March 7, 2017
S&P MARCH FUTURES (SPh7)
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
Technical Longs: FXI, FAST, COL, UNP, YCS, DXJ, CVX, ALXN, HUM, CI, BIIB, EBAY, YHOO, WM
Technical Shorts: KORS, AN, TSN, COST, QCOM, SPLS, FOSL, TSCO, HTZ,
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.
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