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XBI, OIH strength worth paying attention to

February 28, 2017


2349-53, 2336-7, 2316-8, 2290-2      Support
2367-9, 2375-6*, 2390                       Resistance

S&P Futures: (2-3 Days)- Upside limited to 2375- S&P's move back to new intraday and closing highs could allow for brief upside into 2375 into early March, but would be hesitant to think much more upside is possible. It's tough taking a real bullish stance here as upside could prove brief, but would look to sell into gains at 2374-6 and then use movement under 2349 as a signal that a pullback is underway.

SX5E- EuroSTOXX 50- Bearish - The near-term remains negative despite Monday's minor blip higher.  Prices would need to get back over 3374 to turn the trend back to positive.  For now, TD sells were confirmed and should result in a move back down to near 3200. 

HSCEI- Bearish- The snapback rally into late last week proved to be a false move and now Monday's pullback to multi-day lows confirms the original counter-trend sells which were in place back on 2/16.   Near-term weakness down to 10100, or 10000 looks possible before a stabilization and bounce.

Longs/Shorts for a 3-5 day period:



The stallout over the last five trading days failed to lead to any real downside.  Both pullback attempts on Thursday and Friday of last week proved short-lived and then snapped back to close nearly unchanged, well off the lows.  Yesterday's gains then lifted prices back to new intra-day and closing highs but on breadth gains of merely 3/2 positive while the DJIA notched its 12th consecutive gain for the first time since 1987.    Energy finished as the only sector to close up more than 0.50% while the Defensives backed off and weakened as Treasury yields rose marginally.   Overall, while this price action will eventually be corrected, it's tough making too much of this index price action as toppy, or stalling out based on overbought conditions alone.  While the individual sectors have shown some signs of wear of late, the indices have not yet reflected that, and at least SOME evidence of prices turning back down to lows is necessary before getting too negative.

One sector which continues to show impressive gains and snapback from last year's severe weakness is Healthcare, and in particular, Biotech which on Monday, vaulted back over prior highs to the highest levels since early last year.  Additional gains look likely to near 72, maybe 73, but shouldn't have too much more upside before stalling out, as the weekly chart is showing some minor evidence of exhaustion.  For now, XLV also looks to be closing in on a more serious level of resistance which is intersected from 2015 highs connecting last year's highs.  In the near-term, Biotech looks to still be a sub-sector to favor for a bit more followthrough this week after Monday's gains.

Elsewhere, bond yields backed up on Monday, while Crude oil finished above $54 and Gold flirted with early gains before finishing down as the Dollar rallied throughout the session.  Energy stocks led all other sectors with OIH showing nearly a 2% gain in trading.  While as reported early Monday morning in the Weekly Technical Perspective about the prospect for Energy gains looking promising, additional headway looks necessary before one can call the OIH move a breakout, even in the short run.  The trend from mid-December intersects near $34.21, which will be necessary to exceed to give this ETF a chance to extend.  For now, XLE looks to potentially be a better risk/reward than OIH, but the key point is that Energy should begin to turn back up higher , and looks to be an attractive risk/reward to overweight from a technical counter-trend perspective. 

Additional thoughts and charts found below


S&P extended gains once again, seemingly lifting out of this consolidation which had held prices range-bound for the last five trading days.   While Technology, Industrials, Financials have not yet lifted back to new highs, and is something to watch for in the days ahead, as to their relative success, or failure, the S&P move does look to have possible upside to 2375, just a bit above current levels.  One has to watch last Friday's lows for evidence that this move might be false and take prices back down below 2349.50.

XBI's pattern has improved in the near-term with Monday's move back over $70, which held gains last week, as well as last September.  This should drive prices up to near $72, with a maximum near $73 in the short run, and XLV is also likely to encounter resistance at levels just above current, sometime this week.  For now, this area of Healthcare should outperform with markets hitting record highs, and Monday seemed to suggest that could happen in the short run.



The Flattening of the yield curve is something to watch carefully in the days/weeks ahead which might put a damper on the Financials move. As indicated late last week, XLF confirmed a daily sell using TD indicators, and Monday brought about a bigger flattening in the 2s/10s, right at a time when the FOMC is trying to persuade the market regarding an upcoming rate hike.   The 2s/10s, 5s/10s, 5s/30s, and 10s/30s curves all look to have broken down to multi-day lows Monday, with the 2s/10s down to mid-January lows, an area of importance.  Getting below this would argue for additional flattening out from 114 bps to near 105.  However, it's important to remember that the 3-year downtrend in Flattening yield curves from 2013 took an abrupt upturn back in late last year, so much of this flattening remains short-term in nature only.




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