SPY – (3-5 Days)- Bullish- Early weakness recovered Expect movement to break out of May highs and lead possibly to 430-5. Only a move under 411 changes things for the worse.
FEZ (3-5 Days)- Bullish- Remaining above 48 keeps trends bullish for FEZ and expect further rallies into 49.30-.60 before stallout
Technical Long/Short Focus list 6/8/21- Stops on closing basis only
Key Technical developments worth highlighting:
1) Pattern in US indices remains constructive and no meaningful deterioration, despite minor weakening Monday. Rally to exceed May highs likely
2) US Dollar looks to be in the process of turning down, and should test and break January 2021 lows
3) Healthcare took a big step higher Monday, given the performance of BIIB along with several other Biotechs and LLY also outperformed. XLV and XBI both are trading near key near-term resistance
4) REITS continue to gain ground, and Defensive trading has shown strength with Utilities outperforming Technology
5) VIX looks primed to push back to new lows for 2021 which would create a very attractive opportunity to buy implied volatility.
6) Commodities need to be more selectively picked in the short run. Crude oil, Natural Gas, Sugar, Cotton, and Coffee all look bullish as do the Grains for additional upside.
Stock indices look to be completing minor pullbacks after last Friday’s surge that should set up for yet even more strength this week before exhaustion sets in. One can be long S&P barring a move down under 4200 and it’s likely this minor churning we saw Monday creates an attractive short-term buying opportunity for a push up to test and exceed 4240. This would cause some real implosion in the VIX but also complete this wave from early June as well as from early May. Thus, it’s right to use rallies into late week to consider selling that which has grown quite overbought. I’ll be adding Shorts to the Focus list in the days ahead, and am not expecting that June carries on interrupted higher. For now, this minor weakness looks buyable.
Healthcare looks to be near an important area- Above 124 allows for push back to highs while 120 is a definite stop for any XLV longs in the weeks and months ahead. Monday’s Healthcare surge was largely made up in Biotech given BIIB’s Alzheimer approval which resulted in a 38% rally in BIIB while others like LLY rallied more than 10%. XLV did manage to rally from an area of support. Yet more is needed to call for a “breakout” in the Healthcare ETF or with XBI and Biotech, as both seem to be near key areas. As daily charts show on the XLV, prices have churned in the last month, and we’ve seen the same kind of Musical chair type sub-sector rotation as we’ve seen with many other groups. Bottom line, given that Healthcare is the Number 2 Percentage group within SPX, this next couple days will be important, but i expect a breakout this week back to new highs, which then might stall out for the back half of June on an absolute basis.
VIX decline should present buying opportunities for implied volatility by end of week. We’ve seen lots of churning in VOL lately right near lows seen since VIX bottomed on April 14th. Yet wave structure suggests a “final” move down could be likely in June which undercuts the mid-April lows of 15.38. This would help to complete the pattern from mid-May highs, and present a fantastic opportunity to buy implied volatility for a 2-4 month hold. One should watch VIX carefully this week on further index gains. If S&P does what the recent pattern suggests might be possible and climbs over early May highs, we’d likely see a rush to sell implied volatility at a time when i feel buying dips presents a compelling opportunity.