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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.

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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.  

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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.