Please enable javascript in your browser to view this site!

Treasury yields arguably breaking out which bodes well for Financials strength

March 7, 2017


2367-9, 2363-4, 2349-51    Support
2390-2, 2400-2, 2409-10    Resistance



S&P Futures: (2-3 Days)- Bullish- Prices continue to hover near key support at 2370 that marked the HIGHS of the consolidation over the last couple weeks.  While there are notable warning signs of breadth divergence & more stocks hitting new lows than highs, it still looks MORE likely in the short run that prices move higher to get above 2400.  Bullish stance looks correct with stops at 2365 on half then 2349 on balance

SX5E- EuroSTOXX 50- Bullish-  Not much change the last few days, and last week's breakout takes precedence.  Europe broke out of the highs of the consolidation that's been intact all year, and above 3360 turns the trend bullish, yet, similar to the US, also quite stretched.  Yet on a 3-5 day basis Europe is a bit more positive considering the range it broke out above was from early January.  This move yesterday should serve as a catalyst for continued gains up to test late December highs near 3524.

HSCEI- Bullish- Prices have begun to stabilize the last few days, and should push higher.   As mentioned, the intermediate-term chart is quite constructive, so this is near-term only.  Pullback down to near 10100 or 10000 looks likely. 

Longs/Shorts for a 3-5 day period:  NO Change from Thursday



The market's definitely starting to act a bit strange in ways that let most of us know that corrections are not too far off.  Breadth has begun to deteriorate, with pullbacks showing larger ratios of Declining vs Advancing stocks, and more NYSE stocks hitting new 52-week lows than highs.  The percentage of stocks trading above their 10-day moving average also has slipped from the mid-80%s to down near 60%.  However, the combination of Treasury yields attempting to breakout above key resistance, coupled with Technology's leaders like AAPL showing bullish option flows and acting well certainly seem to suggest that a bit more upside is still possible, particularly into FOMC in the next two weeks.  

Prices pulled back to key support near the prior consolidation highs and really haven't shown any meaningful signs of deterioration that would warrant a bearish stance.  Factors like waning breadth and momentum, bullish sentiment are certainly important.  Yet when not having much, if any effect on price, it's always wise to let prices turn down before acting to fade the rally.  For now, it's thought that yields can carry Financials higher and that Biotech can still be a source of strength for Healthcare in the short run.  For now, until price gives us ample proof that markets are heading lower, it's right to stick with stocks,  albeit with a very selective group.

Additional thoughts and charts found below


S&P has now pulled back to an area that should be good support to buy dips after reaching 2370 in March futures, which lines up with the highs of the recent consolidation.  It's thought that a push higher in AAPL might temporarily help Technology, despite weekly warning signs, while a yield breakout could aid the Financial sector, which combined represent over 1/3 of the market. 


Treasury yields look to be breaking out given yesterday's close in the 10-year yield at the highest levels since late January, but within a fraction of hitting new yield highs for 2017.   We saw some increased evidence of steepening across the yield curve Monday, and expect that 5's, 10s, 30's should all breakout of their recent ranges, no matter the degree of Treasury bearishness.   Following a further yield rally, one can look to buy Treasuries post FOMC meeting once price and time are more closely in alignment.  Daily closes above 2.5051 should result in upside acceleration to 2.65 and serve as a meaningful tailwind to Financials.


Metals stocks have been very hard hit of late, but are now coming into (what should be ) decent initial support to buy dips, which lies at $30.40-$30.75 right near December lows.   Steel, Copper and Gold have all shown evidence of attempting to reverse course lower in recent days, but the weekly trend for XME hits right near current levels, and was a very accurate gauge of support late last year on pullbacks to trendline support.  While a rising US Dollar will eventually be harmful to this sector as metals show even greater weakness, the near-term oversold conditions coupled with weekly bullish structure should allow for this to find support and turn back higher in the short run, from levels just below $31.




This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein, and may be subject to change without notice.   Newton Advisors, LLC has no duty or obligation to update the information contained herein.   Further, Newton Advisors, LLC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.  The information provided in this report is based on technical analysis. Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer. The investments discussed or recommended in this report may not be suitable for all investors.  This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction.  Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.  

Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.  Newton Advisors, LLC believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.  From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report:  This report, including the information contained herein, has been prepared exclusively for the use of Newton Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Newton Advisors, LLC.