Please enable javascript in your browser to view this site!

Industrials likely to underperform further this week, as Lows still look premature

June 20, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
274.95, 274.32,  272.57, 270.94         Support
276.70, 277.19, 277.82, 279.43          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- https://stme.in/L2s6RGiWrJ

 

SPX - (1-2 Days)- Bearish- Despite closing up from earlier open, SPX has still been lower on four of the last five days.  Interestingly enough, price has closed up near intra-day highs on the last three sessions.  Movement under 2743 important for SPX, 2735 for Futures, and it's still possible that SPX could break the trend from early May for a few days before stabilizing and trying to bounce higher into early/mid-July.   Use weakness under 174.94 for QQQ and 274.95 for SPY to add to shorts.     

SX5E- EuroSTOXX 50Bearish-  Pullback has undercut near-term support from early June lows and likely to test and even break 3391 by a small amount into end of week.  The severity of the recent downdraft has been severe and much too damaging to be a minor pullback after the move up in early June.   In three days, SX5E has nearly retraced the entire amount of strength that it took 12 days to achieve from 5/29.   Bottom line.. a defensive stance makes sense, with 3391 as being important, while under should lead down to 3300 or lower.   

HSCEI- Bearish near-term with the pullback under 11635 leading lower, breaking the area of support from February lows.   This likely can lead down near 11k before any bottom and reversal.   Any move back up above 11841 would be respected, but unlikely in the short run.   

Trading Longs:  PRI, TCBI, V, BJRI, FDC, GRUB, ITT, EMN, PX, EL, HCA, GILD, CF, NTR, VEEV

Trading Shorts:  XLI, CAT, BA, MMM, FOSL, PG, MO, PM, 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 with targets at 163. 
Short SPY with targets at 270.94
Short XLI with targets 70.85
Short ITA with targets at 195
Long UNG with targets at 26
Long GDX, with targets at 23.50 and stops 22.12
Short VNQ with targets at 77.44



It's still right to view the near-term direction in US Equities as down, and the rebound attempt failed to move up sufficiently to think Tuesday was a meaningful reversal of any sort.  Breadth was not all that bearish, at just 3/2 negative, with 5 sectors positive on the day, about as unimpressive of a market fall, as the prior week was in trying to rally.   Technology certainly has proven to be somewhat resilient when looking at the various FANG stocks which have held up quite strong and rallied while broader Technology has weakened in recent days.  While S&P 500 Information Technology fell 0.72% in trading, the fourth worst performing sector, we saw pockets of strength in stocks like MU, WU, XRX, EBAY, ECTX, INTU, all of which rallied over +0.50% in trading.  AMZN also rose more than 0.50% while NFLX was higher by 3.73%.   However, the basket of stocks which make up the NY Fang index fell over 1% yesterday, which includes NFLX, AMZN, GOOGL, and FB, but also stocks like AAPL, NVDA, BABA, TWTR, BIDU and TSLA, the last 3 all dropping more than 2% in trading.   

The next few days could be important in trying to find a temporary bottom to this pullback into end of week, primarily based on the resilience in various parts of Large Cap Tech, while sectors like Energy and Financials look to be close to trading lows.   However, the Industrials sector remains in very weak shape near-term, as the Dollar rally has continued back to new weekly highs.  The ongoing tariff threat has affected not just the Aerospace and Defense names, but many of the Rails and other Transports in recent days, along with the multi-conglomerates which don't seem close to bottoming.  Until there is some evidence in sector ETF's reaching the lows of their respective ranges and/or putting in Counter-trend signs of exhaustion, it's still right to expect more downside.

One of the key reasons for this Wednesday could very well be the deletion of GE from the DJIA,  which was announced post close on Tuesday afternoon.   This sent the shares down under March lows of 12.73 in post market trading, and could put some pressure on the DJIA along with the market as a whole until this is removed.  Near-term, XLI should fall further, but this is largely due to other industrial names which are under severe pressure on tariff related concerns, like BA, CAT, UTX, which combined make up more than 16% of the DJIA.


Additional charts and thoughts below.

unnamed (14).gif


Its right to watch for a Technology reversal lower-  NY FANG index along with S&P Information Technology both fell hard on Tuesday, perhaps not reflecting the bullishness and/or relative resilience of Large cap technology, with stocks like NFLX moving higher by more than 3.5%.   Counter-trend signals are now in place for a potential turn for the first time since the early Spring, so it pays to watch this group carefully, despite its recent resilience.  Breaks of the uptrend would be the first meaningful trend damage in FANG stocks since the first part of May.  

unnamed (15).gif

Industrials still look like an attractive Risk/reward Short, and/or an area to avoid into end of week-   XLI, the benchmark ETF for Industrials, was hard hit Tuesday, and still looks to have room to move lower into Thursday/Friday down to near $70.80.   This could result in further pressure on US indices, while the GE deletion might also play at least a minor role in this sectors underperformance going forward.   Overall, Industrials looks like an area to avoid buying dips in the days ahead, waiting for prices to gradually begin to stabilize.  

unnamed (16).gif

 GE  LEAVING THE DJIA. Who would have ever thought?    This bombshell was released post close on Tuesday,  causing GE to trade down to new lows for 2018, undercutting March lows at 12.73 and hitting the lowest levels since 2009.   The upcoming addition of WBA creates five Healthcare names that now make up the DJIA, and puts GE on alert for a possible LOW, psychologically.  (Most of these announcements are horribly ill-timed.  )  While a 1% decline down under $12.73 won't put too much pressure on the DJIA, the pullback in XLI based on MMM, BA and/or UTX weakness is a different story.  What could be interesting in the months ahead is how resilient the High Yield market is if it has to absorb the $100 billion of bonds still Investment grade rated if these are ever downgraded.  Near-term, there looks to be potential for GE to trade down slightly under $11,  but from this point onwards, the watch is on for when GE trades back above former March lows after breaching this level.  Weekly charts show pretty persistent positive momentum divergence.