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A Tale of Two Markets, but SPX, NDX have improved near-term

June 21, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
274.95, 274.32,  272.57, 270.94         Support
276.70, 277.19, 277.82, 279.43          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- https://stme.in/L2s6RGiWrJ

 

SPX - (1-2 Days)- Bullish-Holding 2745 and closing up well off its lows in the last 3 of 4 trading days while having not violated the trendline support from early May seems positive in the short run.  Now after four of five down days, SPX rose above Tuesday's close.  Use minor weakness Thursday to buy down to 2765 with expectations of a push back higher to 2775.    

SX5E- EuroSTOXX 50Bearish- Leaning bearish here, but a decided lack of price movement after last Friday's decline and the last three days have fit inside this range.  Over 3540 would lead up to 3640-50, while under 3391 would be more negative leading to 3300 or lower.  Yet, SX5E remains in far worse shape than SPX, so of the two, its better to be short Europe and long US.  

HSCEI- Bearish near-term , and while some minor stabilization happened Wednesday, the break of lows since February is bearish and could lead down to 11250-11300. Any move back up above 11841 would be respected, but unlikely in the short run.   

Trading Longs:  ALXN, CVS, HCA, MRK, ZTS, PRI, TCBI, V, BJRI, FDC, GRUB, ITT, EMN, PX, EL, GILD, NTR, VEEV

Trading Shorts:  XLI, CAT, BA, MMM, FOSL, PG, MO, PM, SIVB, PSA, LRCX, VNQ, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XLV with targets 86.85
Long KRE with targets 66.50

Short XLI with targets 70.85
Short ITA with targets at 195
Long UNG with targets at 26
Short VNQ with targets at 77.44



It's a very odd time for Equities, and anyone who tells you differently simply is not paying attention.  The near-term trend arguably has pushed back to bullish after Wednesday'ssession for both the SPX and for NASDAQ in the short run, and NASDAQ 100 looks poised to claw back to new highs. The DJIA and NY Composite, meanwhile, continue to struggle with the DJIA lower by nearly 2% over the last five trading days, and the Dow has now fallen now for seven straight sessions. Consider that the SPX pulled back 40 points from 6/12 into Tuesday 6/19's lows, yet managed to close up off its lows on Thursday,Friday, and Monday to tune of 18, 16 and 20 points

However, most continue to want to watch the NASDAQ and the Tech move for being "the market", and are concentrating on the parabolic movement in NFLX, AMZN and FB back to new high territory.  FB alone has managed a greater than 35% gain in less than three months, pushing back to new highs above $202 as of Wednesday's close.  Yet stocks like BA have lost nearly 30 points since 6/11, or roughly 7% in value.  A tale of two markets without a doubt, yet its been Retail this time around that has joined Technology while many other sectors simply wallow in consolidation.   

The following seem important in suggesting that at least a bit more strength might happen:
1) SPX held where it needed to on Tuesday's lows above 2745 to hold the uptrend from early May
2) Ability of both SPX and NASDAQ to push above channel resistance that had been broken, while NASDAQ Comp moved back to new highs, and is early Demark wise for daily exhaustion
3) NASDAQ 100 also successfully reclaimed early June lows and is 2-3 days from Exhaustion, but this requires a move back to new highs.  The pattern here isn't all that negative in the short run
4) Consumer Discretionary just pushed back to new all-time highs, while Healthcare looked to have bottomed where it needed to and made a healthy move off the lows from Tuesday.
5) Small cap IWM furthered its gains at new 52-week highs, while MID, the S&P Mid-cap index is within 2 points

These last five steps aren't to imply that all is fine, and Equities can move back to new highs.   There remain problems with regards to sentiment and non-participation, but the key point to this week's market is that indices have tried to pullback, but the selloff was less than enthusiastic or impressive and similar to the lack of upward thrust seen in many sectors on rallies, the opposite is also true.  Technology truly needs to peak out to have real conviction in a short-term top.  If Tech moves back to new highs while other sectors stabilize, this is more of a recipe for a slow grind, than anything else, and rallies still should prove to be selling opportunities into early to mid-July.  For now, enough has happened over the last couple days to think a selloff might not be imminent given lack of followthrough.  
  

Additional charts and thoughts below.

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SPX for now, has managed to hold where it needed to and moved up meaningfully off early lows from Monday as the four out of five day decline happened in a very strange fashion.  Prices closed well off the lows last Thursday, Friday and Monday while moving up sufficiently Wednesday to give more conviction of Tuesday 6/19 as putting in lows in place.  Tech resilience combined with Discretionary and Healthcare strength seem to suggest a half-baked rally attempt now, even while industrials and Financials are weak.  While being cognizant of the degree to which sentiment remains bullish and any subsequent move back above June highs would likely occur on far less breadth and momentum, for now, declines have proven disappointing as markets enter the Summer season.  Technically it's wise to start looking for longs and keep tight stops on Shorts with expectations that July might prove similar to June, May, April and March, rising into mid-month before peaking.  

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Big-Cap Technology's move back to new highs along with Biotech strength has helped the NASDAQ 100 push back higher, and until the NASDAQ takes the lead in trying to turn lower, shorting this will prove difficult and could allow for a move up to 7400.  Pullbacks to break the uptrend from early May would put a bearish stance back on the front burner, but for now, theres enough price strength to simply cut shorts and stand aside and let this move run its course.  It goes without saying that 25-35% rallies within three months time in NFLX, AMZN, FB, GOOGL have made these stocks unattractive to chase at new highs.  All are near-term overbought and appear like poor risk/rewards on a 3-4 month time frame given their rallies from May.   However, some of the laggard Biotech stocks have begun to come to life, and these present a much different risk/reward profile and are areas to look for gains in the days ahead, vs reaching for Technology.  

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 XBI, the ETF for Biotechnology, broke out two days ago and still looks to have upside in the short run, as the entire Healthcare space looks to have bottomed into early this past week where it needed to.  XLV has rebounded and Biotech in particular has made an excellent technical move which keeps this sector quite healthy near-term.   While overbought and signs of counter-trend exhaustion are close to forming, it will require another 2-3 days of gains before it looks right to sell into this move, even for trading purposes.  Therefore, it's still right to expect XBI to reach 105 before stalling and any near-term pullback would be used to buy dips.  Stocks of interest in this sector are ALXN, VRTX, BIIB which have all tried to claw back in recent sessions.  

Industrials likely to underperform further this week, as Lows still look premature

June 20, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
274.95, 274.32,  272.57, 270.94         Support
276.70, 277.19, 277.82, 279.43          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- https://stme.in/L2s6RGiWrJ

 

SPX - (1-2 Days)- Bearish- Despite closing up from earlier open, SPX has still been lower on four of the last five days.  Interestingly enough, price has closed up near intra-day highs on the last three sessions.  Movement under 2743 important for SPX, 2735 for Futures, and it's still possible that SPX could break the trend from early May for a few days before stabilizing and trying to bounce higher into early/mid-July.   Use weakness under 174.94 for QQQ and 274.95 for SPY to add to shorts.     

SX5E- EuroSTOXX 50Bearish-  Pullback has undercut near-term support from early June lows and likely to test and even break 3391 by a small amount into end of week.  The severity of the recent downdraft has been severe and much too damaging to be a minor pullback after the move up in early June.   In three days, SX5E has nearly retraced the entire amount of strength that it took 12 days to achieve from 5/29.   Bottom line.. a defensive stance makes sense, with 3391 as being important, while under should lead down to 3300 or lower.   

HSCEI- Bearish near-term with the pullback under 11635 leading lower, breaking the area of support from February lows.   This likely can lead down near 11k before any bottom and reversal.   Any move back up above 11841 would be respected, but unlikely in the short run.   

Trading Longs:  PRI, TCBI, V, BJRI, FDC, GRUB, ITT, EMN, PX, EL, HCA, GILD, CF, NTR, VEEV

Trading Shorts:  XLI, CAT, BA, MMM, FOSL, PG, MO, PM, JEF, IVZ, SIVB, PSA, LRCX, VNQ, M, KSS, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Short QQQ with targets at 163. 
Short SPY with targets at 270.94
Short XLI with targets 70.85
Short ITA with targets at 195
Long UNG with targets at 26
Long GDX, with targets at 23.50 and stops 22.12
Short VNQ with targets at 77.44



It's still right to view the near-term direction in US Equities as down, and the rebound attempt failed to move up sufficiently to think Tuesday was a meaningful reversal of any sort.  Breadth was not all that bearish, at just 3/2 negative, with 5 sectors positive on the day, about as unimpressive of a market fall, as the prior week was in trying to rally.   Technology certainly has proven to be somewhat resilient when looking at the various FANG stocks which have held up quite strong and rallied while broader Technology has weakened in recent days.  While S&P 500 Information Technology fell 0.72% in trading, the fourth worst performing sector, we saw pockets of strength in stocks like MU, WU, XRX, EBAY, ECTX, INTU, all of which rallied over +0.50% in trading.  AMZN also rose more than 0.50% while NFLX was higher by 3.73%.   However, the basket of stocks which make up the NY Fang index fell over 1% yesterday, which includes NFLX, AMZN, GOOGL, and FB, but also stocks like AAPL, NVDA, BABA, TWTR, BIDU and TSLA, the last 3 all dropping more than 2% in trading.   

The next few days could be important in trying to find a temporary bottom to this pullback into end of week, primarily based on the resilience in various parts of Large Cap Tech, while sectors like Energy and Financials look to be close to trading lows.   However, the Industrials sector remains in very weak shape near-term, as the Dollar rally has continued back to new weekly highs.  The ongoing tariff threat has affected not just the Aerospace and Defense names, but many of the Rails and other Transports in recent days, along with the multi-conglomerates which don't seem close to bottoming.  Until there is some evidence in sector ETF's reaching the lows of their respective ranges and/or putting in Counter-trend signs of exhaustion, it's still right to expect more downside.

One of the key reasons for this Wednesday could very well be the deletion of GE from the DJIA,  which was announced post close on Tuesday afternoon.   This sent the shares down under March lows of 12.73 in post market trading, and could put some pressure on the DJIA along with the market as a whole until this is removed.  Near-term, XLI should fall further, but this is largely due to other industrial names which are under severe pressure on tariff related concerns, like BA, CAT, UTX, which combined make up more than 16% of the DJIA.


Additional charts and thoughts below.

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Its right to watch for a Technology reversal lower-  NY FANG index along with S&P Information Technology both fell hard on Tuesday, perhaps not reflecting the bullishness and/or relative resilience of Large cap technology, with stocks like NFLX moving higher by more than 3.5%.   Counter-trend signals are now in place for a potential turn for the first time since the early Spring, so it pays to watch this group carefully, despite its recent resilience.  Breaks of the uptrend would be the first meaningful trend damage in FANG stocks since the first part of May.  

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Industrials still look like an attractive Risk/reward Short, and/or an area to avoid into end of week-   XLI, the benchmark ETF for Industrials, was hard hit Tuesday, and still looks to have room to move lower into Thursday/Friday down to near $70.80.   This could result in further pressure on US indices, while the GE deletion might also play at least a minor role in this sectors underperformance going forward.   Overall, Industrials looks like an area to avoid buying dips in the days ahead, waiting for prices to gradually begin to stabilize.  

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 GE  LEAVING THE DJIA. Who would have ever thought?    This bombshell was released post close on Tuesday,  causing GE to trade down to new lows for 2018, undercutting March lows at 12.73 and hitting the lowest levels since 2009.   The upcoming addition of WBA creates five Healthcare names that now make up the DJIA, and puts GE on alert for a possible LOW, psychologically.  (Most of these announcements are horribly ill-timed.  )  While a 1% decline down under $12.73 won't put too much pressure on the DJIA, the pullback in XLI based on MMM, BA and/or UTX weakness is a different story.  What could be interesting in the months ahead is how resilient the High Yield market is if it has to absorb the $100 billion of bonds still Investment grade rated if these are ever downgraded.  Near-term, there looks to be potential for GE to trade down slightly under $11,  but from this point onwards, the watch is on for when GE trades back above former March lows after breaching this level.  Weekly charts show pretty persistent positive momentum divergence.  

Tariff escalation coinciding with equities drawdown in a very seasonally weak period

June 19, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
274.95, 274.32,  272.57, 270.94         Support
276.70, 277.19, 277.82, 279.43          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- https://stme.in/L2s6RGiWrJ

 

SPX - (1-2 Days)- Bearish- Monday night futures weakness should lead to further declines in Tuesday's trading, as this post expiration week for Quad-witching in June tends to be very seasonally weak.  Pullback to near 270.94 looks possible.   Use weakness under 174.94 for QQQ and 274.95 for SPY to add to shorts.     

SX5E- EuroSTOXX 50Bearish-  Pullback has reached near-term support based on mild June uptrend, yet S&P weakness might lead Europe to violate 3450 on a close, which should lead down to 3300.   

HSCEI- Make-or-break on pullback-Pullback in the last week has reached an area near February lows which is thought to be important.  Movement under 11635 however, should lead to acceleration down to 11426. 

Trading Longs:  BJRI, FDX, FDC, GRUB, ITT, EMN, PX, EL, HCA, GILD, CF, NTR, VEEV

Trading Shorts:  FOSL, MU, PG, MO, PM, JEF, IVZ, SIVB, PSA, LRCX, VNQ, M, KSS, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Short QQQ with targets at 163. 
Short SPY with targets at 270.94
Short ITA with targets at 195
Long UNG with targets at 26
Long GDX, with targets at 23.50 and stops 22.12
Short VNQ with targets at 77.44



Bottom line, The prospects of a growing trade war remain the near-term catalyst that are coinciding with weakness in Equities.  While the amount might be economically insignificant, the perception of a growing trade war can't be considered anything but negative and Trump's attempts at "upping the ante" likely leads to stocks selling off further into end of week.  

This week, seasonally speaking, has the dubious distinction of being the most bearish week of the month of June, down 24 of the last 28 years post 3rd Quarter Expiration.  Financials and Industrials have struggled lately, yet Large cap Tech was able to successfully show enough outperformance that Technology finished positive.  Yet, Semiconductors were hit hard, and remain an area of concern, technically after their steep run-up and subsequent stallout.  

Stocks have now drifted lower in three of the last four sessions, and for DJIA have been down five days straight.  S&P has pulled back to right above last week's lows and trendline support from early May which intersects near 2755.  This will be the true Line in the sand which when broken would result in trend acceleration during the latter part of this week before any recovery.

As of 9pm Monday night, stocks have weakened based on S&P and NASDAQ futures on the news of Trump redoubling efforts towards China, and technically speaking, this directly coincides with many of the reasons noted last week for why equities could weaken.  In the short run, getting down under 2755 would lead to a more meaningful selloff into end of week, and given the start of Semiconductor weakness, it's unlikely that most of Technology can continue to ignore this weakness given the overbought state of many FANG stocks based on the extent of Monday's rally.   Both Treasuries and Japanese Yen are rallying in a flight to quality Monday evening and S&P futures have pulled back to near Monday's lows, which also lined up near last Friday's levels.  Overall, 2761 has importance, then near 2755


Additional charts and thoughts below.

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S&P 500 has now pulled back for 3 of the last 4 sessions, and seems poised to test 2745 which intersects the uptrend from early May as well as the former mid-May highs.  This should be the key area of importance for S&P in the coming days.  On any evidence of Tech starting to turn down with greater force, this area likely should be broken, leading to 2709 before any low.  As of Monday evening, futures had weakened down to Monday'slows, so failure at recouping should lead to a break in Tuesday's session and test of this key 2745 area. 

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Semiconductor stocks are slowly but surely losing steam, and momentum has begun to rollover in recent days coinciding with the trend break and failed rally attempt.   Pullbacks are more likely than rallies in the days/weeks ahead, and any minor rally attempt likely faces strong resistance, as this pattern gives way to a broader pullback given the symmetry and start of technical deterioration.   Stocks like TXN, MU, CY, ON all appear like attractive risk/reward shorts for this week, while weaker Semis like AMAT, LRCX, TSM still look early to buy and likely also trend lower in the days ahead.  

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 Small caps look to continue showing better relative strength than the broader market in the near-term, and weekly trends of RTY v SPX show this trend from 2014 having given way in the last two weeks.  Counter-trend exhaustion counts are premature, so while the broader market looks to technically weaken, Small-caps should be favored for out performance near-term.  

Despite Tech rally, Financials & Industrials both down

June 15, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
276.38, 275.82, 275.09, 274.24          Support
279.27, 281.21-53                               Resistance


LINK TO TECHNICAL WEBINAR from yesterday https://stme.in/L2s6RGiWrJ

 

SPX - (1-2 Days)- Bearish-  Minor rally into expiration should be utilized to take profits in most Technology and Financial stocks, with QQQ, SPY stalling out and likely turning down early next week.  On alert for trend reversal, and small short positions here, looking to add on any further rally into early next week, while also using weakness under 173.18 for QQQ and 2763 for SPX to add to shorts.     

SX5E- EuroSTOXX 50Bearish-  Utilizing bounce to sell into, expecting that gains should prove short-lived and provide shorting opportunity for a pullback in the final two weeks of June.  Trends grow more negative under 3422 for a pullback down to at least 3300.  Use minor gains Thursday/Friday to sell  

HSCEI- Neutral pattern since February, and rallies thus far above 12300 have failed, but also have not shown much weakness. there should be a floor near 11837 which can hold, but prices will need to eclipse 12427 to have much confidence of rallies, and over the next couple weeks, its more likely that global markets experience weakness than strength, and HSCEI could be affected.  

Trading Longs:  XME, FDX, FDC, GRUB, ITT, EMN, PX, EL, HCA, GILD, CF, NTR, VEEV

Trading Shorts:   JEF, IVZ, SIVB, PSA, LRCX, VNQ, M, KSS, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Short QQQ at 175.80 up to 178.50 into end of week, expecting reversal and pullback to 163. 
Looking to short SPY on any gains Friday above 279.50 up to 280.50, or evidence of prices closing under 276.66
Long UNG with targets at 26
Long GDX, with targets at 23.50
Short VNQ at 79.50-80.50 Thursday/Friday
Buy Gold on any daily close above 1309,  Thursday was close but did not confirm the buy



Thesis remains unchanged.  Expect that upside should prove short-lived into early next week, and that stocks begin to turn lower for a pullback over the next two weeks of June.  While equities successfully rallied yesterday, the index price action was a bit of a mirage of the broader market which saw pronounced weakness in both Financials and Industrials, while the defensive sectors provided most of the robust gains, with >0.75% gains in Utilities, Real Estate and Telecom.  Only Discretionary proved stronger, and most of this stemmed from Media stocks bouncing following the T/TWX deal.  Breadth was just barely positive and Advance/Decline peaked out a week ago, creating some divergence on most US Equity indices attempts to push higher.  However, as shown below, NY Composite is lower than it was this time last week, so the attempts to portray this market as resilient lately don't quite cut it.   Industrials have broken one month trends in XLI while Financials have also continued lower as the Yield curve plummeted to under 37 bp yesterday.   While stocks and bonds can sometimes move together, we're still in a period where yields and stocks have been showing moderately positive correlation (+.22=R ) so it's been unusual in the last few months for both to trend sharply higher together.   

Specifically, technology is now showing evidence of reaching key levels which likely cause a stallout starting next week vs SPX and in absolute terms.   In the SOX, this area in price and time will be complete by next Monday's close.  But the risk/reward is poor for Semiconductors, and it's right to consider selling out of Semis and Tech on this rally and consider other sectors like Materials (Chemicals, Metals, Mining) which could fare far better relatively in the next couple months.   While the Dollar rally proved strong yesterday, technically this should be a chance to buy EURUSD on pullbacks while selling into USDJPY early next week.   The Trend in US Treasury yields looks increasingly vulnerable, so given that yields have led stocks in recent months as explained above, it looks right to bet on Treasuries, not stocks between now and early July.  

Additional charts and thoughts below.

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New York Composite certainly paints a much different picture than that what's been seen in the NASDAQ and Russell 2000.  While technology and FANG stocks have lifted, the New York Composite fell below the closing level from a week ago on Thursday, a much different picture than what's being highlighted on popular financial news media.  As this daily chart shows, NYA is below May highs and also below levels seen back in March, as the index has been largely range-bound since February.  Thus, it's important to keep track of what's rallied of late, as outside of Technology and Retail, many sectors have not experienced nearly the kind of move that stocks like AMZN and FB have engineered. 
 

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The CBOE Volatlity index looks to be nearing a low, right at a time when counter-trend exhaustion is close to completion in popular Volatility ETNs like VXX.   VXX looks to be within 2-3 days of bottoming out after having pulled back 43% since the early part of April.   Both TD Combo and TD Sequential buys are close to completion by end of week, and should allow for an above-average bounce in the weeks ahead.   While the trend is certainly down, the combination of trend exhaustion indicators, sentiment, seasonality and divergences points to a much different course in the weeks ahead.  

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 Natty gas is starting to look attractive in its base-building efforts despite heading into a historically seasonally difficult time in July.  Technically the base from last year should still lead to breakout attempts in late June before any July mean reversion, so it's right to be long here with movement over $3 /mmb leading at least fractionally higher before this stalls out.  The Natural Gas ETF, (UNG) looks appealing to own for an upcoming breakout, and one should own here technically looking to press when Natural gas closes over $3 in the front month contract.  

Rally showing increasing signs of Stalling out

June 14, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
276.38, 275.82, 275.09, 274.24          Support
279.27, 281.21-53                               Resistance


LINK TO TECHNICAL WEBINAR from last Thursday: https://stme.in/Z1TiZuapkS   Today's call will take place 1pm EST- Details sent by email

 

SPX - (1-2 Days)- Bearish-  Small short positions here, looking to add on any further rally into end of week and/or Monday/Tuesday, while also using weakness under 173.18 for QQQ and 2763 for SPX to add to shorts.     

SX5E- EuroSTOXX 50Bearish-   Bounce could very well be complete and would grow more negative under 3422 for a pullback down to at least 3300.  Use minor gainsThursday/Friday to sell  

HSCEI- Neutral pattern since February, and rallies thus far above 12300 have failed, but also have not shown much weakness. there should be a floor near 11837 which can hold, but prices will need to eclipse 12427 to have much confidence of rallies, and over the next couple weeks, its more likely that global markets experience weakness than strength, and HSCEI could be affected.  

Trading Longs:  FDX, FDC, GRUB, ITT, EMN, PX, EL, HCA, MYL, MRK, GILD, CF, NTR, VEEV, COST

Trading Shorts:   JEF, IVZ, SIVB, PSA, LRCX, VNQ, M, KSS, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Short QQQ at 175.80 up to 178.50 into end of week, expecting reversal and pullback to 163. 
Looking to short SPY on any gains Thursday-Friday above 279.50 up to 280.50, or evidence of prices closing under 276.66
Taking profits in XLY Thursday
Taking profits in XLV Thursday
Taking profits in IHI Thursday

Short VNQ at 79.50-80.50 Thursday/Friday
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365


Expect that upside should prove short-lived between Thursday and early next week, and that stocks begin to turn lower for a pullback over the next two weeks of June.   Yesterday's attempted rally reversed course post FOMC, and we saw spikes up in Yields and the Dollar only to turn back lower by end of day.   US stock indices showed negative closes of -0.50% from DJIA and SPX while the NASDAQ closed flat, though breadth was about 2/1 negative, something which had also occurred on Tuesday during an "up" session.  10 of 11 sectors were down in trading, with Telecom, Real Estate and Materials leading to the downside, though Industrials also finished lower by 0.80% and only Consumer Discretionary rose.   Financials, which had risen the entire session into and right after the FOMC, reversed sharply and gave up all earlier gains, with S&P 500 Financials index posting a -0.33 negative return for the day.   Most of Discretionary's gains came from Media bouncing post T/TWX deal, but otherwise, it was difficult to find much sign of any pockets of strength outside of Healthcare Equipment and Services and Retailing..

These reasons are specifically concerning for why stocks could reverse, and NOT rally further following the FOMC's rather hawkish rhetoric about how further hikes could come sooner than later.

1)  Negative momentum divergence was present on intra-day charts  of S&P while weekly NASDAQ and SOX charts have shown negative divergnece in mometum.

2) Percentage of stocks trading above their 10-day moving average has reached 83.96% as of yesterday, the highest since April, while the percentage of stocks above their 50-day m.a. reached 74.85% yesterday, the highest since February.  While momentum is not really overbought on daily nor weekly basis, Overbought conditions have been present on monthly charts for some time.

3) Intermarket divergence is present, as the NASDAQ's push to new highs has NOT been met with similar movement by SPX, DJIA, TRAN, or other indices, and the Russell 2k moving back to new highs might seem encouraging, but it's certainly not a broad-based move among the broader market averages and indices like New York Composite are still below March highs

4) Price divergence with many of the developed world markets- as NASDAQ's push to new highs was certainly not followed by Europe's SX5E, SXXP, or most of Asia.  This looks to be another importnat cautionary market "tell" 

5) Decidedly weaker price action out of Financials which has been lagging nearly for a month now, and Technology also has dropped off meaningfully.  Technology was down last week and has dropped to third place in 1 and 3 month rankings.  

6) Technology has gotten quite overbought, with SOX and NASDAQ near March highs and relative charts of Tech to SPX showing evidence of trying to peak out, not unlike what was seen in March, or last November.   After such a strong run in the SOX and FANG in May, this looked to bring many investors back into the fold while now Tech could underperform

7) Sentiment concerns-  We've seen bullish sentiment per Investors intelligence now rise for the 5th straight week to 55%, above March highs, while Bears lie at 17%.   Ned Davis Research (NDR) Crowd Sentiment poll is the highest they've seen since early February, while Equity put/call data had reached the low 50s as of yesterday

8) Seasonality concerns-   June tends to be a very poor month seasonally in mid-term election years the worst of all 12 months, showing an average return since 1950 of -1.7% (SPX) and thus far gains have proven robust in the first two weeks to the tune of over 2% until yesterday.  The last couple weeks could very well help to spoil the Bulls party as mean reversion and bearish seasonality kicks in again this year.

9) Demark signals of exhaustion-  We've seen NDX, DJIA, SPX all signal evidence of counter-trend exhaustion on this rally for the first time since the bounce began in early May.  Now many sector ETF's also show similar signs, and this could grow in nature in the event S&P were to attempt to push back up to 2805-2815 into early next week.  It's unlikely in my opinion that seeing these across many indices and sectors means they should be ignored.  

10) Cycles point to mid-June for a possible turn, and this area lines up with former mid-month peaks that have been seen also in recent months.   When just casually looking at February, March, April and May, weve seen a specific pattern of these indices bottoming early in the month and peaking mid-month.   This looks to potentially be the case in June and also in July of this year. 


Additional charts and thoughts below.

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S&P broke its trend from early June mid-afternoon just following the FOMC meeting, and continued lower post Press conference.   This is the first evidence this month of a break in trend, warranting a defensive stance.  In the event that indices are able to snapback into end of week, this would allow for a better opportunity to take profits, thinking that the final two weeks of June should prove negative.   Given the bearish points laid out above which have all come together in mid-June, it's worth paying attention when price trends break to confirm some of these arguments.  Structurally speaking, a close under the last couple days was a negative, but it very well could take a couple days before we see acceleration.  Structurally speaking, getting under prior MAY highs from mid-month at 2742 would be a much bigger deal and something which would result in a much larger decline into late June.  Overall, the thinking is that this uptrend is in the process of being reversed and that short-term weakness should unfold but which could prove above-average in intensity for June and also in July.   The longer-term trends at this point have not been violated, so until/unless that occurs, selloffs which serve to drive fear higher but yet do not breach long-term trends will likely prove buyable again into early July and into late July.  
 

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The breakdown in the 2s/10s Yield curve following the Fed's rate hike Wednesday should push the yield curve down to new lows in the weeks ahead, as spreads reached 10+ year lows yesterday.  Technically this breakdown looks important and worth paying attention to also.  The FOMC's plan to hike more will likely invert the curve which has historically proven to  be recessionary given past precedent.
 

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 The sentiment polls look similar in having widened out broadly in recent weeks given our stock market rally, and bulls have risen for five straight weeks based on Investors intelligence polls.  Given that Bears are only 17% as of the latest reading, it's worth paying attention typically when this spread grows above 35% between Bulls and Bears as it typically brings about headwinds and difficult times for stocks to push higher.    I suspect we're heading into a similar time like this now, given the stallout in Financials and Tech of late, as the rally attempts in Healthcare and Industrials haven't been nearly as strong as needed, with TRAN unable to really get back to new high territory, and Retailing (which has been the driving force within Discretionary lately) having reached resistance at former peaks.  

Negative breadth & Financials lagging gives concern regarding an upcoming peak for stocks post FOMC

June 13, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
276.38, 275.82, 275.09, 274.24          Support
279.27, 281.21-53                               Resistance


LINK TO TECHNICAL WEBINAR from last Thursday: https://stme.in/Z1TiZuapkS

 

SPX - (1-2 Days)- Upside should prove limited, and reversal possible betweenWednesday and early next week with an ideal time for next Mon/Tuesday-   Look to short S&P at 2810-5, while QQQ can be shorted at 176 up to 178.50 into late this week, expecting trend reversal.   Movement under last week's lows at 173.18 for QQQ and 2763 for SPX likely means markets have peaked.    

SX5E- EuroSTOXX 50Mildly Bullish-  A bounce looks to be underway which might reach 3520-30, but doubtful this gets back to 3600.  Any move back lower under 3422 turns the trend back to bearish quickly for a move down to 3300 or below.  

HSCEI- Bullish- No change-Rally to 12525 likely, and above should lead to 12811. Neutral pattern since February, but a good risk/reward and some evidence of this trying to carve out a low given USD weakness of late. 

Trading Longs:  FDX, FDC, GRUB, EL, HCA, MYL, MRK, BAX, GILD, CF, NTR, PX,  VEEV, COST

Trading Shorts:   LRCX, VNQ, M, KSS, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Short QQQ at 175.80 up to 178.50 into end of week, expecting reversal and pullback to 163. 
Long SPY Target at 280.55. Stops raised to 276.60.
Long XLY Target 111-111.25 -  Look to take profits Wed-Friday of this week
Long XLV target at 86.35-.50-  Take profits into Wed-Friday just above Monday's highs
Long XLB with targets at 64 and stops raised to 60.27
Long IHI , targeting 207-208 into end of week- take profits in this zone
Long HSCEI at 11575-11650, targeting 12525, and above to 12811
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365



Similar to yesterday's thinking, this rally is showing increasing signs of stalling out, and despite indices having made fractional gains, price wise on Tuesday, Yields pulled back hard into the close, and Financials were hit with a -0.50% lows, bringing XLF down to a  multi-day low close.   Technology has shown evidence of stalling out in recent weeks as its rally has become far less robust with QQQ right near prior highs.   Demark counts suggest that peaks could come by early next week in QQQ, while some counts are ready as ofWednesday to sell into this rally.   One should consider lightening up on any further rally from Wednesday into Friday of this week, expecting that any further rally will come about on far lower breadth, participation and volume.   Tuesday's breadth ended up turning in NEGATIVE Advance/decline data by the close, which was telling . While Healthcare and Discretionary still look to push higher for 2-3 days near-term, and Technology might do the same into end of week, it's wise to be on guard for evidence of stocks now reversing course with prices having pushed up into mid-month.

If this month's pattern echoes that of the last few months, peaks in stocks mid-market might occur yet again, and given negative breadth, with two leading Generals of the SPX, Technology and Financials, starting to show evidence of weakening of late, one should be on alert for some stalling out.   As has been mentioned, seasonality and sentiment directly coincide with this thinking for the back half of June to be worse than the first two weeks.  While the Fed meeting itself might not serve as the catalyst, as a rate hike is expected, the guidance and the resulting move in the bond market needs to be watched carefully given that bond yields have largely been leading stocks in recent months.   

Additional charts and thoughts below.

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QQQ has reached levels that make fading this rally appealing technically between now and early next week.  Counter-trend sells are present on weekly charts now along with monthly while Technology has slowly but surely started to lag again following the robust outperformance, not dissimilar from what happened starting in mid-March.  For those with long portfolios in Technology, looking to add QQQ shorts might make sense from 176 up to 179 into end of week/early next given signs of negative divergence on weekly charts coupled with bullish sentiment and poor seasonality.  

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The divergence between QQQ and SPX and Europe's SX5E has grown fairly pronounce in the last few weeks and is something to watch carefully to see whether the world can play catchup to Big cap Tech, or whether FANG Is due for a FALL in the weeks ahead.  Given sentiment levels, and yesterday's negative breadth, its not unrealistic to expect initially that QQQ should back off and pull back into late June with an above average possibility of a strong turn also in late July.  

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 The downturn in Financials over the last couple days has also set off alerts as the recent rise in Yields into FOMC has not really brought about any meaningful bounce in the Banks, outside of a few days of gains.  Many of the stronger stocks within this sector remain within the Regionals and E-brokers and Exchanges, while the Banks have largely lagged.   Given the pullback to new lows in relative terms, this is a sector that really needs to stabilize quickly to have hopes of this rally continuing, and for now is not responding all that well of late.  


 

Tech and Financials underperformance send a warning, but for now, Discretionary, Healthcare stepping up

June 12, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
276.38, 275.82, 275.09, 274.24          Support
279.27, 281.21-53                               Resistance


LINK TO TECHNICAL WEBINAR from last Thursday: https://stme.in/Z1TiZuapkS

 

SPX - (1-2 Days)- Mildly Bullish, but with plans on taking profits at 2800 and above and turning bearish within this uptrend later this week, as the trend  should not get up above March highs without stalling out and turning lower into next week.    

SX5E- EuroSTOXX 50Mildly Bullish-  A bounce looks to be underway which might reach 3520-30, but doubtful this gets back to 3600.  Any move back lower under 3422 turns the trend back to bearish quickly for a move down to 3300 or below.  

HSCEI- Bullish- No change-Rally to 12525 likely, and above should lead to 12811. Neutral pattern since February, but a good risk/reward and some evidence of this trying to carve out a low given USD weakness of late. 

Trading Longs:  EL, HCA, MYL, MRK, BAX, GILD, RH, CF, NTR, PX, LYB, VEEV, LPNT, ORLY, LHCG, PGR, COST, FDX

Trading Shorts:   LRCX, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Long SPY Targets raised to 282;  Stops raised to 276.60
Long XLY with targets raised to 111
Long XLV with targets at 86.35-.50
Long XLB with targets at 64 and stops under 59
Long IHI w/ target raised to 210, and stops at 200.78
Long HSCEI at 11575-11650, targeting 12525, and above to 12811
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365



Sell rallies into Wednesday-Friday of this week-  US Equities remain pointed higher, but some evidence of non-participation is brewing, which could make much further upside difficult to come by past the FOMC meeting.   While Consumer Discretionary and Heatlhcare were able to power higher, other sectors like Financials and Tech could barely show any upside.   KRE and KBE finished down 1% for the day, while SOX was also quite weak, something which was discussed last week.   This sector rotation may or may not be able to help indices remain afloat, but it's worth noting that sectors like Materials and Energy count for very little of the S&P, and when sectors like Technology begin to stall at 26%, it's worth paying attention.  

In the near-term, the move in Yields back higher is likely to result in at least part of Financials trying to make a stab higher, which is important given this sectors massive underperformance in the last few months.  AS mentioned, KRE and KBE both lost 1% yesterday, but yet XLF has managed to bounce a bit in recent days, but now nearing a very important area of resistance.  If Financials and tech both stall out, it's difficult to see what's able to carry indices higher through the toughest seasonal part of the month, during a very weak time.   February, March, April and May all bottomed In early month, peaked mid-month and sold off to end the month near the lows.  June also has followed suit thus far, with an early month bottom and rally into mid-month-  if history is any guide, one should look to sell into this rally by end of week, with two more weeks to go and historically very poor performance in June during mid-term election years, with S&P down 1.7% since 1950.   

Additional charts and thoughts below.


S&P trend higher, yet breadth lately has been less than ideal lately,  Tech has been lagging on a bounce, while Materials, Healthcare bounce further.  These latter groups should be favored.for strength while Tech should be sold into on this rally.  S&P shows signs of counter-trend exhaustion within 1-2 days away which likely come about at the time of FOMC, and given the Tech stalling out, could be important in turning the market back lower.   For now it will take a move back down under 2752 and until this occurs, the trend is bullish and can reach 2800-15.

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Consumer Discretionary looks like one of the best sectors to favor near-term after its push back to new highs.  While many of the stocks that have performed well of late are Retail based, this ETF remains at least three days from signaling any type of exhaustion and is performing very well in the near-term after its recent breakout.  Additional Discretionary strength looks likely, and this sector should be favored for outperformance.  Buying here, or on early weakness Tuesday with targets near 112-112.50 looks likely

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 Retailing makes up 9 of the top 10 performing stocks within Consumer Discretionary over the last month.  This weekly chart shows the extent of the push up over early year highs and which has brought this sector to the highest levels since early 2015.  this pattern remains quite constructive technically for additional strength, and should be favored for outperformance between now and end of week.  

Rotation out of Tech into Materials, Healthcare likely- Peak still a bit premature

June 8, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
276.38, 275.82, 275.09, 274.24          Support
279.27, 281.21-53                               Resistance


LINK TO TECHNICAL WEBINAR from last Thursday: https://stme.in/Z1TiZuapkS

 

SPX - (1-2 Days)- Bullish, as insufficient damage was done to cause trends to break down, and breadth was largely flat on the day, and ended up positive.  A push back up remains likely into next week, albeit on far lesser breadth.  Move to 2793 up to 2802 is likely and time-wise, looking at FOMC meeting as a chance to take profits and sell given Demark lining up next week and sentiment.  Under 2743 or late May lows would be the first meaningful warning.     

SX5E- EuroSTOXX 50Mildly Bullish-  No change and no real net change in prices over the last few days.  The rebound from early lows should lead to a bit more strength up to 3520-30, so its likely that the next couple days continue to show further upside.  Any move back under 3389 would allow for a full retest of 3261.

HSCEI- Bullish- Rally to 12525 likely, and above should lead to 12811.   Bounce ongoing and expect Dollar weakness leads this higher

Trading Longs:  CF, NTR, PX, LYB, MYL, GILD, AGN, MRK, BAX, HCA, VEEV, LPNT, ORLY, HCA, LHCG, PGR, COST, FDX

Trading Shorts:   STX, LRCX, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Long SPY Targets raised to 282;  Stops raised to 275
Long XLY with targets raised to 111
Long XLV with targets at 86.35
Long XLB with targets at 64 and stops under 59
Long XLF with targets 28-28.50
Long IHI w/ target raised to 210, and stops at 200.78
Long HSCEI at 11575-11650, targeting 12525, and above to 12811
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365



As discussed yesterday, a few new themes are emerging:   First, US Dollar downturn is coinciding with Base Metals,Agriculture and Chemical stocks starting to strengthen.   Second, the rebound in US Treasury yields has coincided with Financials attempting to bounce (minor retrace yesterday)  Third, Technology is starting to stall out, albeit slowly, and we seem to be very near a peak in Semiconductor shares.  Fourth, Healthcare has begun to strengthen, as noted by meaningful strength in MRK, BAX, ISRG, MYL, GILD, AGN, PKI and others of late.  So in effect we have distinct sector rotation, with Tech beginning to falter, while both Materials and Healthcare lift.  Granted, it will take more than a day to make a trend.  Yet, both of these latter groups appear like far better risk/rewards than Technology at this juncture.  One should consider at least partial profit-taking in most "FANG" names to consider buying Metals or Ag stocks, a few of which are listed in this report.  

When looking at yesterday's price action, it wasn't nearly as weak as S&P and NASDAQ indicated, as breadth was largely flat and finished positive on the session, and the DJIA was higher on the day as six sectors rose in trading while five fell.  S&P and DJIA both fell moderately, yet held where they needed to, as did NASDAQ, which saw distinct Semiconductor weakness, which looks to be trying to put in a top between now and next week.  Bottom line, insufficient signs of weakness to fade the rally, yet distinct sector rotation clues that are flashing warning signs about an upcoming larger degree of weakness in Technology to come after the recent runup (in my view)   What's key now is to observe the degree of any further breadth on a rally back to new highs into next week's FOMC meeting, which I feel should prove quite weak and not nearly as broad-based as necessary to help equities hold afloat into late June.   Semiconductors in particular look vulnerable, and it's wise to keep very tight stops on longs in this sector heading into next week.  

Additional charts and thoughts below.

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Bottom line, despite the divergences on hourly charts, there remains none to be seen on Daily nor weekly.  Under 2758 would be the first evidence of weakness and then 2743.  Until/unless late May lows are violated, it should still favor a bullish stance to push higher into next week's FOMC.   Watching this June uptrend will alert as to the first evidence of trend deterioration, which for now, is absent.   Given thoughts of a peak being near, I expect any further rally into next week to occur on sub-standard breadth, and for Tech to lag on a bounce, while Materials, Healthcare bounce further.  These latter groups should be favored.

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Semiconductor stocks fell to make a bearish engulfing pattern yesterday, opening aboveWednesday's close, making a higher high than Wednesday's range, selling off the whole day to close at a loss while yesterday's range completely "engulfed" the prior day.   This was important and negative price action, and given that counter-trend indicators like Demark's TD Combo indicator produced a TD 13- Countdown right near the highs, it's likely that this rally loses steam and/or makes minimal upside progress into next week before breaking this uptrend and confirming this sell.   Confirmation would require a daily close at this point under the close from four closes ago.  For today, this level needed is remaining UNDER 1422.67.  Given that TD Sequential is also present on a 9 count, and requires another four trading days of a close higher than the HIGH from two days ago, this could be resolved by a final push higher, which fails into FOMC.  

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 CF industries (CF-$42.89) is an example of the kind of rotation that's been happening in this market in recent days.  We've seen a distinct push into the Agriculture Chemical names like CF, NTR, MOS, and this group should be favored for further strength in the days/weeks ahead.   Yesterday's close at the highest levels since early March managed to break out of this consolidation that's contained prices in recent months, and is bullish for further near-term gains.  Technically it looks right to be long this group, using weakness to add, while avoiding the Semiconductors.  

Financials snapback on yield surge a temporary positive

June 7, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
275.82, 275.09, 274.24          Support
278.25, 279.10, 281.53        Resistance


LINK TO TECHNICAL WEBINAR from last Thursday: https://stme.in/Z1TiZuapkS

 

SPX - (1-2 Days)- Bullish, but do not expect SPX will exceed January highs without stalling out and pulling back into late June.   Move to 2793 up to 2802 is likely and time-wise, looking at FOMC meeting as a chance to take profits and sell given Demark lining up next week and sentiment.  Under 2718 would be a concern.   

SX5E- EuroSTOXX 50Mildly Bullish-  The rebound from early lows should lead to a bit more strength up to 3520-30, so its likely that the next couple days continue to show further upside.  Any move back under 3389 would allow for a full retest of 3261.

HSCEI- Bullish- Rally to 12525 likely into next week.   Bounce ongoing and expect Dollar weakness leads this higher

Trading Longs:  FDC, PX, WPM, GRUB, LYB, KKR, BAC, XLF, MRK, GILD, LPNT, ORLY, HCA, LHCG, EBAY, WU, PGR, BAX, COST, FDX

Trading Shorts:   AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Long SPY Targets raised to 282
Long QQQ, Targets raised to 177.50-179- Stops under 173
Long XLY with targets raised to 111
Long XLB with targets at 64 and stops under 59
Long XLF with targets 28-28.50
Long IHI w/ target raised to 210, and stops at 200.78
Long NYFANG index @ 2730 with targets raised to 2975 and stops raised to 2863
Long HSCEI at 11575-11650, targeting 12525
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365



The move in Equities higher continues to be more positive from a price perspective than it is from a volume or breadth standpoint, and investors are jumping aboard this rally given Equity Put/call data sinking quickly.  This ratcheting up in sentiment coinciding with breadth coming in far less than idea levels (Less than 2/1 positive yesterday) means that equities are unlikely to carry through the month of June without any blemishes.  As has been reported, the month of June is seasonally quite weak, the weakest of the year in Mid-term election years, so the 2.48% gains in S&P and 3.32% gains in NASDAQ thus far aren't likely to be sustained.   Cycle dates along with Demark counter-trend exhaustion signals key in on next week for being important, which just coincidentally lines up with this month's FOMC meeting, so it's likely that this move stalls out within the next 3-5 trading days.  One should consider taking profits in Tech stocks for those that are tactical and not long-term in nature, and considering Materials instead and/or the Metals for an upcoming bounce.

3 key things are happening near-term that are important for the market.  1) Yields have snapped back higher, giving a rise to Financials  2) the US Dollar has begun to peak out which has allowed for some stabilization and bounce in EM equities and currencies, and 3) Commodity stocks have begun to show strength as per Materials gains in recent days, which has been partly due to base/industrial metals strengthening.  These trends are important, but one needs to focus on 2 key things for the next week:  Whether or not this Tech rise can continue and NOT stall out near former highs (which seems unlikely given the sentiment, and whether or not the Financials move is also for real (Also unlikely given massive Short Treasury bets by Non-commercial Specs)   For now, the trend in equities has continued higher, though warning signs abound.  

Additional charts and thoughts below.

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S&P has pushed through resistance near 2741 as of the last couple days, and yesterday's pickup in Financials was thought to be a positive at a time when the market has been sorely lacking leadership outside of Tech and Retail.  The two worries concern Technology reaching areas of resistance where this should stall out, while Put/call data has become dangerously low, as Equity put/call data has dropped to levels which marked the January peaks.  Call buying en-masse by investors and being correct immediately does not typically go hand-in-hand, and the breadth accompanying this move is less than stellar (if yesterday's <2/1 Upside breadth was any gauge)  While Financials bouncing is thought to be a positive, it's unlikely that this sector is experiencing any more than just a bounce which will stall out post FOMC meeting next week. 

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Yields turning back up above 2.93% was a positive for US and German Yields and served as a source of stabilization for the Banks which managed to jump higher and outperform after numerous signs of momentum lagging of late.  While the act of regaining this uptrend is a positive for Treasury yields, the degree to which investors continue to bet that Rates are going higher, though CFTC Treasury shorts is a concern for this view, and likely means that rates stall out and reverse back down after FOMC next week.   For now, additional upside above 3% up to near 3.05% looks possible for yields in the next few days before stalling out.  

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 XLF advance today given the Yield snapback showed Financials attempting a bounce after nearly four months of underperformance.  Near-term gains look likely in XLF, BAC, JPM after many of the Money-center banks and Financials group as a whole had underperformed, and specifically had lagged the Regional Banks.  Upside targets lie near 28.25-28.50 into next week, and this is thought to be a short-term bounce only, not the start of a meaningful shift higher in Financials.  One should utilize this bounce to sell into this group by end of week/early next week.  

Materials could be set to outperform as Dollar falls

June 6, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
274.34, 273.58, 272.94          Support
275.70, 276.28, 276.61          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday: https://stme.in/Z1TiZuapkS

 

SPX - (1-2 Days)- Bullish, No Change, the Technology move is growing stretched, while Discretionary has pushed higher to help, while Industrials and Financials remain largely absent thus far.  A bit more strength looks possible for this week, though evidence of negative momentum divergence is growing and any move down under 2740 is problematic for the near-term bullish case

SX5E- EuroSTOXX 50Mildly Bullish-  Yesterday's weakness happened prior to US Equities snapping back, but Europe remains the weak link and should be underweighted relatively.  A bit more strength can happen up to 3520-30, so its likely that the next couple days continue to show further upside.  Any move back under 3389 would allow for a full retest of 3261.

HSCEI- Bullish- No change-Move up to 12400 without too much trouble and movement above should allow for 12525-12890.  Bounce ongoing and expect Dollar weakness leads this higher

Trading Longs:  FDC, PX, DBX, GRUB, LYB, KKR, BAC, XLF, MRK, GILD, ORLY, HCA, LHCG, EBAY, WU, PGR, BAX, COST, FDX

Trading Shorts:   AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Long SPY w/ target 276.61
Long QQQ, but looking to sell 175.20+ with stops under 173.07
Long XLY with targets 110
Long XLF with targets 28-28.50
Long IHI w/ target raised to 205, and stops raised to 200.78
Long NYFANG index @ 2730 with targets raised to 2950 and stops raised to 2800
Long HSCEI at 11575-11650, targeting 12500
Long Grains through WEAT, or CORN
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365

Short Utilities and REITS-  XLU and VNQ after the recent rally and now stalling out



Bottom line, while trends are positive, Equity markets just don't feel all that sound heading into early June.  Financials continue to act poorly, while the breakout attempt in Transports looks to have failed for now.  The SOX looks to be close to resistance, and Technology as a whole looks right to pare down a bit into this advance and take profits in favor of putting money to work in Materials.  The Dollar downturn should result in the Metals trade gaining traction once again.  We've seen a bit of that in the Base metals (Huge move higher in Copper yesterday) and Chemicals and paper stocks have acted well of late.  Though the Precious metals should be next to start turning higher.  Sentiment has gotten quite pessimistic on Gold again, and given that Gold has held its longer-term uptrend, this could be near an area where this bottoms out and turns back higher.  For now, not much proof just yet, but something to consider joining quickly if Spot Gold can get back above 1309.  

Overall, the move in Discretionary has been largely Retail related, but a positive nonetheless, while Tech and various Healthcare push higher.   Given that Treasury yields still seem primed to push up into FOMC next week, Financials should get a much needed bounce, which might provide some solace even if Tech does stall out.  For now, the Regional banks continue to act much better than Money Center.   Within Technology, Semiconductor issues look to be stalling out and should turn back lower vs Hardware, which loosely translated, means, buy AAPL and STX and sell SOX/SMH.  Watching yields carefully in the next couple days should give some clues as to whether stocks turn down this week, or can hold out for next.  But evidence of negative momentum divergence has been building of late, and so a rally in Financials is a MUST to expect equities to be able to weather this and for SPX and DJIA to power higher to join the NASDAQ.  At present, this seems unlikely, but a near-term bullish stance is still recommended, until/unless 2740 is broken, which would shift this to a bearish stance quickly. 

Additional charts and thoughts below.

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S&P looks to be nearing a possible short-term peak, as momentum divergence has been building on this recent runup which was seen yesterday, and momentum did not join S&P back at new multi-day highs.  Key level for the Bulls to pay attention to will be 2740.  Under this and trends could experience a pullback to 2700.  For now, it pays to stay long albeit with an eye for the exits given this negative divergence while Equity Put/call levels remain low.  

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XRT gains show the key driver behind much of the Consumer Discretionary move in the last week, as eight of the 10 best performers in Discretionary have all been Retail based, and this sector continues to exhibit an extraordinary amount of near-term strength.  Prices are now within striking distance of former highs, which could be a temporary stopping point and similar resistance lies on XLY charts.   For now, Retailing still has to be favored until some evidence of weakness arises.  

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 Semiconductor stocks are likely to peak out vs Hardware in the next few days/week, which should provide more strength in AAPL, STX, FFIV vs stocks like MU, or INTC, as the Semis are poised to take a back seat in the weeks ahead.   Relative charts of this ratio shows the rally in May which now has reached the area of resistance and attempted to rollover.  This could be problematic to the bullish case for further Semi outperformance, and one would favor Tech Hardware or Software within Technology vs the Semiconductors. 

The Good, the Bad, and the Ugly- Breakout in Tech encouraging, but breadth lagging, & Industrials, Financials weak

June 5, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
274.30, 273.86, 272.94          Support
275.30, 275.70, 276.61          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday: https://stme.in/Z1TiZuapkS

 

SPX - (1-2 Days)- Bullish, between now and FOMC, expecting a bit more upside for equities into end of week this week and early next, though the sector participation is likely to be low, and Financials could push up to take the place of Technology as mean reversion sets in.  2749-50 is important and above near 2767-77 for possible stalling out

SX5E- EuroSTOXX 50Mildly Bullish-  A bit more strength can happen up to 3520-30, so its likely that the next couple days continue to show further upside.  Any move back under 3389 would allow for a full retest of 3261.

HSCEI- Bullish- Move up to 12400 without too much trouble and movement above should allow for 12525-12890.  Bounce ongoing and expect Dollar weakness leads this higher

Trading Longs:  KKR, BAC, XLF, MRK, GILD, ORLY, UNP, HCA, CAH, LHCG, EBAY, WU, TDG, PGR, BAX, BSX, COST, FDX, TWTR

Trading Shorts:  PCG, EIX, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Long SPY w/ target 276.61
Long QQQ, but looking to sell 175.20+ with stops under 173.07
Long XLY with targets 110
Long XLF with targets 28-28.50
Long IHI w/ target raised to 205, and stops raised to 200.78
Long NYFANG index @ 2730 with targets raised to 2950 and stops raised to 2800
Long HSCEI at 11575-11650, targeting 12500
Long Grains through WEAT, or CORN
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365




A few good signs of progress, but with the good, comes the bad.   Equities have now shown NASDAQ Comp and 100 index having broken out, which would be thought ordinarily to be quite constructive.  However, given Demark's exhaustion indicators which have served us well over the years, we'll face pretty serious signs of resistance just in the next few days into next week, making this likely a move to sell into for Technology.  Meanwhile, Financials have the opposite signals, and buys are occurring across some of the larger Banks, which could allow for BAC, JPM and XLF specifically to play catchup.  note, this directly coincides with US 10yr Yields regaining the key 2.93% area that allows yields to recapture the trendline that was broken.  So Yields very well might trend higher into next week's FOMC while the Financials follow suit and play catchup after a lengthy period of underperformance.  The Regional banks still look to outperform the Big Banks, but these Money center banks look attractive from a counter-trend perspective, and should outperform in the short run.   This looks like a short-term rally in this group only which could then be reversed following the FOMC, given the ongoing poor structure in the Financial group. 

As has been discussed, given the nature of this consolidation since late January, it's important to play Hit and Run, and be tactical as this looks quite unlikely to lead to a move back to highs across the board for US equities for the time being.   What's of concern??   Breadth is far too light on this rally to have real conviction, (Less than 2/1 during Monday'ssession)  Meanwhile,  Equity Put/call ratios remain in the low 50s and far too low from which to expect a meaningful upward thrust (as most seem to be loading the boat ahead of next week's Fed meeting)  Furthermore, the issues with regards to Italy and the Eurozone don't seem to be resolved by a long shot, so a few days of mild equity rally might cause investors to forget what's happening "Across the Pond"  but this hasn't been nearly resolved. 

All in all, while a move up above 2741 was thought to be bullish at a time when NASDAQ has moved to new highs, the lack of participation out of Industrials, Transports and Financials was disappointing.   While its thought that Financials likely join the fray briefly, this might occur while Tech takes a back seat, and allows some brief catchup out of Discretionary and Healthcare which we discussed last week.  Bottom line, it pays to be tactical, and while a long bias is still correct, utilizing tight stops into the FOMC makes very good sense, technically, as this does NOT seem like a broad-based rally which inspires confidence.  



Additional charts and thoughts below.

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NASDAQ's push back to new highs seems constructive at first glance technically, though the overbought conditions combined with counter-trend signals of exhaustion are a concern for NASDAQ Comp and 100 index, and can be seen in many popular Technology names across the board like AAPL, FB, NFLX, AMZN, GOOGL just as FANG has pushed back to new highs.  While further near-term gains might happen for 3-5 days, the period in Late June could turn out to be quite a different story for Technology and for the NASDAQ, and tactically speaking, I like taking profits on longs in NASDAQ and in Technology into next week on any further gains.  Daily, weekly and monthly charts will all line up showing exhaustion, while evidence of negative momentum divergence is present, making this unattractive to think this breakout extends too meaningfully.  The area at 7720-50 looks important for NASDAQ Comp. 

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Consumer Discretionary is likely to show further near-term outperformance, as XLY furthered last week's breakout and is likely to test prior highs near 110.  Note, the huge constituents like HD, NFLX, CMG have played a big role in this group outperforming and these stocks might still shine into the Fed meeting until we stall out.  At present, while prices moving outside the upper Bollinger band might make this group seem stretched, it's right to stay long and think this move extends and a bullish near-term outlook for Discretionary through XLY is prudent.  

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 Financials rally overdue..  Are we here?   I think the move in Treasury yields back over 2.93% is a bullish sign for Financials, as this group followed the move in yields down last week.  Now that 2.93% has been reclaimed, ALONG with TD Sequential 13 countdown signals having been confirmed, Financials might bounce in the short run.  However, both absolute and relative charts show this bounce to be short-term in all likelihood only.  Also, there seems to have been no real net change to the Futures positioning for Treasuries on the yield drawdown.  So we still have readings of -471k for Treasuries, a very bearish omen most likely for Yields, bullish for Treasuries, thinking that any yield bounce into next week proves to be a chance to buy Treasuries.   For now, this sector might attempt some short-term mean reversion.   For those playing the group, the Regionals still likely outperform, and tough to expect a flip back to the Big banks, though this latter group should rally in the days ahead, technically.  

Large-Cap Tech & Small-caps still areas to overweight

June 1, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
269.38-.50, 267.45-.76,  266      Support
274.25, 275.88, 276.61               Resistance


LINK TO TECHNICAL WEBINAR from yesterday:https://stme.in/Z1TiZuapkS

 

SPX - (1-2 Days)- Bullish, turning bearish with close under 2695-  Thursday's weakness occurred on about 2/1 negative breadth, while volume into Down stocks was 3/1 negative.  The power of Technology to help buoy this market is something to lean on in the short run, and despite Financials being weak, it's thought that markets likely are still ok with Tech acting well.  If Tech starts to reverse while Financials are unable to stabilize, than a bearish stance would be right.  

SX5E- EuroSTOXX 50Mildly Bearish-  Wednesday's reversal is supportive of the idea that a bounce can happen, but trends are far more negative than in US and a minor rally should lead to selling opportunities.  Area at 3480-3520 could have importance, while any move back under 3389 would allow for a full retest of 3261.

HSCEI- Bullish- Prices are now down to initial support and should rally back up above 11900 in the days ahead.  Weakness has reached February lows and Demark exhaustion is present, so it looks wise to cover shorts and attempt to play a bounce.  

Trading Longs:  XLK, X, FB, MSFT, GOOGL, AMZN, NFLX, NUE, UNP, HCA, CAH, LHCG, DCT, FRGF, TDG, PGR, BAX, BSX, COST, FDX, TWTR, LVS, WYNN

Trading Shorts:  LL, DISH, DISCA, CNA, USB, BCS, PCAR, ITW, BLL, MMM, SWK, CMI, GE, MAS, MAT


TECHNICAL THOUGHTS


ACTION PLAN-  

Long SPY w/ target 275.88-276.61
Long QQQ w/ target 172.50, and closes above this lead to 175.20
Long IHI w/ target 202.80
Long NYFANG index @ 2730 with expectations of a move back up to new highs which could reach 2860-70 within 2 weeks before a peak
Long HSCEI at 11575-11650
Long Grains through WEAT, or CORN
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365




After several days of markets reversing the prior days trend, S&P sits right below the area it broke above on Tuesday which initially caused the rapid surge and above-average buying and positive breadth.   Tuesday's volume along with yesterday's were far heavier than the positive volume shown on Wednesday of this week.  However, the breadth was far better on Wednesday than anything seen to the downside on Tuesday or yesterday.   Overall, this remains a very splintered market right now.   Tech is moving higher and FANG stocks in particular remain one of the better areas for near-term outperformance.  Meanwhile, Financials have faltered as rates have not convincingly moved back higher, and it's much more important to be selective when buying the Banks.  Europe's Italian bank stress could very well lead to a larger problem with Europe in the coming months.  Many European banks overall like DB, BCS, CS, LYG have fallen on hard times and have accelerated lower, which is putting pressure on the overall indices themselves.

It seem likely that the spike higher in Italian yields along with the widening in Credit spreads is a harbinger of greater issues in the month of June.  Additionally, it's worth keeping a close eye on US and German bond yields which turned down dramatically and are making their own statement about possible disbelief in the economic growth being forecasted, and/or the number of upcoming rate hikes in store.  10-year Treasury yields, as has been mentioned, sliced through 9 month support and have not been able to recoup that in recent days.   Thus, the trend in Yields, and Financials is lower, with Financials returning -1% for the month of May.  The defensive groups continue to get hit hard, with Utilities and Staples being down over 1.5%  in the last month, while Telecom finished lower by over 2%.  So despite the fact that May was positive to the tune of more than 2.5%, the year has been up less, at a paltry 1.18% for SPX heading into the worst seasonal month of the Mid-term election year.  The DJIA remains negative for the year, down -1.23% through 5/31/18.   Overall a very tough environment for bulls and bears alike. 


Additional charts and thoughts below.

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The month of May at a snapshot looks pretty boring and range-bound, much more muted than the European news might suggest.  S&P has largely been in consolidation since May 14, but pulled back from mid-May, not unlike what has happened in other months this year.  Looking back, we saw pronounced peaks in mid-March, Mid-April and then Mid-May before selling off in each of these prior months.   June very well could turn out similar with evidence of Thursday's pullback occurring near similar levels of symmetry to prior lows.  So the risk/reward of buying dips here looks appealing, thinking that between 2707 and 2685 represents the downside, while upside could carry prices back near highs of 2741 and above.   Given Technology strength and improved patterns in Industrials and parts of Healthcare, it still looks a bit early to abandon a long thesis, and dips like we've seen intoThursday likely can turn higher as a new month gets underway.  Under 2685 though would be a warning, and likely lead to more meaningful weakness.  

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Technology continues to be the place to overweight, having outperformed all other sectors this year and Big-cap Tech in particular looks promising, despite the late day pullback yesterday.  Movement higher to test and exceed March highs in XLK appears likely in the short run, so this remains a sector and an ETF in particular to overweight.  Stocks like FB, MSFT, GOOGL, NFLX, AMZN, AAPL all look promising to move higher into early June, so late day pullbacks into Thursday likely constitute good buying opportunities.  

 After a full month of rally in the US Dollar, we're finally seeing evidence that this bounce has run its course.  DXY broke a month-long uptrend, confirming TD Sequential sell signals in the process.  While sentiment seems to have turned against the Euro in the last week given the Italian banking debacle, this might prove to be the right time to buy into the Euro after recent weakness, expecting a bounce in this and Pound Sterling in the days/weeks ahead.  

Reclaiming prior support is a positive for SPX, though sentiment, intermarket divergence a concern

May 31, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
270.43, 269.38-.50, 267.45-.76,  266      Support
274.25, 275.88, 276.61                           Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- 051718- https://stme.in/MpyuOSOZca  TODAY we'll be having another Weekly call-  1pm:

 

SPX - (1-2 Days)- Mildly Bullish, turning bearish with move back under 2698-  S&Ps move back up into the range resulted in Short covering and bullish buying in Financials as indices regained prior losses on heavy positive breadth.  A Flip-flop to bullish is necessary given NASDAQ making its highest close since mid-March, while indices recouped losses and moved back into the prior range- Upside target at 275.88-276.61

SX5E- EuroSTOXX 50Mildly Bearish-  Wednesday's reversal is supportive of the idea that a bounce can happen, but trends are far more negative than in US and a minor rally should lead to selling opportunities.  Area at 3480-3520 could have importance, while any move back under 3389 would allow for a full retest of 3261.

HSCEI- Bullish- Prices are now down to initial support and should rally back up above 11900 in the days ahead.  Weakness has reached February lows and Demark exhaustion is present, so it looks wise to cover shorts and attempt to play a bounce.  

Trading Longs:  X, NUE, UNP, AMZN, HCA, CAH, LHCG, DCT, FRGF, TDG, PGR, BAX, BSX, COST, FDX, TWTR, LVS, WYNN

Trading Shorts:  LL, DISH, DISCA, USB, PCAR, ITW, BLL, MMM, SWK, CMI, GE, MAS, MAT


TECHNICAL THOUGHTS


ACTION PLAN-  

Long SPY w/ target 275.88-276.61
Long QQQ w/ target 172.50, and closes above this lead to 175.20
Long IHI w/ target 202.80
Long NYFANG index @ 2730 with expectations of a move back up to new highs which could reach 2860-70 within 2 weeks before a peak
Long HSCEI at 11575-11650
Long Grains through WEAT, or CORN
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365




Wednesday's snapback proved important, with S&P getting back up above the area of the prior breakdown, along with NASDAQ closing at the highest levels since March, and could allow for rallies to now play out. While Tuesday looked bearish for quite a few valid reasons, Financial deterioration, the breakdown in Treasury yields (which have led stocks in recent weeks) and Credit widening, as the FX/Rate volatility seemed to be spreading to US, the reversal yesterday happened on sharply higher breadth, something which had been sorely missing for some time.   Wednesday's session registered nearly a 4/1 Advance/Decline reading, with volume flowing into UP v Down stocks at nearly 8/1 positive.  While this was nearly capitulatory in how much volume flowed into advancing issues, the price action accompanying the positive breadth is necessary to pay attention to.  

Concerns revolve around Bond yields NOT having regained the area of their most recent breakdown while the DJIA has been a severe laggard, and we've seen some evidence of intra-market divergence lately.  While the Bulls are quick to point out the Small-cap Russell pushing up to new highs, it's more positive to see broad-based strength among all the US indices, not signs of lagging on a push up to new high territory.  Volume also proved to be quite weak in trading yesterday compared to Tuesday's post-holiday return, which seems odd given the degree of near-90% upside seen yesterday.  For now, it's tough to put too much trust into this move, but for now, a few of the short-term negatives have been erased, and it looks like a bit more strength can now happen.  If we see a violent reversal again, to take out 2698 in the days ahead, switching back to negative will make sense.  Overall, it's better to have a quick sense of when trends are reversing and take small losses than to sit long or short and have the market go against us.   There remain plenty of good and bad stocks and ETFs to choose from to please bulls and bears alike until the trend shows more conviction in either direction.


Additional charts and thoughts below.

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S&P managed to do the impossible, and after dropping under a series of lows that had held for the last few weeks, it promptly reversed and re-entered this consolidation.  Highly unusual, but one that often leads to short-covering and chasing the rally which looks to be precisely what happened yesterday.   We saw evidence of Equity put/call ratios dropping back into the mid 50's, a cautious signal about the duration of any upcoming rally heading into the seasonally bearish month of June.  Additionally, the DJIA looks far worse than the Russell 2k, or NASDAQ of late, and this intermarket divergence IS in fact important.  For now, it looks right to favor this move continuing up a bit longer, but with an eye on the exits as markets enter June.  Movement back to the highs of this range can't be ruled out, particularly given Tech strength and attempts of Financials to stabilize.  But yet, given that volume dried up considerably in Wednesday's trading, despite the breadth, the wariness of this choppy pattern since late January continues and necessitates a very short-term tactical view, rather than swinging for the fences.  

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NY Fang index pushed back higher after just a minor consolidation in the month of May.  This pattern from March now resembles a bullish Cup and Handle pattern which could allow for brief strength back to new highs.  Yet the weekly charts and monthly have suffered some momentum deterioration of late as the pattern has moved more sideways, giving some indication that it's right to sell into a move back to new highs.   At present, trends do look to extend higher and this group has carried Technology in recent weeks.  Movement up to 2860-70 looks possible for the Fang index, but it looks right to be long here tactically in the near-term heading into the final day of May/early June.  

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 Rallies in the Healthcare Medical device manufacturers ETF, IHI proved to be quite positive Wednesday, and sets up for a further push higher up to 202.   While the XLV itself has struggled lately, the Medical Devices ETF has proven far more resilient, and yesterday's push back to new closing highs should allow this group to continue its recent outperformance.   

Credit spreads widen as Financials breakdown on Treasury rally

May 30, 2018

S&P JUNE FUTURES (SPm8)
Contact: info@newtonadvisor.com

2666-7, 2645-7, 2624, 2595-6, 2552-4     Support
2704-5, 2724-6, 2741-3                            Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- 051718- https://stme.in/MpyuOSOZca

 

SPX - (1-2 Days)- Bearish-  Tuesday's decline looks to be a game changer near-term, as S&P broke lows going back since May 9 on much heavier volume than would be anticipated in post holiday trading.  While an oversold rally might be attempted given the -1%+ decline Tuesday, this should be used to sell into

SX5E- EuroSTOXX 50Bearish-  Tuesday's downward acceleration given Italian bank woes has caused trends and momentum to pick up pace on the downside near-term.  Additional pullbacks look likely to down near 3389, then 3340 near-term, with 3261 likely providing strong support.  

HSCEI- Bearish, but very close to key support at March/April lows which likely cause stabilization.  Demark indicators look to be potentially 1 day away from triggering counter-trend buys.  One can try to buy just below the 200-day ma at 11635

Trading Longs:  ODFL, MRK, BAX, BSX, COST, UNP, FDX, TWTR, LVS, WYNN

Trading Shorts:  LL, CBOE, USB, PCAR, ITW, BLL, MMM, SWK, CMI, GE, MAS, MAT, DISH, REGN, DISCA, MCK, ABC, CAH


TECHNICAL THOUGHTS


ACTION PLAN-  

Short SPY  with 261.50 target , 271 as a stop
Short XLV 82.09 with targets at 80-80.50
Short XLK on a close under 68.79 with target 66
Long HSCEI at 11575-11650
Long Grains through WEAT, or CORN
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365




Tuesday's break on much heavier volume than normal looked important as it violated lows going back since early May along with coinciding with a larger breakdown in the Financials sector which had looked last week to be near make-or-break support.  Heading into this week, it was seen as "more" probable that Tech and Industrials strength might carry stocks higher despite the increasing volatilty seen abroad in FX and Rates, yet this volatlity seemed to have spread much quicker than anticipated to the US, and caused US Treasury yields to fall dramatically down to 2.78%, a very low level considering that yields had just touched 3.11% roughly two weeks ago.  The escalation in Italian 2year yields proved to be larger than markets had witnessed even during the Euro crisis back in 2011, and the surge in Italian and Spanish rates caused a flight to safety into US Treasuries and Bunds, the latter which have seen 10-year yields drop nearly 40 bps in the last two weeks alone, a very parabolic drop.   European Financials came under severe stress, as Italian and other European banks dropped to the lowest levels seen in over a year.

Importantly, credit spreads have finally begun to give off warning bells, as the Bloomberg High Yield OAS spread made a breakout of a pattern that had existed for the last six months, rising to 3.72%.  While this still seems relatively tame and nearly unchanged from beginning of 2018, the technical breakout in High Yield does indeed look serious and likely causes Spreads to widen further in the days and weeks ahead.  This in turn likely paves the way for yet another bout of equity weakness into early to mid-June before rallies ensue.   Watching Treasury Yields will be important, as the US 10-year yields have led Financials and also led the Stock market lower as a whole.  Until yields start to turn up, (Despite being seemingly oversold, this still looks premature until next week at a minimum) equities likely face further downside pressure.   Tech has been resilient thus far in being able to weather the weakness in other sectors, and even FANG stocks on Tuesdayshowed signs of strength.  Yet, Tuesday's decline might cause these to pause and pullback a bit near-term before any further gains can happen.  While technically there was scant signs of weakness heading into this week in US equities to make a bearish call, now we're seeing this particularly in the Financials and in Credit in a way that merits a defensive tone and considering hedging at least for a bit more volatlity in the upcoming 1-2 weeks.  Cycles had suggested a June 12-14 bottom.  Up until today, I had thought this might prove to be a high.  Given the credit widening and Financials unwinding as SPX fell to new weekly lows, i'm putting this scenario back on the front burner, expecting weakness into end of week this week and potentially into next before any meaningful low. 


Additional charts and thoughts below.

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S&P dropped under the lows of the last couple weeks and even on a late day rally attempt, could not manage to recoup prior lows that had been violated.   While the percentage of volume into DOWN vs UP stocks was a bit heavy, it wasn't capitulatory enough to call for a low.  Price action however, was quite negative and closing well down off yesterday's open suggests further weakness.   SPY might very well drop to near 261 before this weakness subsides which could still allow for a Triangle pattern to develop with minor higher lows and provide a buying opportunity into mid-June.   Regaining 270 on a close would be thought to be positive.  Yet early Wednesday strength, in my opinion, should be a selling opportunity. 

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US 10-Year Treasury yields have now violated the entire uptrend since last September in "One Fell" swoop.   This chart was just published over the weekend showing yields near key support but unfortunately this break is important, and is bearish for yields (indicating further downside) and doesn't look to be complete.  Demark counter-trend signals of exhaustion remain at least a few days away from forming, indicating that yields might get down to 2.60% before any stabilization at a minimum.   

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 European banks fell to the lowest levels since last Summer as seen in the Euro Banks ETF, EUFN.   Closing down near the lows of the day while yields failed to show much evidence of bottoming still suggests additional weakness could lie ahead, and is bearish for European Banks, which likely still underperform the US and show steep losses near-term.  Areas under $21 could be considered for buying dips, but for now, clearly look early technically speaking.  

Tech rebounds to carry market & keep rally intact

May 24, 2018

S&P JUNE FUTURES (SPm8)
Contact: info@newtonadvisor.com

2698-2700, 2682-3, 2666-7, 2649-52     Support
2741-2, 2747-9, 2753-5                          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- 051718- https://stme.in/MpyuOSOZca

 

SPX - (1-2 Days)- Bullish- Yesterday's pullback proved shortlived, as Financials and industrials pulled back to retest areas of their recent breakouts.  The strength in Tech was notable, and until markets show more evidence of failing, it pays to stay bullish.   2750-5 still looks possible

SX5E- EuroSTOXX 50Bullish for a move up to 3600-3650.  No change- Tuesday failed to capture the SPX's pullback, and it still looks like rallies can happen and its Early to sell.

HSCEI- Mildly bearish given Dollar gains and could allow for fractional weakness to near 12k, and one should consider buying near 12100 over the next few days on any weakness.  

Trading Longs:  BAX, BSX, CMA, VOYA, STI, TROW, SCHW, AMTD, TCBI, NTRS, IYT, UNP, FDX, TWTR, LVS, WYNN

Trading Shorts:  LL, CBOE, USB, MAT, DISH, REGN, DISCA, MCK, ABC, CAH


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XLF targeting 29
Long XLI targeting 78.25
Long IYT targeting 200-1
Long SPY targeting 275.5
Long TBT 38.10 with target  41.25
Short XOP targeting 40



US indices successfully rebounded, and yet again, it looks premature to make too much of the weakness of the last couple days.  The snapback following the Fed minutes helped Technology gain quite a bit of ground, while Transports and Financials both battled back after early pullback attempts. Sectors like Energy fell for the second straight day, but held its uptrend as per XLE, OIH and managed to close well up from early lows.   Bottom line, the weakness was seen as insufficient to think any sort of pullback is underway, but merely one day of selling and then yesterday's rebound helped markets rally back.  Until S&P can get under 2700, trends are bullish, and similar to yesterday, dips should be bought.  Technology in particular should be an area of focus given its ability to stabllize after the last week of underperformance.  

Bonds continued higher and 10year yields closed fractionally under 3.00%, while the US Dollar index rose to slightly over 94 before retreating a bit late day.  Technically speaking the US Dollar looks to move to 94.50 but is growing overbought and nearing exhaustion near-term.   The ability of this to peak and turn lower would be bullish for Emerging markets, which for now, still looks a bit premature.  Bottom line, a rising Dollar has caused some lagging in EM, but not much absolute weakness, and for US equities, the sector strength seems to be suggesting that rallies can still happen..  If this fails to be the case and Financials, Tech, Industrials all turn lower and erase their breakouts, than this will be addressed.  
 
Additional charts and thoughts below.


Don't look now, but Technology has started to stabilize yet again after just a minor pullback relative to SPX.   It was mentioned recently that both Tech and Financials had been lagging.  This relative chart of S&P 500 Information Technology index to the SPX did in fact peak out two weeks ago after having gotten overdone.   Yet the selloff has proven pretty benign thus far, and we've seen two straight days now where Semiconductor stocks outperformed in a bad tape (Tuesday) and now yesterday where Tech rebounded to show better performance than all other 10 sectors.   Breadth was positive and this should give Bears caution who are looking for weakness.  Overall, given that Tech makes up 25% of SPX, watching this sector carefully, both on an absolute and relative basis makes a world of sense.  

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MSCI Emerging market Index, or MXEF, looks to be near critical near-term support which should provide some stabilization and a bounce in the weeks ahead.  While the currencies have experienced parabolic signs of downward acceleration of late the equities have been far more subdued.   Relatively speaking, emerging markets have certainly underperformed in the last month following the breakout in the US Dollar index, yet on an absolute basis, we see MXEF having not even breached February lows.  Until/unless prices break 1100 in MXEF and violate the longer-term two-year uptrend, trends are bullish and it should pay to buy dips early next week, thinking that Dollar weakness might help this group bounce after some recent underperformance.  

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The US Dollar index looks to be nearing a very important area, based on the rise to its weekly Ichimoku Cloud, which is downward sloping and large in size.   Weekly chart resistance is now 2-3 days away from confirming some of the warning signs seen developing on Daily charts that suggest next week could be important in putting a high in on the US Dollar index.   A stalling out and downturn in the Dollar while most are now expecting ongoing upward acceleration would likely prove to be a boon for Emerging market equities and potentially currencies also to snapback, while providing some bounce to commodities which have been under pressure for the last month.  

Financials breakout is constructive, & offsets Industrials weakness

May 23, 2018

S&P JUNE FUTURES (SPm8)
Contact: info@newtonadvisor.com

2698-2700, 2682-3, 2666-7, 2649-52     Support
2741-2, 2747-9, 2753-5                          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- 051718- https://stme.in/MpyuOSOZca

 

SPX - (1-2 Days)- Bullish- Tough to make much of yesterday's minor weakness, given the bullish move in Financials, while industrials just gave back a portion of its recent breakout.   2750-5 still looks possible this week before prices stall out.  

SX5E- EuroSTOXX 50Bullish for a move up to 3600-3650.  No change- Tuesday failed to capture the SPX's pullback, and it still looks like rallies can happen and its Early to sell.

HSCEI- Fractional weakness possible given pullbacks during 2 of the last 3 trading days.  Yet downside likely contained near 12k, and one should consider buying near 12100 over the next few days on any weakness.  

Trading Longs:  CMA, VOYA, STI, TROW, SCHW, AMTD, TCBI, NTRS, IYT, UNP, FDX, TWTR, LVS, WYNN

Trading Shorts:  LL, CBOE, USB, MAT, DISH, REGN, DISCA, MCK, ABC, CAH


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XLF targeting 29
Long XLI targeting 78.25
Long IYT targeting 200-1
Long SPY targeting 275.5
Long TBT 38.10 with target  41.25
Short XOP targeting 40



It's tough making too much of yesterday's weakness, as Financials still managed solid gains, and an XLF breakout not unlike what was seen in Industrials last Friday/this Monday, while Semiconductor stocks also made headway.  However, Industrials gave back the prior days gains after their recent trend breakout, and Energy was hard hit as rumors swirled about a potential OPEC output adjustment.  By day's end, S&P had retraced Monday's solid progress while breadth finished around 3/2 negative with more than 1% losses in Energy and Industrials.   

Bottom line, until we see solid evidence of Technology and Financials failing, along with Industrials breaking back under the recent trend which confirmed the breakout last week, yesterday looked to just be a minor adjustment after Monday's gains.  The face that XLF joined XLI in breaking above key levels while Semiconductors climbed higher was a bigger positive than what happened with Energy.  While markets have yet to show the kind of breadth thrust and momentum acceleration that would create real conviction about a move back to highs, the incremental progress showed in Industrials, Transports and now Financials in recent days should keep the recent rally on track a bit longer, with upside targets above 2750. 

In the event that Tech completely reverses recent gains seen in Semis, and Industrials pulls back into its consolidation, while Financials reverse Tuesdays' gains and S&P closes under 2700, this would be sufficient to think a meaningful reversal had occurred.  At present, nothing can be discerned from the minor pullback Tuesday and this setback likely was a buying opportunity into end of week. 

Additional charts and thoughts below.

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SPX's minor retreat Tuesday got down to Monday's lows, but wasn't seen as all that negative given the constructive move seen in Financials along with Semiconductors also making headway.  Breadth came in just fractionally negative, and it still appears likely that a push higher to 2753-5 can happen for SPX while NDX reaches 7075.  In the event that prices fail to rebound into end of week and breach 2700, the possibility of a larger decline will have to be taken into consideration.  For now, this looks premature given the sector strength.

unnamed-53.gif

Financials gains look quite constructive, so despite the give-back in Industrials, this group managed to rise up to multi-day highs on strength of stocks like BAC, STI, BBT, WFC, CMA, RF, and FITB, all of which rose more than 1% in Tuesday's trading.  The XLF, shown above, likely rises to near $29 before any real resistance, making this one to buy for trading purposes based on Tuesday's outperformance, expecting further relative strength in the days ahead.  

unnamed-54.gif

Tuesday's move in the Thomson Reuters Equal-weight Commodity index, the Continuous Commodity index (CCI) , an equal-weighted geometric average of commodities, rose to the highest level since early 2015 as evidence of commodities like Coffee and Sugar started to rally, while the Grains moved higher on Trump's abandoning of the China Tariffs.  Despite WTI Crude retreating, this looks to be a very bullish move for commodities, and should lead to further gains in the weeks and potentially months to come.  ETF's such as the DBC allow for commodities exposure, along with DBA, for Grains.  

Transports have now joined the XLI in breaking out- Near-term constructive

May 22, 2018

S&P JUNE FUTURES (SPm8)
Contact: info@newtonadvisor.com

2698-2700, 2682-3, 2666-7, 2649-52     Support
2730-2, 2741-4, 2747-9                          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- 051718- https://stme.in/MpyuOSOZca

 

SPX - (1-2 Days)- Bullish- It's thought that yesterday's ability to close at new multi-day highs can allow for further upward progress that likely challenges 2750-5 this week before prices stall out.  

SX5E- EuroSTOXX 50Bullish for a move up to 3600-3650.  Early to sell, but this could come about as of end of week, or early next.  For now, still right to be positive here. 

HSCEI- Mildly bullish and a choppy rally up to near 12800 looks likely.  One should use any pullback to 12100 to buy dips.  

Trading Longs:   IYT, UNP, FDX, TWTR, LVS, WYNN, MOMO, HP, RH, ETFC, TROW, SCHW, AMTD

Trading Shorts:  LL, MAT, DISH, REGN, DISCA, MCK, ABC, CAH


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XLI targeting 78.25
Long IYT targeting 200-1
Long OIH 27.33 with target 30
Long SPY targeting 275.5
Long TBT 38.10 with target  41.25



US indices gains today managed to reach new multi-day highs for both SPX and DJIA, exceeding highs of last week's base, and creating a near-term bullish path for prices in the days ahead.   Industrials ETF, XLI furthered gains today, while Transports broke out above highs of the last couple months.  Breadth came in at more than 2.5/1 positive, and all 11 sectors finished in the Green.  This was the first time in about two weeks where both Technology and Financials rallied in unison, while Energy also made further headway, as Crude surpassed $72.40.  The defensive sectors also made headway and turning up, which failed to happen last week and is a new development.  While it was thought last week that prices might turn down, as discussed in yesterday's Weekly, the price action proved miniscule on the selloff, grinding sideways rather than achieving any downside progress.  Yesterday however, did make better than average progress, but higher, not lower, and prices pushing up to multi-day highs likely helps the trend continue up a bit longer this week.  Until/unless prices reverse suddenly from current levels and give back what was achieved on Monday and pullback under last week's lows, its thought that higher prices can happen this week before any stalling out. 

Key things to look for in the days ahead:  Whether or not Financials ETF can reclaim 28.26 on a close, which should drive higher to 28.50-28.75 and would be positive.  Also, the ability of Healthcare to rise back up over 83.92 per XLV, which would also be a short-term bullish factor.   As mentioned, Europe still looks to be trending higher and can stretch up over the next week per SX5E, SXXP, and this is also seen as a bullish factor at a time when SPX was wavering.  

Outside of equities, the Dollar's rise looks close to reaching resistance, but still cannot be sold just yet, and Emerging market currencies continue to face downward pressure.  Treasury yields made an About-face, but this pullback in yields should constitute a chance to sell Treasuries as the counts are incomplete for this move higher, and it's thought that higher yields can still happen into early June.   


Additional charts and thoughts below.

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SPX's move was quite constructive yesterday, and while there was the thought that 2730-5 area might contain prices, the fact that DJIA along with SPX accomplished a move back to new multi-day highs on better than average breadth while Transports broke out and XLI furthered gains, this all leads to a bit more optimism this week, which wasn't present at this time early last week.  The rally yesterday seemed to be a bit more broad-based and we saw multiple sectors participate, with constructive price action out of Tech and Financials.  Near-term, a move up to 2750-5 looks possible, and the area directly above at 2753-6 represents a perfect price/time area from late January highs which would be strong resistance if touched this week.  

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Transports have just exceeded resistance that was just discussed Monday morning in the Weekly Technical perspective, and yesterday's breakout makes Transports an area to favor for the days ahead.  IYT, the Transports ETF looks attractive as a technical long idea, and can be entered Tuesday/Wednesday with upside targets near 200-202.50.  Stocks like UNP and CSX remain particularly attractive from the Rails, while FDX is a good risk/reward in the space, having consolidated and now moving back to challenge its own resistance near 257.47 right above its 50% retracement level.   Overall, Transports should be overweighted based on yesterday's breakout and only a sudden reversal back down Tuesday/Wednesday would offset the bullishness of this move.
 

Crude oil finished at the highest levels since 2014 as the recent rally began to extend yet again,, with Monday's close above $72.40.  This looks to be a bullish development that can allow for another 2-3 days of Crude gains, though counter-trend signs of exhaustion are creeping into the equation and suggest that Crude might stall out prior to hitting $75.  These same signals are being seen in XLE and OIH, on daily and weekly charts, suggesting that its better to be a bit selective at this stage of the rally, and that Crude likely isn't going to $85+ .  For now the period between now and end of month remains positive, but one should initiate any new longs with tight stops and look to take profits a bit quicker than normal over the next week, instead of trusting this move to extend throughout the Summer.  At present, OIH, XOP and USO remain longs, but stops are being raised, and profits will be taken into end of week into early next.  

Bond Yield breakout can accelerate further near-term- Will this spook stocks?

May 18, 2018

S&P JUNE FUTURES (SPm8)
Contact: info@newtonadvisor.com

2698-2700, 2682-3, 2666-7, 2649-52     Support
2730-2, 2741-4, 2747-9                          Resistance


LINK TO TECHNICAL WEBINAR from yesterday 051718- https://stme.in/MpyuOSOZca

 

SPX - (1-2 Days)- Mildly Bearish -Tough call here on a 2-3 day basis as US equities have been sideways for five days, but bond yields are breaking out around the globe and Technology continues to underperform- Many cycles pinpoint mid-June as being important, which i believe should be a low.  S&P should have strong resistance near 2730-41, and under 2700 would give conviction for the bear case

SX5E- EuroSTOXX 50Mildly bullish for a move up to 3600 into end of week where prices likely reverse.   Europe had led the rally higher, and should now be expected to fade and underperform in the weeks and months ahead. Upside minimal, but still tough to bet on immediate declines just yet. 

HSCEI- More bullish than bearish after downtrend break and recovery attempt over the last 6 of 7 trading days.  Areas to sell lie at 12800-20 while pullbacks down to 12150-12300 would offer an attractive area to buy dips.  

Trading Longs:   TBT, TYO, TMV, EUO, SYK, MOMO, EQT, EOG, TJX, ERI, SRS, DRV, ETFC, TROW, SCHW, AMTD

Trading Shorts:  LL, VNQ, XLU, AVB, ESS, UDR, SMH, VNO, AIV, D, ATVI, EXC, SRE, ITW, BLL, MAS, ABC, CAH


TECHNICAL THOUGHTS


ACTION PLAN-  

Short SPY at 272.98, looking to add  to shorts at 273.50-274 with targets at 262-4
S
hort QQQ at 171.50-172.50, or on daily close under 167 targeting 162
Short SMH 106.23, with t
arget 100
Long OIH 27.33 with target 29.50
Long TBT 38.10 with target  41.25
Short XLU 50.19 with target 47.37
Short VNQ 77.42 with targets initially near 72


Many don't seem to be taking the bond move all that seriously, but we've seen a fairly major breakout in yields across most timeframes, not just in the US, but also abroad.  Bunds, Gilts have turned sharply higher coinciding with US yields spiking, and yesterday's move in the 30-year looks meaningful and has the potential to extend sharply in the short run.  So near-term, its not the stock market bringing excitement, but the bond market.  Whether or not this will bring about a selloff in stocks is difficult to say, but much likely depends on how sharply rates move in the days ahead.  Credit spreads haven't really budged lately, which is encouraging, but yet might start to widen out if/when implied volatility turns higher meaningfully which could be right around the corner.   Sentiment doesn't make the case for much of a lengthy selloff by any stretch, as CFTC data shows Speculators being more short in Treasuries than we've seen in at least the last 10 years.  Therefore, this likely equates to just a near-term sharp bond selloff that proves short-lived and should be buyable come early June (yields rise initially but then could pullback from June-September) The technical make-up of most charts however, shows this to be a meaningful move, not just in 5 and 10-year yields, but a very bullish Cup and Handle style base in the 30year (yes, still very much relevant) that has been exceeded as of yesterday.  So my expectations are for sharply higher yields over the next 5-7 days.  Whether or not this serves as a trigger or not, is difficult to say, but chart breakouts of some of the bearish Treasury ETFs like TBT suggest this can still likely gain ground in the week(s) ahead.  

Sector-wise, we did see attempts by the large-cap weighted Industrials ETF, XLI to break out of its downtrend from late January.  But yet again, Financials underperformed and were down on the day while the late day selloff in NASDAQ also looked to be a concern and largely offset the bullish moves in Small-caps or Industrials.  Given that Healthcare, industrials, Financials have been in downtrends, it just doesn't give much confidence to trust this tape right now, particularly given the low Equity Put/call ratios which have been hovering in the 50's.  (roughly 2 calls bought for every put)  It seems like investors are concentrating on the index breakouts, while ignoring some of the key sectors to this market which certainly have not been participating in a way that's all that inspiring.   The next couple weeks should shed some light as to whether large caps can rally to join the party we've seen lately with Small-caps, and for the bullish case, ideally XLF needs to get over $29 while seeing XLV eclipse 84.50 and XLK exceed $71.34.  That seems like a tall order between now and late May.

Additional charts and thoughts below.

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Patterns in Technology are looking increasingly more wobbly by the day, and the reversal in Technology Thursday with the NASDAQ closing down 0.50% could very well be the beginning of a more prolonged selloff in Technology.  For the S&P 500 Info Tech index, getting down under 1192 should prove problematic for Technology, resulting in further near-term weakness.  For the bullish case, this minor pullback needs to hold right away and turn up higher back to new highs.  This would entail a move back above 1234, which for now, might take some time.  

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The breakout yesterday in the 30-Year US Treasury Bond looks quite important for the back end of the curve, and could result in a rapid move up to 3.40% in yields given this technical structure.  This appears like a very bullish intermediate-term Cup and Handle pattern going back since 2015, and while many have thought that the 10yr being above 3% shouldn't be too big of a deal given Bullard's comments yesterday, the bond market looks to be doing the Fed's job for them.  A rapid move in yields into late May early June very well could have the effect of spooking the market if it happens quickly.  While this might prove short-lived given the bearish Sentiment in Treasuries, it looks wise to bet against Treasuries over the next couple weeks before reversing course, largely based on overbought conditions for yields and sentiment.   Breakouts in TBT as of yesterday, look to extend.  

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The LIBOR-OIS spread, or the spread between 3 month LIBOR and 3 mth Swap spreads, thought to be a good indicator of funding stress, broke out into early February before pulling back.  Technically however, this area near 43 bps appears to be very good technical support, and Daily charts show this spread to be within 2-3 days of bottoming given Demark exhaustion.  This could allow for stabilization and a turn back higher and will be something that many are talking about in the weeks to come if this starts to get anywhere near prior peaks from February.  But technically, the same factors which caused the breakout and acceleration on the move above two prominent former highs should now cause this to stabilize.  So, yes, utilizing Technicals in fixed income and Spreads can in fact be important.  

Favor Energy longs, while REITS, Utilities offer short opportunities

May 17, 2018

S&P JUNE FUTURES (SPm8)
Contact: info@newtonadvisor.com

2695-7, 2682-3, 2666-7, 2649-52     Support
2725-6, 2741-4, 2747-9                     Resistance


LINK TO TECHNICAL WEBINAR from last Thursday 050818- https://stme.in/7plbipwe92 
Today's Conf Call Webinar will happen at 1pm-EST- https://join.startmeeting.com/info69336

Dial-In Number (United States): (701) 801-1211, Access Code: 840-955-999

 

 

SPX - (1-2 Days)- Mildly bullish with a "Stop and Reverse" UNDER Tuesday's lows which turns the trend back to bearish- The rebound attempt after Tuesday's crack to multi-day lows lacked the breadth of a true recovery and Financials and Tech barely made any headway.  A small rebound back to Monday's highs is possible but momentum still likely to fade on any further bounce and setting up for pullbacks into late May.  

SX5E- EuroSTOXX 50Mildly bullish for a move up to 3600 into end of week where prices likely reverse.   Europe had led the rally higher, and should now be expected to fade and underperform in the weeks and months ahead. Upside minimal, but still tough to bet on immediate declines just yet. 

HSCEI- More bullish than bearish after downtrend break and recovery attempt over the last 6 of 7 trading days.  Areas to sell lie at 12800-20 while pullbacks down to 12150-12300 would offer an attractive area to buy dips.  

Trading Longs:  CMG, LVS, WYNN, MRO, EQT, EOG, NOV, OXY, TJX, ERI, SRS, DRV, ETFC, TROW, SCHW, AMTD

Trading Shorts:  LL, VNQ, XLU, SMH, VNO, AIV, D, ATVI, EXC, SRE, ITW, BLL, MAS, ABC, WMT, CAH, PCAR, MMM


TECHNICAL THOUGHTS


ACTION PLAN-  

Short SPY at 272.98, looking to add  to shorts at 273.50-274 with targets at 262-4
Looking to short QQQ today at 171.50-172.50 targeting 162
Short SMH 106.23, with target 100
Long OIH 27.33 with target 29.50
Long TBT 38.10 with target  41.25
Short XLU 50.19 with target 47.37
Short VNQ 77.42 with targets initially near 72



Bottom line, yesterday's rally didn't accomplish much to think the larger trend might be saved from going lower, but it was a brief reprieve, and it can't be ruled out that US indices hold up into end of week before turning down next.  While Russell 2k broke out to new highs, the move happened on far lesser momentum while prices logged TD Sell Setups and Weekly signs of Demark exhaustion that might result in a fake breakout at a time everyone seems to be pointing out the move back to new all-time highs.  Materials led the move yesterday, while breadth came in around 2/1 positive, with Financials and Technology just barely finishing in the Green.   The two constants that were ongoing during Tuesday's selloff were still in place, that being US Dollar rising, along with Yields making headway higher.  Yet, equities bounced and gave most a sense of comfort.  A few things are important in this regard:   The downturn to multi-day lows was far stronger than yesterday's comeback.  Even on a mild move back above Monday's highs, this will create negative divergence and will be problematic.   The issues with the low breadth, poor momentum rally haven't changed, nor has the fact that Industrials, Financials, Healthcare all lie in downtrends.  So the volatility which is possible over the next few weeks doesn't look to be postponed.  Indices will need to show some real upside headway to alleviate these issues.   Of course there are a number of stocks pushing back to new all-time highs that are attractive to own, with tight stops, and so there remain opportunities to take advantage of, despite what's thought to be a slowly withering trend with poor risk/reward.

Some of these longs mentioned are within the Energy sector such as NOV, MRO, EQT, HP, as OIH gradually continues higher towards its retest of January highs.  Other sectors like Financials have shown stocks like UMBF, ETFC, TROW, IBKR, SCHW, AMTD demonstrating very good technical strength and should be ones to concentrate on.   However, given the rise in YIelds, sectors like REITS and Utilities have offered some attractive short opportunities and AIV, MAA, UDR, EQR, AVB, ESS, KIM, RPT, DDR, D, SCG, CNP, PCG, and SRE all look to move lower in the days and weeks ahead.  Overall, there should be opportunities for those seeking longs and shorts for now.  The next few days should bring more insight as to what kind of bounce we can see into end of week/or lack thereof, but it's still thought to be something to pare down longs into by end of week, thinking that 2730-45 should represent a maximum upside for this move before prices turn lower.  



Additional charts and thoughts below.

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Small cap Russell 2000 has just pushed up to new all-time highs, something which is a bullish development from a price perspective, and has allowed this to follow suit on what happened recently with the Small-cap 600 index (SML)  When looking at daily and weekly charts however, it's tough to just blindly buy this index's push back to new highs, as there lies the presence of daily, weekly and hourly, and 120 minute Sells on this breakout.  Additionally, momentum has waned a bit as might be expected given its minor stalling out near prior January and March highs before the breakout.  Overall a bullish move, but one to watch carefully as this might be prone to a false breakout as we near the latter half of May, so it pays to keep stops tight and not use this breakout as a chance to initiate new longs.  

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Energy continues to make upward progress, and OIH getting to within striking distance of January highs might lead one to think stalling out might be near.  However, in this case, the group has exceeded downtrends from early 2017 that make this move appear to have a bit more longevity.   While 29.50 is indeed an initial target, it's thought that this level likely is exceeded in the next couple weeks as this pushes even higher, with a likely max upside near $31.50.   The acceleration and outperformance of late keeps this sector in the "overweight" column technically, and should still be favored for good relative strength.  

unnamed.png

The BofA Merrill Lynch Global Fund manager survey sheds some light as to current positioning, and it's interesting to take note that Banks are the largest "LONG" in the survey, with Cash, and Discretionary close behind.  Given that Inflation expectations have begun to rise dramatically, along with the massive overweight in Banks, it's probably unlikely that the rise in rates continues too much longer (though for now, still seems to be ongoing and could reach 3.20-5%)  Meanwhile, it's a good idea to keep tight stops on Utilities shorts as these are also a group that is underweighted pretty dramatically in this poll, while the interest rate sensitive REITS are actually considered "Overweights".  Thus, fading the REITS is preferable to Utilities given sentiment, and we'll have to be on the lookout for signs that Healthcare is bottoming.  For now, the downtrend in this group on daily and weekly charts and relative charts is very much intact.  

US 10-Year Treasury Note Yields break out above 24-Year Channel Resistance

May 16, 2018

S&P JUNE FUTURES (SPm8)
Contact: info@newtonadvisor.com

2695-7, 2682-3, 2666-7, 2649-52     Support
2725-6, 2741-4                                 Resistance


LINK TO TECHNICAL WEBINAR from last Thursday 050818- https://stme.in/7plbipwe92

 

SPX - (1-2 Days)- Bearish- Yesterday's selloff happened within the key time of trend change, and should begin to lead indices lower in the next couple weeks.  Rallies on Wednesday would be used to pair down longs and/or consider adding hedges and/or implied volatility for what could be an above-average period of volatility into late May.  

SX5E- EuroSTOXX 50- More Neutral than bullish or bearish, but expect upside proves minimal and this joins US indices in weakening in the weeks ahead.   Look to sell rallies at 3600-15 while under 3530 should lead down to 3477 initially.  Unlikely to surpass 3659.  

HSCEI- Bullish but overdone and pullbacks down to 12150-12300 would offer an attractive area to buy dips.  Areas to sell lie at 12800-20- 

Trading Longs:  EOG, NOV, OXY, TJX, ERI, WYNN, SRS, DRV, MRO, ETFC, BAC, EUO

Trading Shorts:  LL, VNQ, XLU, SMH, VNO, AIV, D, ATVI, UAL, EXC, SRE, ITW, BLL, MAS, ABC, WMT, CAH, KSS, PCAR, MMM


TECHNICAL THOUGHTS


ACTION PLAN-  

Short SPY at 272.98, looking to add  to shorts at 273.50-274 with targets at 262-4
Looking to short QQQ today at 171.50-172.50 targeting 162
Short SMH 106.23, with target 100
Long OIH 27.33 with target 29.50
Long TBT 38.10 with target  41.25
Short XLU 50.19 with target 47.37
Short VNQ 77.42 with targets initially near 72



US Equity indices looked to reverse on cue during a time this week when reversals were thought to be likely.  While breadth came in just 2/1 negative, volume did expand to the highest levels since last Wednesday, and many indices closed with price patterns seen as "island reversals" which are negative and should lead lower in the upcoming weeks.  Given that prices closed up a fraction from earlier lows, any attempt to trade higher into Wednesday/Thursday likely represents a chance to add to shorts and/or consider taking profits on longs.  Sector-wise, Energy remains one of the sole indices where longs are recommended, while Financials, industrials and technology all look to move lower.  One should continue to avoid and/or tactically short the yield sensitive sectors like REITS and Utilities as the bond selloff looks to have reignited .

The most important technical development for yesterday centered on 10-Year Treasury yields breaking out above 3.05%, and while they've been above 3% recently and didn't cause much equity volatility, this time around looked more important given the breakout in TNX above a long-term monthly downtrend channel that's been ongoing since the mid-90's, or 24 years ago, when yields peaked out in 1994.  The steeper downtrend from 1987 highs was broken a few months ago, but yesterday's breakout looked more important in getting decisively above 3.05% and mimicked what had occurred in 5-year yields just a few weeks prior.   30-year Yields look to be on deck for their own breakout and would take simply a move up above 3.23% before this joins suit and yields start to ratchet higher.  While sentiment is quite negative on Treasuries and monthly exhaustion signs are present on TNX charts which have marked peaks in yield in the past, neither the daily, nor the weekly charts show any confluence in this regard, indicating that near-term bond rallies likely should prove to be selling opportunities for Treasuries with yield targets up near 3.20% potentially or even 3.25% before yields face exhaustion and turn back lower.  This bond selloff certainly isn't a US phenomenon either, as weve seen similar movement in German bund yields and also UK Gilts.  Our thinking about selling yield based sectors remains very much on the front burner, and REITS and Utilities, not to mention Telecom might very well underperform over the next couple weeks until yields reach some type of resistance.  

Outside of equities and bonds, the US Dollar's sharp advance yesterday suggests there still lies a bit more upside here as well, despite how stretched.   Pullbacks in EURUSD might very well hit 1.17-1.1720 before finding support, while GBPUSD could reach 1.34%.  The combination of yields and Dollar rising should pose a problem for precious metals rallying, which typically underperform dramatically when USD and TNX are both rising sharply.  While the Dollar looks to be close to potentially reversing, it's not there yet, and yesterday's TNX breakout looks to extend, potentially into early June.  So in the near-term, stocks and bonds might both selloff in unison, making it difficult to find anywhere to "hide".  

Additional charts and thoughts below.

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Pullbacks in XLK yesterday mimicked the pattern seen on many indices with reversals to multi-day lows after their steep uptrend.  This had an effect on intra-day momentum weakening and in many cases, breaking the uptrend of the last couple weeks.   Any further rally attempt should be met with selling pressure as this will bring about worse breadth (Weve already seen negative breadth Monday on a positive day for indices) while Tuesday's action very well could just continue lower also.  Bottom line, one should consider taking profits in Technology and consider Energy to be one of the sole sectors left which maintains some signs of relative strength.   Tech, Industrials, Financials might all continue weakening in the upcoming 2-3 weeks given yesterday's reversal and the ongoing poor absolute and relative trends in these sectors.  

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Treasury yields broke out above late April highs yesterday, and as seen in monthly charts below, this had even bigger implications for the longer-term trend channel.   No counter-trend evidence of exhaustion was present, so near-term yield pullbacks would represent a chance to sell Treasuries, expecting higher yields into late May/early June before any peak.   Technically this looked to be quite the bullish move yesterday, so unless this is reversed completely, one should consider this a bearish move for Treasuries (bullish for yield that could provide some near-term acceleration higher in yields (and subsequently spook stocks given the quickness of this move) 

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Yesterday's bond selloff was truly important to the long-term structure in 10year yields, which broke out of long-term trend channels that had held yields intact since the mid-90s. TNX arguably broke out of a steeper channel from the '87 highs a few months ago, but this 24-year channel has held numerous rallies and declines, so the act of exceeding 3.05% from January 2014 put yields at the highest since July 2011, seven years ago.  Near-term, it's difficult to think buying Treasuries gets much traction just yet and near-term pullbacks in yield should represent attractive opportunities to sell, with yield targets north of 3.15 and potentially up at 3.20-5%.   TBT looked to have broken out on yesterday's move with the highest volume since mid-March.  This looks to continue higher near-term and dips should be opportunities to assume long positions in TBT into late May/early June.