February 6, 2017
S&P MAR FUTURES (SPH7)
2280-2, 2273-4, 2264-5 Support
2300, 2310-2, 2318-20 Resistance
SPX's surge back to recent highs managed to help the index close positive for the week and eliminated the short-term concern about this recent consolidation experiencing a downward break. The ability to close back over the prior week's highs should help S&P push up to at least 2315-20 in the short run, and pullbacks should be used as buying opportunities.
What a difference a week makes
Last week's ability to push back to make new all-time weekly closing highs confirms the prior week's breakout as being "legit" and gives much conviction towards the thinking that a rally back up to 2315-2320 is underway. While volume came in less than prior sessions on the latest Breakout, we did see breadth expand to nearly 4/1 positive. Financials showed very strong performance, which despite the early Bond strength, still managed to move back to multi-day highs (and by end of day, Rates had moved back higher) Healthcare also managed to further its recent outperformance, and despite the ongoing rhetoric on Drug pricing, sub-sectors like Biotech, & Pharma still have managed to stabilize and turn up sharply. Meanwhile the US Dollar index's decline still looks to be ongoing, while yields have also continued their recent upward trend.
While there were notable negative reasons of late to think this recent consolidation could in fact lead lower, and many were betting that the low Vol levels coupled with this stallout should in fact lead prices lower, the combination of the structural positives in terms of the pattern improvement coupled with the heightened tension and uncertainty which the Inauguration has brought about, still seems to favor being long for a move back up over 2300.
When considering the possible negatives, the lower number of stocks trading above their 10 and 50-day moving averages (m.a.) seems to be something that merits attention, as these gauges were at/near yearly highs back in early January and even last March-July while being quite a bit lower of late (2/3/17) value of 65% of stocks trading above their 50-day ma vs 85% back last year. Additionally, the fact that Small caps have been declining in relative terms since December of last year is also worth mentioning as a concern. Additionally the Summation index remains lower than it was in late January, and still well off the highs seen last Summer. What this means is that the momentum of the breadth has slackened off severely in recent months, and despite the Advance/Decline near all-time high territory, the dropoff in participation in some sectors seems to have hurt the recovery effort to some extent. Despite the fact that indices are at or near all-time highs, we still have fewer stocks participating, which will need to be monitored closely in the weeks ahead.
For now though, last week's breakout looks solid, backed by good breadth numbers while Demark exhaustion counts still remain premature to form on daily charts. Therefore, movement back to new highs represents a better time to consider selling into this rally than now. Given that Healthcare has begun to join the fray and Financials are showing some evidence of trying to break out again of the recent consolidation, the combination of these along with a noted lack of weakness out of Tech are definite near-term positives.
Given that yields continue to be resilient, the key message should be to favor the Financials, Healthcare, Tech, while being more selective on what to own in Industrials and Materials. The US Dollar index's decline still looks to have a bit more to go on the downside, so this should favor Metals and Mining stocks still showing more outperformance in the near-term.
SHORT-TERM/ INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION
Short-term Thoughts (3-5 days) : Bullish- Push up over 2300 likely in the near future given last week's surge to exceed the highs of the recent consolidation. Breadth expanded on the push, and indices improved their near-term structure in a manner that makes rallies much more likely than declines in the next 1-2 weeks. Use pullbacks to buy with initial targets near 2315-2320.
Intermediate-term Thoughts (2-3 months): Neutral- No change- Buy pullbacks for rallies into late Spring- Overbought conditions combined with counter-trend sells and waning participation all look to be important in signaling that this year might turn out far differently than the Bulls expect. For February, Equities definitely appear like more of a poor risk/reward given the degree of lift since the Election that has carried prices well above the Bollinger band 2% Standard Deviation on weekly charts. Yet the longer-term structure for Equity indices certainly remains structurally bullish, and until there is evidence of some type of technical deterioration, it's difficult to go against the trend outside of making a short-term tactical call based on seasonality, sentiment and overbought conditions. Overall, selloffs should prove muted and bottom into early March before a rally back to highs which could produce no net change over the next 2-3 months. Thus, the trend for now is neutral on an intermediate-term basis, with the prospects for further rallies looking increasingly dim, despite the breakouts to new highs.
Charts of 10 Technically attractive stocks to consider following last week's breakout
Bank of America (BAC- $23.29) BAC has quickly gone from one of the worst Financial stocks in its sector to one of the best in the last few months, and currently is primed to break back out to new highs in the months ahead. Financials leapt higher post FOMC this past week, helping BAC to close back near the highs of the range that's dominated since the middle part of December. BAC's 40%+ gains from Election time into last December look to have been fully consolidated, with momentum pulling back to less overbought levels, while the stock's "flag" consolidation is likely to be resolved by a quick move back to new highs (which could have begun late last week) Long positions are favored, looking to press longs over $23.55 which should allow BAC to move to at least $25. Only a move back down under $22.50 would negate this rally potential, which for now, looks to be an alternate and less preferred scenario.
Citrix Systems (CTXS- $76.70) Another interesting risk/reward from within the Infrastructure Software space is Citrix Systems which has just broken out above highs that have held since 2011. This brings CTXS up to the highest levels since 2000, and should allow $CTXS to move back to the low $80's at a minimum, with intermediate-term targets back near all-time highs in the high $90s from March 2000. In the short run, momentum has neared overbought levels given the recent surge over the last couple months, and CTXS maintains a steep uptrend from last year's lows. While many might be concentrating simply on the last few months, it's important to put this move into context of the stock's long-term structure. Quite often, breakouts of this sort allow for additional follow-through sooner than later, and it's wise to stick with this, rather than holding out for pullbacks. At any rate, longs are favored and any weakness back to the low $70's should constitute an excellent buying opportunity.
Norfolk Southern (NSC- $120.46) NSC's ability to weather just a minor pullback attempt since late January and push immediately back to highs bodes well for this to continue its recent acceleration since November, and push higher up to $125 in the near-term with intermediate-term targets at $135. While the Industrials sector has stalled a bit in the last month, the Rails have consistently shown very good outperformance and structurally remain one of the better parts of this group. NSC exceeding late 2014 highs looks important, and despite being overbought, should help this continue higher in the short run. The act of getting back above a former high from 2+ years ago often can serve as a source of near-term acceleration for a stock, and in this case, longs are favored with thoughts that little resistance lies in the way now that NSC is back at new all-time highs.
Union Pacific (UNP- $108.51) UNP has been a consistent leader since early 2016 but remains still roughly 13% under all-time highs from early 2015. Its pattern is not unlike other Rail stocks like NSC, but the trend of higher highs and lows has begun to take a steeper rate of ascent of late, and should help this get back to new all-time highs in the weeks ahead. Initial resistance lies near $111 with movement over leading this up to near $120. Stops for longs lie near $101, but the path of least resistance for now remains to the upside, and longs are favored.
Fluor (FLR- $55.66) The near-term pattern of FLR is more bullish technically than the long-term, but the stock's recent basing following the late 2016 breakout is positive and should let this trend up sooner than later to test and exceed late December highs at $57.77. Momentum remains positively sloped, and the fact that FLR moved up to the highest weekly closing level since mid-2015 creates an attractive risk/reward situation in a stock which is not terribly overbought. FLR remains nearly 50% off its all-time highs from 2008 and over 30% off highs made just three years ago in 2014. Overall, the combination of the near-term pickup in momentum coupled with the lack of overbought conditions bodes well for further gains in the months ahead. Upside technical targets lie near $61.70 initially with intermediate-term targets between $65-$67. This represents a 50% retracement of the stock's 2008 high to low range, along with a 61.8% retrace of the stock's decline from 2014. Overall, FLR looks attractive to buy here and pullbacks to the low $50's would afford better risk/reward opportunities as part of this near-term uptrend from 2015.
Newmont Mining (NEM- $36.76) NEM looks attractive as a Gold mining stock given the combination of its recent breakout of the range since early January coupled with the fact that it's been such a dramatic underperformer during this recent Gold runup. While the top-tier of the S&P Metals and Mining ETF constituents are up 24% or more in the last six months, stocks like NEM are down more than 18% during this same time span. However the jumpstart in momentum of late is noticeable and bodes well for additional gains in the weeks/months ahead. Its close last Friday finished at the highest levels since November, breaking out of a minor pattern as well as having already exceeded the downtrend from last Summer. Momentum is not overbought and NEM looks like an excellent risk/reward to continue this recent surge in momentum considering Gold could rally to near 1245-55 before any bounce is complete. For now this looks appealing.
AmerisourceBergen Corp (ABC-$89.28) ABC looks appealing technically given the recent improvement in structure and momentum following its breakout of long-term downtrend line resistance coinciding with the gradual improvement in Healthcare in the last couple months. ABC successfully bottomed out right near its 50% retracement of the runup from 2008/9 into early 2015. While monthly momentum gauges like MACD remain still slightly negative, they're improving rapidly given this recent breakout and are on the verge of turning back positive. Given that ABC remains more than $30 off its all-time highs, the stock looks like an excellent technical long for a 3-5 month basis given the jumpstart in momentum of late. Longs preferred here, looking to buy any dips given the chance, down in the mid-$80s for a move up to $95, then $100.70 which represents a 61.8% retracement of the prior pullback from two years ago.
Merck & Co. Inc. (MRK- $64.29) Yet again, MRK finds itself back up towards recent highs after a recent stalling out on the retest from 2014 levels. The stock remains quite attractive technically, having formed a massive long base which began over 15 years ago. The pattern since the late 2007 highs alone represents a massive intermediate-term Cup and Handle pattern and movement over $65 on a monthly close should help MRK to accelerate up to near-term targets in the low $70's. While many might look at MRK as being still largely range-bound, the near-term improvement in momentum on last week's gains should help the stock to break-out of this pattern sooner than later, given that its made its way back to highs in just a relatively short period of time following the recent stallout.
Halliburton (HAL- $56.58) HAL looks well positioned to continue higher in the months ahead following WTI Crude's ability to stabilize during a time of traditional seasonal weakness. Given that Oil typically tends to turn up into the Summer months, a move higher in Crude should help Energy to continue its recent gains, with targets on HAL up near $70 with July 2014 highs near $74 being important. The uptrend in HAL has not shown any signs of wavering in the last 12 months, and this remains a solid technical risk/reward within the Oil Service space. Pullbacks to the low $50s would offer attractive opportunities to buy HAL, and only a move under prior months lows on a close would represent a cautionary sign that could lead to possible weakness. For now, additional gains look likely, despite some recent signs of waning momentum as the monthly charts still look quite attractive.
Valero Energy (VLO- $65.51) VLO's minor weakness of late represents a likely good opportunity to buy dips, given the ongoing strengthening in the Refiners in general since last Fall. This stock's weakness has failed to severe meaningful Ichimoku Cloud support, and the decline looks to be stalling out. This should represent an attractive opportunity to buy with targets up near $71.40 and then $73.88, the highs from late 2015. What most weekly charts don't show, however, is the presence of a large Cup and Handle pattern, when going back since 2007 highs, so any move back up through $73.88 would be extremely bullish, and not necessarily the opportunity to sell into the move which investors wouldn't notice who haven't scanned the long-term charts. Gains back to the low $70s look likely, with a keen eye on 2015 highs.
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