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Semiconductors , Airlines break down, but SPX manages to hold

April 24, 2018

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

2684-6, 2662-4, 2655-6, 2636-7, 2620-1    Support
2718-20, 2724-6, 2747-50                          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday, 4/18/18- -https://stme.in/yadt92dtNf

 

SPX - (1-2 Days)- Mildly Bullish- While the trend for this week should be down, yesterday's late rally attempt kept the S&P from falling below where it needed to hold and we see some minor positive divergence.  Cyclically its possible to make the case for a peak on or around 4/25-7, which would involve a possible rally attempt Tuesday into Wednesday before any meaningful downturn.  At 2673, i can make the case for a rally to test and break 2683 and allow for some minor strength before the weight of the NASDAQ carries SPX lower.  Under 2657 means this is wrong and its right to bet on a move down to near 2600 initially.   

SX5E- EuroSTOXX 50- Europe looks to have reached resistance, with the combination of Monday's gains hitting the 200-day ma while Demark Sell setups were due to complete as of Tuesday's upcoming close above 3490.89.  One can look to underweight Europe by shorting the VGK, or EZU and expecting upcoming underperformance. 

HSCEI- Neutral short-term after churning near the lows for the last month.  HSCEI requires a move back over 12450 to have a shot at a larger rally, which for now is subdued with prices locked in range-bound consolidation.  


Trading Longs:  CIT, NDAQ, NOC, DXC, TWLO, XME, VEEV, SPLK, PGR, AOS, MPC, PLNT, DBC

Trading Shorts:  MU, MCHP, SWKS, WDC, PSA, REG, IBM, HOG, LUV, SIG, FL, BBBY


TECHNICAL THOUGHTS


ACTION PLAN-  

Looking to sell SPY at 270-1, or on evidence of this turning down under 265, which should cause pullback to 260
Long TLT from 117.50-118.25, with TBT having reached targets,  expecting 10-Year Treasury yields to fall after the rise to 3%
Long DBC for commodity exposure- targeting $17.85
Long ITA with target raised to 208-210
Short SMH with target 93.88-94.25

Awaiting entry on GBPUSD- Looking to buy 1.3785-.90 in 3-4 trading days-  Had hit earlier target near 1.4370 and reversed sharply, so awaiting entry- No position

The breakdown in SOX yesterday was a negative technically, violating April lows and closing near the lows of the session which looks likely to lead to additional weakness.  However, this didn't seem to affect markets as negatively as might be expected just yet.  Stocks had a chance to implode in the final hour of trading, but ended up rallying instead to finish the day just fractionally negative.  While NASDAQ did in fact begin to show more weakness, S&P held steady and relatively outperformed with some evidence of positive divergence on yesterday's dip while TD Combo buy signals were confirmed at the close on hourly charts. So S&P managed to hold above last Friday's lows, with Healthcare strength along with Consumer Discretionary, while Industrials just finished fractionally negative.   This suggests there still could be a rally attempt into Tuesday/Wednesday, and the close helps the trend from having turned bearish too quickly.   But make no mistake, as a leading sector, the SOX violating April lows is bearish for the market and likely could see SOX pullback to 1200 before any real low is in.

Overall, it remains right to avoid Semiconductors and this weakness likely will start to affect all of Technology which should be a concern for equities into May.   Airlines also broke down under key five-month trendline support and this area also appears like an area to avoid in the short run.  Meanwhile the Dollar's gains caused Emerging markets to underperform while Metals stocks suffered their second straight day of weakness.  Treasuries fell, as yields got closer to 3%, but still didn't match the global bond selling abroad as UK Gilts and German Bunds both saw yields rise at a much stronger rate.   It appears likely that Bund yields likely should close some of the gap to US Treasury yields in the days/weeks ahead.  

Bottom line, this looks to be a market of quite a few moving pieces and trends look to be slowly but surely turning down across the board for quite a few sectors.  While Semiconductors have taken the lead which likely will lead to eventual broad-based weakness across many sectors, for now, markets have a chance to squeak out 1-2 days of rally to peak out during the exact 90 day cycle from 1/26/18 highs.  While trends are negative now from January, March and look to have broken the uptrend from early April, it's tough to rule out a bounce attempt Tuesday, which is based largely on intra-day positive divergence, counter-trend hourly exhaustion, while cyclical peaks still looked premature for last week and have a better fit with Wednesday-Thursday of this week.  Pullbacks right back down under 2650 would postpone any thoughts of a bounce and the selloff should begin in earnest.  


Additional charts and thoughts below.


S&P-Trend turned more bearish late last week, but successfully held above Friday's lows in Monday's trading.   Prices attempted to stabilize yesterday in S&P Futures, failing to break down under last Friday's lows like what happened with the NDX and DJIA.  Signs of positive momentum divergence looked to occur during Monday's dip to test last week's lows while evidence of hourly counter-trend Exhaustion was present on the close which pointed to the chance of this trying to bounce.  Overall, S&P could attempt to rally in Tuesday//Wednesday as a result of these factors which would bring about a better cyclical high, but trends seem to have worsened based on last Thursday/Friday's decline so it's right to look to sell into this move. 
 

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SOX- PHLX Semiconductor index-  Yesterday's pullback broke the lows from April, which should bring about further weakness down to 1200 in the weeks ahead.   The larger pattern remains challenged given the deep retracements since last Fall, and yesterday's break violates the longer-term uptrend, which should soon lead to Semiconductors weakness leading the Technology sector to likely break the larger uptrend vs the SPX.   This could lead to Tech starting to weaken relatively, as FANG weakness of late combined with Semiconductor declines could bring about a larger period of Technology underperformance.

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Airlines break of support should lead to further underperformance-  Airlines (XAL) weakened below key support yesterday, with the pullback reaching the lowest area since mid-February, violating the entire uptrend from last November.   Given that this area was already tested once before, yesterday's break looks particularly negative and could allow this to serve as a meaningful drag for Transportation stocks.   Stocks like UAL, AAL, DAL, JBLU, LUV all could face further weakness into May.