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Technology, Aerospace/Defense, Energy favored, while avoiding REITS, Utilities

May 9, 2018


2660-2, 2650-2, 2631-3, 2591-3      Support
2681-2, 2690-1, 2710, 2718-9       Resistance

LINK TO TECHNICAL WEBINAR from last Thursday 050318-


SPX - (1-2 Days)- Bullish-  Rally to test the more important 2717-9 looks possible from mid-April which should be a make-or-break for Longs, getting above leading to a more meaningful bounce.  5/7-9 was listed last week as an area of importance, so be on watch for signs of trend reversals, or for trend acceleration during this time.   Until Technology turns down, it's thought that recent relative strength in Tech likely carries this market higher

SX5E- EuroSTOXX 50Bullish-   Gains up to 3659 look likely for SX5E, and early to sell into strength.  Europe leading SPX in strength near-term.    

HSCEI- Neutral- Movement up above 12361 needed for bullish stance-  Ongoing choppy range, but until US Dollar peaks out, this might underperform and trade range-bound a bit longer in the near-term. 


Trading Shorts:  VNQ, VNO, CAH, URBN, BBBY, KSS, TAP, LL



Long SPY with targets near 271
Long OIH 27.33 with targets 29.50
Long XLK 68.11 with targets 70.31
Short VNQ 77.42 with targets initially near 72
EURUSD and GBPUSD both look to trend lower over the next 3-5 days.  The risk/reward might not seem ideal, but former longs were stopped last week and it still looks like these trend down to <1.18 and 1.34 respectively before bottoming, potentially sometime next week.  

Not a very comforting market given the ongoing Bull/Bear struggle, but it's important to pay attention to the sector rotation during choppy times, and in this case, Technology seems to be weighing in on the side of the Bulls in the short run.  While there's only so much that this sector can do to lead when other groups are underperforming, markets did show some evidence of stabilization in the Industrials with Aerospace and Defense rallying post Iran Deal pullout, while Energy seemed to stabilize and turn higher as well as the fears of remaining in the Iranian deal proved unfounded.   While Energy might not face more than another 3-5 weeks of outperformance and rally, it certainly doesn't seem over given Monday's reversal attempt.  WTI should still trend higher to near $72-$73, and OIH, XLE should both make upside headway, and are right to stay long.   Financials has bounced in recent days, and while relative trends remain negatively sloped, it still appears like a bit more upside can occur in this group as well.  Overall, given that equities have neared a time when trend change was thought possible, it's right to be on high alert for the balance of this week for any evidence of either trend reversal , and/or acceleration out of this range which has dominated equities since January.

For now, the US Dollar acceleration still seems to have more to go, with EURUSD likely falling beneath 1.18 briefly while GBPUSD could also see more weakness in the coming 3-5 days before this stabilizes and bounces.  Rates, meanwhile have turned higher which has caused some real underperformance in the Utilities and also REITS lately, the latter group which seems to be prime for shorting for aggressive traders, expecting that rising yields will start to have a greater effect than has been seen over the last month.  Emerging market currency weakness also looks to persist in the short run, and is something to also watch carefully which might become an eventual problem for markets, as we've seen some pretty major acceleration lower in many EM countries currencies and this might very well stem their recovery efforts.   More on this below.  

Additional charts and thoughts below.


S&P continues to teeter on the brink of a very big Fight between Bulls and bears that hasn't been won by either side at the moment.  Yet, the Bulls appear to have taken a certain advantage over the last couple days, and Tuesday's close well up in the range following Trump's speech on the Iranian deal looks to have helped Energy bounce back, while providing some ammunition to the Aerospace and Defense sector for Industrials.  At present, the pattern supports the idea of a bit more strength which could get above 2682 up to near 2710-8 before any peak near the larger downtrend from early January.  But the act of getting above this would be equally as impressive and a short-term bullish development that can't be ruled out.  Conversely, dropping back down towards last week's lows would be decidedly bearish, given how much momentum has begun to drop off lately.   Overall, markets appear headed for a big crossroads in the next few days and important to watch these trends carefully, along with volume and/or evidence of breadth acceleration or lack thereof.  For Wednesday-Friday, it still looks right to stick with a bullish stance given Tech's positive influence while Industrials and Financials are attempting comebacks.  


Technology's resilience over the last week and todays' close at the highest level since mid-March for XLK should keep markets intact for now, as Large-cap Tech's influence on the SPX cannot be understated.   Counter-trend tools suggest that at least another 5-7 days of rally are possible to this move and could bring about a test of levels near 70, which would likely be bullish for stocks into 5/17-20 before any peak.  For now, Tech is a lot more positive than the broader SPX appears technically, but an important anchor that carries some major weight and should be factored into SPX analysis.  IN this case, from a short-term bullish perspective, for now.  


Emerging market currencies have plunged of late with 18% declines in Argentinian Peso vs US Dollar and steep losses in the last few days in the Turkish Lira also vs USD.   Argentina has asked for an IMF Flexible credit line, which might give it some comfort, but might not be all that effective in stemming the selling.   The country has hiked rates three times in the last 10 days to 40%, the highest among developed countries.  The real question, however is whether a currency crisis could be approaching given the rapid acceleration lower in many EM countries.  The Turkish Lira and Argentinian Peso are just two examples, but the Brazilian Real looks extraordinarily toppy on monthly charts (USDBRL bullish) and is something to keep a close eye on given recent Dollar surge of late.   The JP Morgan Emerging Market Currency index looks to have made a rather substantial break of this uptrend from 2016 that had been in place for this index, and the peak arrived right as US equities topped out on January 26 this year.   Near-term, this looks to bring about further selling pressure for emerging market currencies, and should be watched carefully for signs that it begins to stir up concern in global asset markets.