January 31, 2017
S&P MARCH FUTURES (SPh7)
2262-3, 2250-2, 2246-8 Support
2281-3, 2289-90, 2298-2300 Resistance
S&P Futures: (2-3 Days) Bullish- Prices undercut 2280 and 2273-6, but managed to rally back to hold 2276, putting the correction for now still in doubt and making a long bias still right- Above 2282 should add conviction that S&P can move higher, and lead back to 2300 and above.
SX5E- EuroSTOXX 50- Bullish- Monday's decline to new multi-week lows was definitely more negative than positive, yet prices lie on the outside of Daily Bollinger bands, and better to use rallies to sell vs thinking we extend from here. Favor a snapback to 3300-10.
HSCEI- Neutral- Prices have risen to near resistance, yet show no evidence of counter-trend sells, and might meander sideways a bit more until we can see evidence of breakouts or breakdowns, which for now, seem elusive.
Longs/Shorts for a 3-5 day period:
Technical Longs: DXJ, BAC, BCS, ENDP, ABT, TECK, IYT, KMT, FDX, URI, MTB, UPS, TBT
Technical Shorts: WMT, TAP, MNST, HRL, XRT, PRGO, KSS, BBBY
Overall, tough making too much of Monday's pullback just yet. A few things to consider: First, S&P DID in fact break near-term support, to pullback into the prior consolidation range, yet rallied by the close to finish back above, and closed near the highs of the days range, after nearly climactic type volume flowed early on into Declining issues. The more important support at 2251.75(SPh7), 2257 (SPX) was not broken. Second, the NASDAQ, which might be expected to lead the broader market, failed to show much weakness whatsoever, holding the uptrend from early January while closing well up off its lows. Third, Treasuries showed little to no real bid today and yields finished barely unchanged from levels hit last 1/25 when Yields closed at 2.51(now at 2.488). Fourth, Financials and Technology maintain fairly attractive daily charts, having shown little to no damage in the last couple days and could easily find their way back to new highs in the days ahead. Fifth, counter-trend signals of exhaustion are not yet present on daily charts of S&P, nor NDX and also are not present on XLF, XLK, nor on stocks like FB and AMZN, both which report earnings this week. Sixth, sentiment seems to suggest a mixed picture, with subdued levels of late which occurred into and following Trump's inauguration. The ongoing uproars, and marches taking place around the world might seem ironically too negative, sentiment wise to think a top of any magnitude could take place
What remains a concern: First, seasonality suggests that the month of February historically is quite sub-par following Inaugurations Second, momentum has gotten overbought, and now is starting to wane a bit, which was expected during the sideways consolidation, but Percentage of stocks trading above their 50-day ma failed to jump on the recent breakout and remains lower than levels hit back in early January, not to mention December.
Overall, while the decline was larger than expected to start the week, by end of day, little true damage had been done and sectors like Financials still reflect attractive technical "flag" patterns that should result in prices moving back to highs. If in fact prices pullback to violate last week's lows (made Monday 1/23) that would indeed change the near-term picture. For now, many seem too quick to jump onboard with thinking the "Trump rally" has run its course, while uptrends in most major indices remain intact. Overall, enough is out there to suggest this might be a false move and could lead back to new highs.
Charts and analysis below.
S&P Monday's drawdown was more severe than expected, and but negative breadth improved slightly by end of day to show just slightly worse than 2/1 negative, while Volume remained very strongly positioned into Down vs UP stocks at around a 4/1 ratio. Prices hit 2261 on futures, just slightly above key support near the lows of the consolidation from early January, but did so on sufficient force that momentum fell to quite oversold levels on hourly charts. By end of day, RSI had risen from 14 to over 36, suggesting that any drawdown from here should create positive divergence and be buyable. Prices did manage a late day recovery effort , and lie just below initial resistance for tomorrow, which intersects at 2280-2. Breakouts back above this level are certainly possible given the resilience of most of the key S&P sectors. Only in the event that 2251 is violated would this stance need to change.
Financials continues to portray a very bright picture with regards to its technical pattern and the flag formation doesn't show the kind of topping formation that Monday's weakness might have suggested should be the case if stocks were going to turn down. Unless prices undercut 22.85 in XLF, and yields begin to show more signs of topping (also not the case), then Treasury yields likely lead higher which in turn should carry the Financials. Rallies over 24.50 look likely before any peak, and should provide a near-term tailwind to the broader market.
Energy has sold off to areas of key near-term support, and while WTI Crude has languished in sideways consolidation over the last month, Energy has been particularly weak, the second worst performing sector in 2017, with only Telecomm showing worse performance. Near-term, the ratio of OIH to SPX has sold off to important trendline support. Bottom line, this "should" be an area to take a stab at buying this sector, as it maintains the relative uptrend from last Fall and Crude has not broken down as some have suggested. Stocks like HAL, NBL, VLO, TSO, SLB look particularly attractive from a technical perspective within Energy.
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