With S&P 500 closing in on an all time high, will the market rip through the resistance point and take off? Jason Hunter of JPMorgan was on Fast Money earlier today offering his technical analysis on the S&P 500.
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VIDEO: Don’t trust the S&P rally?
WHEN: Today, Tuesday, June 11, 2019
WHERE: CNBC’s “Fast Money”
Melissa Lee: Stocks maybe ripping through June with the S&P 500 up 5 percent but our next guest says if you try and chase this rally look at below. Let’s go Off the charts. Case country JP Morgan head of global fixed income and U.S. equity technical strategy. He’s over at the Plaza. Jason what are you looking at.
Jason Hunter: Oh yeah. Hey thanks for having me. So let’s start with the broad S&P view. So it’s a little bit of a good news bad news situation we look at the chart. So we’ll start with what’s happened. So 1 The market traded in this broad pattern that it broke down from in late May which has pretty bearish implications particularly if you look at the way a lot of the Trend Following signals were set at that point time a number of moving averages. The market broke down through those at a time where the news story wasn’t looking that good which really could have generated a lot of downside momentum.
So one of the good news front the fact that bears weren’t able to do a heck of a lot with that despite the news headlines after the breakdown and then the subsequent move that we’ve had five day sharp rally taking the market right back through that important twenty eight hundred inflection above the 200 day moving average again. The fact you put it back in the pattern normally that would be associated with a good medium term outlook suggest there isn’t a lot of weak hands that are ready to panic out of the market. You know a strong you know long that you’re seeing in the S&P and you could generate bullish momentum on that.
Now on the flip side of that you’re already back to the twenty nine hundred area. Our base case view all along on the technical side for J.P. Morgan was thinking that twenty nine fifty three thousand probably caps the market going into the third quarter and we’re getting in close proximity to that. And most important this has been a very headline driven market over the past several months. We have g 20 heading. Coming up. The trade stories in focus very much of what was already been talked about on the show. So with the market near twenty nine hundred and a number of the cyclically sensitive groups not really performing all that well just yet.
Things like copper semiconductors were less inclined to try and chase the market up here and we want to see basically the market you know trade well for a few weeks before we look at that. So to focus more on sickly sensitive groups we’re looking at the semiconductor index the SOX index it came down in virtual straight line a gap filled decline as the trade headlines started to turn negative. Yes we’ve bounced off of key support but there’s no clear based pattern to post up against as a technician to say for sure that this is bottom this could still be a bear market bounce for semi’s and going into G 20 for obvious reasons.
You want to watch and see how the headlines hit before you you know we’re trying to even touch this group. So what we’ll watch as we move over the next several weeks is one is the S&P going to consolidate and hold above the twenty eight hundred level again to watching you know copper crude semiconductors seeing if those can start to outperform over that period and likely that’s going to be headline driven. If those things all fall into place then maybe we have to move our objectives up for the S&P maybe 3000 is too conservative for the index.
On the flip side if the headlines go south you know one of the things we look at is year on year growth for semiconductors this particular index tends to line up well with global PMI global PMI sitting just about 50 right now on the manufacturing side to fully reprice semi’s for that 50 type No. There’s still a lot of weakness that can happen here. So we want to wait and see her right now and see how things shape up.
Melissa Lee: Concerns about the 10 year yields Jason had been a damper for the markets last month. And you’re the person perfect person to ask because you do technical strategy here the head of global fixed income. So where do you see the tenure you a yield going and what do you think this yield is telling us in terms of what it means is it being driven by forecasts for the economy or forecasts for inflation I mean what what’s the key driver here.
Jason Hunter: So we’ll start with over the near term. We have a number of systematic strategies that we’ve built that help us navigate pivot points for the Treasury market. And last time I was on the show the market was trending strongly to lower yields we’re saying don’t stand in front of it yet. We’re not in the zone for a number those indicators before they’re set to fire sell signals a couple of those sell signals have actually triggered over the last week or so. So tactically we’re actually in a bearish 10 year note position right now.
And as you said that’s been a cushion for the market for the first three days of that S&P recovery rally. It was defensive groups like utilities consumer staples that really benefited from the drop in yields and helped lift the S&P 500. Our view over the near term is now that the 10 year yield stabilizes over the short term maybe you get some backing and filling toward to 25 to 30 but that 230 level is now a big inflection. That’s where yields tried to base out in March and again in May they couldn’t hold it.
And then they sharply dropped to lower levels. That’s probably you’re going to find a lot of Treasury buyers on a retracement toward that level now. You know as the expectations of the trade it’s already in the more you know in the market does that start to work its way into the economy. You know individuals that were bearish on rates going into that that maybe started to flip a little bit. Looking for opportunities to buy your product and get a little bit of that as we back up toward the two twenty five.
Melissa Lee: All right Jason great to have you with us. Thank you. Jason Hunter J.P. Morgan
Dan Nathan: Seems like a lot of people just want to talk about rates right here in the 10 year that 2 percent was a kind of a level here. And I got to tell you if it breaks below there for the wrong reasons I think you’re going to see alarm bells go off and risk assets all over the globe here because when you think about how much sovereign yet outside the US is in negative Terry territory. And what that means for their economies. You know just today you interviewing Larry Kudlow today.
He was talking about Europe who’s talking about the problems they have and how slow they have been to kind of stoke inflation that’s really if we get to a point where we are this far into the recovery you know 10 years on I’ve got to tell you. Rates going back in that direction will not be good for the stock market.
Mark Tepper: So what I’m wondering right now is how much of this rally has been a head fake. I mean there’s just so many risk off signals I’m seeing right now. You’ve got gold outperforming copper. You’ve got staples outperforming discretionary defensive sectors are leading. Personally I think we’re at a spot right now where the market’s going to trade range bound and sideways for the rest of the year unless and until we actually get a trade deal.
Melissa Lee: And you’re cautious.
Karen Finerman: I am. I mean it’s about a cautious I give me I’m always long always long but I am really really concerned. I think the Fed’s in a bit of a box. I don’t. I think that the market is already pricing in. Some movement other Fed down and a likelihood of the trade deal that I don’t know. I don’t know make me that comfortable.
Pete Najarian: I would say Karen hit it at the very top of the show. It’s exactly what I would say. I think you can still own this market. You’ve got to buy that put protection that gives you that ability to feel very comfortable about it now but that gives you all that room to be able to make these traits to the upside as we do it regardless of what the reasoning is behind why the market is moving to the upside and whatever the the different rotations are that are moving us to the upside that’s been very strong and because of that I think there are opportunities every single day we see opportunities in stocks that I think are created by getting oversold.
We’ve seen it out of Apple. We’ve seen it on Facebook. We’ve seen it out of multiple names and those opportunities are there. And when they are you can buy that protection right now as cheap as it’s been in terms of that 15 to call it 21. If we even get as much as 21 because we haven’t been able to break through 20 in quite a while.