ZB futures have turned the corner

Energy stocks have likely been holding the market up.

Crude oil, and now natural gas, have made impressive moves higher. As a result, energy companies making up a significant amount of market capitalization and playing a big role in the US economy has been positive.  Nevertheless, if crude oil prices come back to reality ($50s?), that will work against stocks. 

In our view, the oil market is an accident waiting to happen.  A few weeks ago we wrote a piece suggesting the intermediate-term top in oil would likely be somewhere in the mid-to-low-$70s and we still feel that way. Speculators are overly long, seasonals are starting to turn bearish, and the market has probably over-priced supply concern risk premium. Lower oil will likely translate into a lower S&P 500.   

We aren't ultra-bears in the stock market but we do think the easy money on the upside has been made.  The market looks and feels tired, the weekend trade news celebration was short-lived, and we are seeing trading volume disappear as we head into the summer doldrums.

Treasury Futures Markets



Treasuries might have finally reached their limit; a break of 143'0 in the ZB should trigger short covering.

On May 17th, the 10-year note was hovering near a yield of 3.1%.  This was the highest since 2011! It also happened to be the top of a trading channel that dates back to the 1980s. 

It is human nature to assume the trend will continue; in this case, it is a downtrend in Treasuries and an uptrend in yield.  Yet, it is the nature of the market to do just the opposite. We must always remember, markets spend 80% of the time trading within a range and only 20% of the time trending. Although most speculators are short the market, the best trades will probably be from the long side.

The spread between US yields and those overseas is substantial. For instance, three month US Treasury securities (T-Bills)are paying roughly 2% while the German 10-year is yielding about a half of a percent! 
In our view, the markets will need to correct this...if so, the path of least resistance should be higher for Treasuries (and lower for overseas securities).

Treasury futures market consensus:

Bonds and notes have likely turned the corner but the bulls want to see a break above 143'0 in the ZB.

**Technical Support:** ZB : 140'12 and 139'28 ZN: 118'10 and 118'01

**Technical Resistance:** ZB: 143'03, 144'15, 145'18, 147'02, 148'22, and 150'2 ZN: 119'16, 119'31, 120'16, 121'20, and 122'01

Stock Index Futures

 

The Russell 2000 has made new all-time highs, while the ES is still well below the January peak.

Small caps and energy stocks have held the broad market up, but we wonder if that can last.  According to a recent Barron's article, stock market corrections from 7% to 12% since 1950 generally takes 33 days to recover. The February low in the ES marked a roughly 10% pullback 70 days ago but we've yet to make our way back into the 2800s.  Either this is a slow and unusual 10% correction, or it isn't over yet. 

From a charting standpoint, there is little edge in either direction in the near-term.  The next "good" resistance to play from is near 2757, yet prices are heavy, speculators are (arguably) too long, leaving the market vulnerable to a downdraft on the next bearish headline. 

We expect volume to continue to dry up going into the holiday weekend and there is a good chance it doesn't come back until Labor Day; summer markets are here.

Stock Index Futures Market Ideas
 
**E-mini S&P Futures Market Consensus:**  

We believe selling rallies is probably the way to go for now, but we can't rule out a run to 2757ish before the market has a chance at rolling over. 

**Technical Support:** 2676, 2612, 2589, 2550, and 2504

**Technical Resistance:** 2742, 2799, 2832, and 2882

E-mini S&P Futures Day Trading Ideas

**These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled**

ES Day Trade Sell Levels: 2739, 2745. and 2767ES Day Trade Buy Levels: 2766, 2697, 2689, 2671, 2654.