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Transports have now joined the XLI in breaking out- Near-term constructive

May 22, 2018


2698-2700, 2682-3, 2666-7, 2649-52     Support
2730-2, 2741-4, 2747-9                          Resistance

LINK TO TECHNICAL WEBINAR from last Thursday- 051718-


SPX - (1-2 Days)- Bullish- It's thought that yesterday's ability to close at new multi-day highs can allow for further upward progress that likely challenges 2750-5 this week before prices stall out.  

SX5E- EuroSTOXX 50Bullish for a move up to 3600-3650.  Early to sell, but this could come about as of end of week, or early next.  For now, still right to be positive here. 

HSCEI- Mildly bullish and a choppy rally up to near 12800 looks likely.  One should use any pullback to 12100 to buy dips.  


Trading Shorts:  LL, MAT, DISH, REGN, DISCA, MCK, ABC, CAH



Long XLI targeting 78.25
Long IYT targeting 200-1
Long OIH 27.33 with target 30
Long SPY targeting 275.5
Long TBT 38.10 with target  41.25

US indices gains today managed to reach new multi-day highs for both SPX and DJIA, exceeding highs of last week's base, and creating a near-term bullish path for prices in the days ahead.   Industrials ETF, XLI furthered gains today, while Transports broke out above highs of the last couple months.  Breadth came in at more than 2.5/1 positive, and all 11 sectors finished in the Green.  This was the first time in about two weeks where both Technology and Financials rallied in unison, while Energy also made further headway, as Crude surpassed $72.40.  The defensive sectors also made headway and turning up, which failed to happen last week and is a new development.  While it was thought last week that prices might turn down, as discussed in yesterday's Weekly, the price action proved miniscule on the selloff, grinding sideways rather than achieving any downside progress.  Yesterday however, did make better than average progress, but higher, not lower, and prices pushing up to multi-day highs likely helps the trend continue up a bit longer this week.  Until/unless prices reverse suddenly from current levels and give back what was achieved on Monday and pullback under last week's lows, its thought that higher prices can happen this week before any stalling out. 

Key things to look for in the days ahead:  Whether or not Financials ETF can reclaim 28.26 on a close, which should drive higher to 28.50-28.75 and would be positive.  Also, the ability of Healthcare to rise back up over 83.92 per XLV, which would also be a short-term bullish factor.   As mentioned, Europe still looks to be trending higher and can stretch up over the next week per SX5E, SXXP, and this is also seen as a bullish factor at a time when SPX was wavering.  

Outside of equities, the Dollar's rise looks close to reaching resistance, but still cannot be sold just yet, and Emerging market currencies continue to face downward pressure.  Treasury yields made an About-face, but this pullback in yields should constitute a chance to sell Treasuries as the counts are incomplete for this move higher, and it's thought that higher yields can still happen into early June.   

Additional charts and thoughts below.


SPX's move was quite constructive yesterday, and while there was the thought that 2730-5 area might contain prices, the fact that DJIA along with SPX accomplished a move back to new multi-day highs on better than average breadth while Transports broke out and XLI furthered gains, this all leads to a bit more optimism this week, which wasn't present at this time early last week.  The rally yesterday seemed to be a bit more broad-based and we saw multiple sectors participate, with constructive price action out of Tech and Financials.  Near-term, a move up to 2750-5 looks possible, and the area directly above at 2753-6 represents a perfect price/time area from late January highs which would be strong resistance if touched this week.  


Transports have just exceeded resistance that was just discussed Monday morning in the Weekly Technical perspective, and yesterday's breakout makes Transports an area to favor for the days ahead.  IYT, the Transports ETF looks attractive as a technical long idea, and can be entered Tuesday/Wednesday with upside targets near 200-202.50.  Stocks like UNP and CSX remain particularly attractive from the Rails, while FDX is a good risk/reward in the space, having consolidated and now moving back to challenge its own resistance near 257.47 right above its 50% retracement level.   Overall, Transports should be overweighted based on yesterday's breakout and only a sudden reversal back down Tuesday/Wednesday would offset the bullishness of this move.

Crude oil finished at the highest levels since 2014 as the recent rally began to extend yet again,, with Monday's close above $72.40.  This looks to be a bullish development that can allow for another 2-3 days of Crude gains, though counter-trend signs of exhaustion are creeping into the equation and suggest that Crude might stall out prior to hitting $75.  These same signals are being seen in XLE and OIH, on daily and weekly charts, suggesting that its better to be a bit selective at this stage of the rally, and that Crude likely isn't going to $85+ .  For now the period between now and end of month remains positive, but one should initiate any new longs with tight stops and look to take profits a bit quicker than normal over the next week, instead of trusting this move to extend throughout the Summer.  At present, OIH, XOP and USO remain longs, but stops are being raised, and profits will be taken into end of week into early next.