May 4, 2018
S&P JUNE FUTURES (SPm8)
2600-3, 2562-5, 2552-3, 2529-31 Support
2619-21, 2648-9, 2666-8, 2675-7 Resistance
LINK TO TECHNICAL WEBINAR from yesterday 050318-https://stme.in/p0sloRP6EO
SPX - (1-2 Days)- Bearish- S&P closed down at important hourly support near Tuesday'sintra-day lows, but structurally, momentum along with the broader trend, is getting worse. a defensive stance is preferred, with breaks of 2623 resulting in an immediate test and break of 2611 on its way to the mid-2550's.
SX5E- EuroSTOXX 50- Minor stalling out should still prove buyable as no real weakness has occurred and SX5E still meaningfully stronger in the short run than US. Expect eventual move up to 3659 in SX5E
HSCEI- Bearish- Pullback to lows of one-month consolidation looks likely and a test of 11750-11800. Over 12361 now needed to think trend is turning back higher.
Trading Longs: NEE, ETFC, IBKR, DNKN, YELP, TWLO, HQY,ENTA,
Trading Shorts: ABC, LL, C, WFC, USB, HOLX, GILD, UTX, ITW, HOG, CBS, CMCSA, VIAB, LUV, SMH, AMAT, MCHP, NTAP, IBM, BBBY, EMN, MNK
Short SPY from 265, with targets down at 256.
Long GLD under 123.75 , with expectations of a rally back to near 128.36 initially
Long DBC for commodity exposure- targeting $17.85
Long XLU with targets at 52.40
Short XLI with targets 70.25
Short XLF with targets
Short IYT 187.62 with targets at 181.50
Short SMH with targets adjusted downward to 92.50
Long EURUSD 1.1995 with expectations of a bounce back to 1.2150
Exiting TLT after yesterday formed a bearish reversal which could allow for a retest of lows before more upside
Equities selloff does not look complete, and the late day bounce should prove to be sellable, expecting further lows into next week before any meaningful area of support. A few key reasons come together why it's wrong to assume long positions on a reversal day like we saw yesterday. First, momentum and trend remain sloped lower and prices failed to even make it up above the prior day's highs. Second, timing based cycles of importance based on Gann and Demark both focus on next week as being more important than yesterday for any sort of low, and signals are incomplete on daily charts. Third, there didn't seem to be much evidence of fear and/or capitulatory selling on this decline. Breadth was a mild 2/1 negative, potentially being a bit more favorable given the Technology resilience. Fourth, the action in Financials simply in breaking down to the lowest levels of the year is simply not a positive and something to buy into just yet, despite the late reversal higher here too. This group remains under pressure. Finally, Industrials remains weak technically, and fell today despite the rally, while no meaningful flows into defensive sectors occurred.
Overall, the fact that bond yields broke down near 4/24-5 similar to Equities looked to be important, and both yields and stocks seem to be tracking each other fairly closely of late. Both bottomed in early April and rallied and now both are selling off. i..e Bonds rallying as stocks decline. Meanwhile the Dollar's rally is having a hard time peaking, and still might take a few days before turning lower. Commodities have attempted to bottom, but the real action in this group is being seen in the Grains, with Breakouts lately in Corn and also Wheat yesterday, while Soybeans has been basing, and looks to be next in line. Overall, a fair degree of selectivity in this market is still prudent and it's best to stay long Bonds, long commodities, and short stocks for the time being, until further evidence is seen. The Dollar seems close to turning, but more proof here is needed.
Additional charts and thoughts below.
S&P broke support at 2623 early on, which gave way to rapid selling down under 2600 briefly in Futures before rebounding back to close only partially negative. While a "Hammer" pattern ordinarily might be considered a positive, the lack of exhaustion present, coupled with cycles still being somewhat early for a low and the face that no real capitulation was seen at yesterday's lows all combine to suggest that a bit more downside still needs to happen into next week before any serious low. The right play seems to be hedging and/or selling short for a move lower over the next 3-5 trading days, and then covering shorts. The 200-day moving average is indeed present, but the number of tests this has had literally makes this very unreliable to consider as meaningful support, and should be violated going into next week before being regained, in my view technically.
Financials turned down to the lowest levels of the year, per XLF early on in trading yesterday, before rebounding to close only fractionally negative. However, given the lack of exhaustion present at the lows, and commonly looked at momentum indicators like MACD just starting to turn negative, this still seems bearish technically and its right to see a revisiting of yesterdays lows and even a slight break next week before any lows are in. Relatively speaking, Financials turned down throughout April vs broader market and was a key reason why it was right to expect possible Equity weakness into May. For now, this group still has some work to do before it bottoms, and it's right to hold off on getting too aggressively long into this move just yet.
Technology actually has given some encouraging signs of holding up quite well lately while the rally peaked out and has seen most sectors turn down sharply. Relative charts of the S&P 500 Information Technology index vs SPX bottomed out right when S&P was starting to turn down in the last week, which is a sign that this pullback likely isn't yet going to turn into a crash as Tech remains the largest sector with 24+% weighting in SPX. While Semiconductors have been noticeably weak and still look to move lower relatively, the broader Tech space has still trended higher vs SPX and might be a reason to consider buying into market weakness next week if/when prices get back down to Feb/April lows in the mid-2550's. This still looks to be a sector to favor, and one should watch downtrend lines in ETFs like XLK carefully in the week ahead.