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Transports, Aerospace/Defense both breaking out near-term

April 17, 2018

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

2662-4, 2655-6, 2636-7, 2620-1,  2606-8, 2584-7     Support
2708-10, 2724-6, 2747-50                                          Resistance


LINK TO TECHNICAL WEBINAR from Thursday 4/5- https://stme.in/tBobOtxUYL

 

SPX - (2-3 Days)- Bullish- S&P finally managed to close up above the highs of the last three weeks, which should help prices gain more ground into end of week/early next before finding strong resistance, based on time and price.  Stay long S&P for a move to 2720-50 while being on alert for any failure which breaks the April trend and undercuts 2644 which would be a larger negative.  For now, more strength likely first

SX5E- EuroSTOXX 50Mildly Bearish as evidence of SX5E peaking out looks to be happening.  Upside should be limited to 3496 while any move under 3400 jumpstarts the decline back to 3250.   Prefer Europe short to US.   Fractional upside possible, but should underperform the US on this rise and face resistance at 3400-3500.    

HSCEI- Make-or-Break after pullback-  Breakdown from trendline resistance keeps trend down and now a necessity to hold 11680, or else this results in a larger break which would violate uptrend from last May.  Important for immediate stabilization.   

Trading Longs:  VRSK, WYNN, ROL, WIX, MPC, CAR, PLNT, DBC, FXB, NDAQ, TJX, STZ, BURL

Trading Shorts:  VNQ, XLU, AZO, EXPE, TSCO, HOG, LUV, UUP, EUO, SIG, FL, BBBY


TECHNICAL THOUGHTS


ACTION PLAN- 

Long SPY with initial targets 270, then 274.25-275
Long DBC for commodity exposure- $16.94 with targets $17.85
Long GBPUSD with target 1.4370, 1.50
Long IYT with target 195
Long ITA with target 205.50-206
Long XLK to 67.24 up to 68.20 this week

Long GLD 125-126 adding above 127 with targets initially 129.50, and stops 125
Short VNQ with expectations of a test of 72.65 and breach which could lead to 70-  Stop at 76.70
Short XLU with targets down at 47.88-48.25, Stop at 51


A decent follow-through price-wise in equities Monday after the Syria targeting proved quick and potentially complete, which was viewed by markets as a positive and not one which would lead to complications.  SPX managed to exceed the highs of the last three weeks which had served as resistance since late March.  Whether this indeed is "Mission Accomplished" or not remains to be seen, but the aftermath very well could prove volatile for Syria over the next couple months, and something the market might be overlooking.  Stocks and bond yields have been pressing higher, while the Dollar has turned down over the last few days.

For now, stock trends remain positive, though lackluster in the short run.  Volume remains muted as yesterday produced the lightest trading day of the year thus far and breadth has been abnormally flat for the bounce starting from early April.  While price action, momentum and breadth have turned up fractionally, we haven't seen the price thrust that would help to add conviction to this bounce.   After a 21 calendar day decline from 3/12/18, we've had 14 days higher, but yet have barely regained 50% of the prior move.  An additional push up seems likely given the rebound in Industrials and Technology, while the Banks performance remains something of concern.  For now, we'll emphasize the positive, as given a lack of price weakness and trend deterioration, there still seems to be upside in this move in the short run.

Two sub-sectors stood out in showing above-average strength in Monday's session that are worth noting:  Transportation stocks and Aerospace and Defense, both important parts of Industrials which managed to bounce  more than 1% in trading.  As charts below will show, both sub-sectors look to have made meaningful near-term signs of strength that can carry these groups higher, and should be overweighted this week.  


Additional charts and thoughts below.

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ITA, the Aerospace & Defense ETF, managed to close up above the highs from early April, reaching the highest levels since mid-March yesterday.  This occurred on strength from names like TDG, MOG, HRS, ATRO, LMT, RTN, NOC.  While this group has lagged since mid-February, yesterday's gains should help to fuel further acceleration in this group, and it's right to be long and add in the days ahead, expecting further near-term strength.   Names like BA, GD, NOC, UTX rose less than 1% yesterday and might be considered better risk/rewards to participate than the leaders like TXT, TDG, HRS and others.   Overall, given GE's recent woes within Industrials, this group looks to show some solid outperformance and could be favored within this Sector and overweighted near-term.
 

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DJ Transportation Avg has broken out of the downtrend which has kept this group largely lower since peaking in late January, not dissimilar from the broader market.  Yet yesterday's move gives some hope for the "Trannies" and should spark some outperformance, particularly in the Rail stocks, while the Airlines might underperform relatively speaking given recent turbulence.   Bottom line, this breakout yesterday has helped the Average to regain its 50% level of the decline from January while likely producing further strength which should help this reach 10800-900 in the short run.   A welcome boost to Industrials which had been suffering of late and Transports should be favored.  

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The Dollar looks to be turning back lower, as seen in the Bloomberg Dollar index which fell sufficiently to violate the lows of an ongoing consolidation pattern which had been ongoing since late February.  Given its lower percentage ratio vs the Euro than the DXY, this index should be trusted to help view a purer form of the Dollar in trading.   Sharp gains in Pound Sterling have taken place recently as the more hawkish BOE has diverged from the more dovish ECB lately.  But Euro also managed to turn higher yesterday in a fashion that should lead higher, and staying long Pound and Euro seems correct, while continuing to fade the Dollar.   Yesteday's stalling out in the Dollar vs Yen also was suggestive of the Yen starting to turn back higher vs USD, and bodes well for this weak Dollar thesis.