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Despite Tech rally, Financials & Industrials both down

June 15, 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 yesterday https://stme.in/L2s6RGiWrJ

 

SPX - (1-2 Days)- Bearish-  Minor rally into expiration should be utilized to take profits in most Technology and Financial stocks, with QQQ, SPY stalling out and likely turning down early next week.  On alert for trend reversal, and small short positions here, looking to add on any further rally into early next week, while also using weakness under 173.18 for QQQ and 2763 for SPX to add to shorts.     

SX5E- EuroSTOXX 50Bearish-  Utilizing bounce to sell into, expecting that gains should prove short-lived and provide shorting opportunity for a pullback in the final two weeks of June.  Trends grow more negative under 3422 for a pullback down to at least 3300.  Use minor gains Thursday/Friday to sell  

HSCEI- Neutral pattern since February, and rallies thus far above 12300 have failed, but also have not shown much weakness. there should be a floor near 11837 which can hold, but prices will need to eclipse 12427 to have much confidence of rallies, and over the next couple weeks, its more likely that global markets experience weakness than strength, and HSCEI could be affected.  

Trading Longs:  XME, FDX, FDC, GRUB, ITT, EMN, PX, EL, HCA, GILD, CF, NTR, VEEV

Trading Shorts:   JEF, IVZ, SIVB, PSA, LRCX, VNQ, M, KSS, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Short QQQ at 175.80 up to 178.50 into end of week, expecting reversal and pullback to 163. 
Looking to short SPY on any gains Friday above 279.50 up to 280.50, or evidence of prices closing under 276.66
Long UNG with targets at 26
Long GDX, with targets at 23.50
Short VNQ at 79.50-80.50 Thursday/Friday
Buy Gold on any daily close above 1309,  Thursday was close but did not confirm the buy



Thesis remains unchanged.  Expect that upside should prove short-lived into early next week, and that stocks begin to turn lower for a pullback over the next two weeks of June.  While equities successfully rallied yesterday, the index price action was a bit of a mirage of the broader market which saw pronounced weakness in both Financials and Industrials, while the defensive sectors provided most of the robust gains, with >0.75% gains in Utilities, Real Estate and Telecom.  Only Discretionary proved stronger, and most of this stemmed from Media stocks bouncing following the T/TWX deal.  Breadth was just barely positive and Advance/Decline peaked out a week ago, creating some divergence on most US Equity indices attempts to push higher.  However, as shown below, NY Composite is lower than it was this time last week, so the attempts to portray this market as resilient lately don't quite cut it.   Industrials have broken one month trends in XLI while Financials have also continued lower as the Yield curve plummeted to under 37 bp yesterday.   While stocks and bonds can sometimes move together, we're still in a period where yields and stocks have been showing moderately positive correlation (+.22=R ) so it's been unusual in the last few months for both to trend sharply higher together.   

Specifically, technology is now showing evidence of reaching key levels which likely cause a stallout starting next week vs SPX and in absolute terms.   In the SOX, this area in price and time will be complete by next Monday's close.  But the risk/reward is poor for Semiconductors, and it's right to consider selling out of Semis and Tech on this rally and consider other sectors like Materials (Chemicals, Metals, Mining) which could fare far better relatively in the next couple months.   While the Dollar rally proved strong yesterday, technically this should be a chance to buy EURUSD on pullbacks while selling into USDJPY early next week.   The Trend in US Treasury yields looks increasingly vulnerable, so given that yields have led stocks in recent months as explained above, it looks right to bet on Treasuries, not stocks between now and early July.  

Additional charts and thoughts below.

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New York Composite certainly paints a much different picture than that what's been seen in the NASDAQ and Russell 2000.  While technology and FANG stocks have lifted, the New York Composite fell below the closing level from a week ago on Thursday, a much different picture than what's being highlighted on popular financial news media.  As this daily chart shows, NYA is below May highs and also below levels seen back in March, as the index has been largely range-bound since February.  Thus, it's important to keep track of what's rallied of late, as outside of Technology and Retail, many sectors have not experienced nearly the kind of move that stocks like AMZN and FB have engineered. 
 

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The CBOE Volatlity index looks to be nearing a low, right at a time when counter-trend exhaustion is close to completion in popular Volatility ETNs like VXX.   VXX looks to be within 2-3 days of bottoming out after having pulled back 43% since the early part of April.   Both TD Combo and TD Sequential buys are close to completion by end of week, and should allow for an above-average bounce in the weeks ahead.   While the trend is certainly down, the combination of trend exhaustion indicators, sentiment, seasonality and divergences points to a much different course in the weeks ahead.  

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 Natty gas is starting to look attractive in its base-building efforts despite heading into a historically seasonally difficult time in July.  Technically the base from last year should still lead to breakout attempts in late June before any July mean reversion, so it's right to be long here with movement over $3 /mmb leading at least fractionally higher before this stalls out.  The Natural Gas ETF, (UNG) looks appealing to own for an upcoming breakout, and one should own here technically looking to press when Natural gas closes over $3 in the front month contract.