under 2336. Above 2365 would allow for 7-10 points of upside to 2375.
SX5E- EuroSTOXX 50- Bearish - Gains up to near 3360 now look to be 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- Bullish- Dollar starting to weaken a bit has caused a bit in many Emerging mkt indices, and HSCEI looks to be ignoring the Demark sells, similar to most of the world- Movement higher up to near 10700 looks likely in the short run- A change of thinking short-term given the resilience of late
Longs/Shorts for a 3-5 day period:
Technical Longs: YHOO, WM, DD, PM, VXX, DXJ, GDX, GLD, SRE, MAR
Technical Shorts: TRIP, TSCO, FOSL, CSCO, ORCL, SIG, BBBY, KSS, KORS
Not much change in US indices, and we've seen some minor catchup in Europe, as indices such as SX5E have pressed up higher to challenge last December highs (SXXP much higher) while the Dollar stalls out a bit and Treasury yields firm ahead of yesterday's FOMC minutes. Overall, not much came of all this anticipation, and by end of day, the Percentage % chance for a March hike had lessened to 34% from earlier 38%. As stated previously, given that equity weakness is overdue, any correction likely serves to further dampen hopes of a rate hike in March, and if a rising equity market , improving economic data, and hawkish Fed rhetoric can't do the trick to prepare markets anymore than a 1 in 3 chance, than it very well might not happen.
At any rate, the technical picture remains largely unchanged, and factors such as overbought conditions, waning momentum, a resilient VIX, Counter-trend signs of exhaustion (Demark) and bullish sentiment, coupled with lackluster seasonal trends this time of year all seem to suggest that a pullback should be imminent. However, sectors like Financials are continuing to press higher, despite some weakness in yields of late, and while seemingly close to areas of key resistance, will need to turn down to garner some conviction in the "market selloff" camp that this can in fact happen in the days ahead. For now, Industrials, Financials, Tech, Discretionary have all gotten stretched and seem vulnerable, along with Healthcare, the latter which has outperformed all other sectors outside of Technology on a YTD basis, but seems to be nearing key upside resistance as per XLV (See chart, commentary below)
For now, despite the counter-trend sells in US indices and now Europe, we'll need to see evidence of US sectors registering these same signals and reacting, in the form of turning down to multi-day lows before paying much attention. Defensive sectors continued to gain ground Wednesday, while the VIX has risen the last 2 out of 3 days, despite the indices resilience. Overall, it pays to not get too complacent at this juncture, as when stocks start lower, as inevitably will be the case at some point, it will likely prove fast and furious. For now, using Monday/Tuesday's lows of 2336/2346 as an area of importance, one can either use this area to cut long exposure, and/or short here with stops at 2365. The thinking at this point remains unchanged.
Additional thoughts and charts found below
Healthcare's rally is getting close to exhaustion, with the XLV unlikely to exceed $75 after this big runup from late January, so the risk/reward for absolute longs is growing worse. Biotech could have shown the first signs of this exhaustion with Wednesday's pullback to new multi-day lows, which violated a one-month uptrend. For now though, this pullback looks premature, despite the trend break. Counter-trend sells remain early to form, and momentum remains in very good shape. Heading into Thursday/Friday of this week, any weakness down to $66-$67.50 should be used to buy for a challenge of former highs near $69.85, which likely does not hold and gives way to a bit more strength into the Spring. The intermediate-term upside target for XBI technically lies near Nov 2015 highs at $73.80. Near-term, this minor setback shouldn't prove too damaging for the subsector, and XLV still looks to also have a bit more to go on the upside.
Energy's pullback looks to be close to hitting support which should allow for stabilization and a lift out of this group after a very dismal January/February for Energy. Crude oil has held up quite well in the last few months, trading largely range-bound and showing some evidence of a minor breakout on Tuesday. In relative terms, the OIH/SPX chart looks to be within 3-4 days of support, which translates into a likely buying opportunity for the group into early next week. While Equities overall are due to see weakness, Energy looks to be a group to potentially favor from a counter-trend perspective, given that it's lagged all other 10 sectors on a YTD basis. While still early for Thursday, heading into next week some opportunities will arise on the long side, technically speaking.
China's year-long breakout of its consolidation pattern went through just minor consolidation before rising again to challenge highs, and technically looks to be showing increasing signs of strength which could carry HSCEI up to near 10700 in the short run. Pullbacks lasted all of just one day for HSCEI, followed by multiple days of consolidation until Wednesday's rally to the highest closing level since late 2015. For now, it's tough to make much of HSCEI topping given the Demark signals failure at producing anything more than just a minor consolidation to this advance. Longs are favored for the weeks ahead for the Hang Seng China Enterprises Index.
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