This Week, Be Aware Of These 2 Things
Stock index futures finished higher in an overall
bullish week of trading, marked with little volatility and what
appeared to simply be a shortage of sellers. The major theme of the week was the
outperformance of the Tech sector. The sector led the correction to the
downside, and now appears to have re-emerged as the market leader on the way
back up.
The June SP
500 futures closed Friday’s session with a gain of +8.50 points, and finished
the week with a gain of +36 points. Volume in the ES was estimated at 773,000
contracts, which was ahead of Thursday’s pace and above the daily average. Open
interest contracted on the up move, so we could see a pause or retracement. On
a weekly basis, the ES is facing its previously broken uptrend line that comes
into play in the 1150 area. Looking at the daily chart, the ES blew through its
50-day MA to post a doji just under its 78.6% Fib retracement of the March down
swing.
June
bonds (ZB) managed to hold its weekly uptrend line, but broke the daily uptrend
line to settle just above its 200-day MA. The U.S. Dollar posted a market
structure low off of its 50% Fib retracement of its Feb-Mar up move and settled
back above its 20-day MA. The Dollar has room up to 90.52 before its weekly
downtrend line comes into play. The Banking Index (BKX) posted a bearish
engulfing line as it continues to form a right shoulder, with 99.50 as neckline
support. The Semiconductor Index (SOX) capped off 2 strong weeks with a close
right at its previously broken weekly uptrend line resistance.Â
As I
mentioned last week, the near-term backdrop was bullish, and the recent
quarter-end window dressing period likely had a lot to do with equities’ ability
to bounce. However, there are 2 main areas of caution to be aware of as we move
forward. The first is bond yields, which moved sharply higher following
Friday’s Employment report and could spell trouble for the U.S. economy down the
road, and the Banking sector, which was pressured due to the bond market
weakness. With how much debt that’s currently outstanding, the economy is
probably more interest rate-sensitive than ever before. Consequently, even a
small increase in short-term rates could choke off a large amount of liquidity
in the system. Second, it’s also quite possible we could start to see some
“sell the news†reactions to positive data with the move back up ahead of
earnings season.
Looking
ahead this week, volume may be a problem the farther we get into the
holiday-shortened week (Friday is a market holiday and bonds close early on
Thursday). While the economic calendar is very light this week, earnings season
officially kicks off with reports from Alcoa (AA) on Tuesday, Yahoo! (YHOO) on
Wednesday, and General Electric (GE) on Thursday.
Please feel free to email me with any questions
you might have and have a great trading day tomorrow!