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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.