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Short-term bottoming process has begun, with fear on the rise

June 29, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
268.30-.50, 266.60, 266                             Support
273-273.60, 274.49, 275.20-50,  276.72    Resistance


LINK TO TECHNICAL WEBINAR from yesterday-  https://stme.in/x0uJXaiYRd

 

SPX - (1-2 Days)- Mildly Bullish- Right to take a stand in this current decline with prices largely unchanged now over the last few days, but yet fear has steadily been on the uptick given the EEM deterioration while Tech stocks slowly but surely come back to life.  The move down under 2700 arguably was sufficient to satisfy the Elliott pattern from 6/21 and .suggests that at least a minor bounce can unfold.  While patterns on XLF and XLK remain dicey, the Industirals and Materials stocks along with Healthcare all look to bounce in the days ahead.  One should utilize rallies into mid-July as a chance to lighten up yet again and consider selling into. 

SX5E- EuroSTOXX 50Mildly Bullish-- Lows could be at hand in the near-term after this attempted pullback under May lows really hasn't gotten much traction.  Similar to the S&P this has largely gone sideways in recent days and has formed a TD Buy Setup as ofThursday's close.  Movement up over 3424 should drive this higher to near 3800. 

HSCEI- Bullish- Expecting snapback rally, and good to position long and add over 11118 for a move up to 12,000 potentially in the short run on a bounce.   Two different counter-trend buy signals are apparent, so its likely that the DXY stalls out, EM rallies and HSCEI follows suit.  

Trading Longs:  EEM, FXI, CQQQ, IYT, XLI, REGN, PFE, MRK, LLY, GLD, IAU, GDX, CSX, KEX, UNP, XOP, OIH

Trading Shorts:  IVZ, TBT, ZION, FITB


TECHNICAL THOUGHTS


ACTION PLAN-  

Long IYT, with targets at 192
Long EEM with stops at 42 and targets at 45
Long XLV with targets 86.85
Long XOP with targets at 46.50
Long GLD at 119 or below down to 118, with upside targets initially at 122, then 127.50
Covering KBE, SMH, SPY, VGK here and/or on any Friday weakness



S&P's reversal back above 2700 suggests the initial pullback from June 21st likely is in the process of being completed.  The snapback rally on Thursday helped sectors like Industrials, Technology, Financials all begin to stabilize and show above average gains, which suggests at a minimum that markets have a chance of trying to rally as the new Quarter begins ahead of the July 4th holiday.  Fear has been on the rise, with Total Put/call registering a 1.38, while AAII has flipped to Bearish  (more bears than bulls)  However it's tough making too much of current price action as being all that bullish just yet, as Thursdays rally failed to carry price up to levels that suggested an imminent rise can happen, and breadth was just fractionally positive.   Additionally, there was no major evidence of fear or capitulation at the lows (not that that's necessarily needed )   Bottom line, trying to buy into markets here is a definite work in progress, with Financials and Tech having rolled over sufficiently to turn near-term trends bearish.  Therefore, yesterday's snapback was just a temporary positive, but does fit in with seasonal cycles and some recent escalation in bearish sentiment which can be supportive of a bounce. 

Outside of S&P, its important to note that China's HSCEI, the Hong Kong Hang Seng Enterprises index, has logged two separate Demark related buys in the last day for the first time since late January, while Gold and EEM have also shown similar patterns.  This should allow for an above average bounce in the Metals potentially as well as EM stocks and currencies, as the Dollar turns back lower.  


Additional charts and thoughts below.

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The trend remains down, but yet some encouraging signs as S&P continues to find good support near the 2700 level on a closing basis, with prices largely unchanged now after the last three days, and seem to be setting up for at least a minor bounce into early-to-mid July.   Movement back over 2735 on a close would signify that this is underway, allowing for further gains.   Downside meanwhile should be contained at 2683 on pullbacks.   Given the fear levels rising in recent days, any move down under 2683 would result in capitulation and a larger trading bottom to buy into for a bounce into July before additional weakness.  While the bearish trend is unquestionable on daily charts, the risk/reward for shorts heading into end of quarter given the cyclic tendencies of late, seems poor.  Use pullbacks to cover shorts and buy dips if given the chance between now and Monday.  

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Transportation stocks likely should stabilize at current levels in the short run, after the DJ Transportation Avg sold off to key trendline support which has been tested now on two separate occasions since early February.   This area at 10307 has logged a TD Buy Setup, or nine consecutive closes where the close was less than the close from four periods ago.  Thursday's ability to close well up off early lows bodes well for this to attempt to rebound, and that's what's expected between now and mid-July after this selloff.  Movement down under 10,000 would be unexpected right away, and postpone the rally attempt.  

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 Fear has definitely been on the uptick in the short run, which is a definite reason to consider betting against this recent downtrend in stocks and considering that the first couple week of July could turn out like the last four months.  The Total Put/call ratio hit 1.32 as of Thursday's close, the highest since early April.   Over the last five years, the SPX closed higher 15 out of 17 times by an average of 1.88%, with the lone exceptions being August 2015 and January 2016 during steep selloffs.  (Stats courtesy of @MarketCharts)  Other gauges like AAII also show more Bears than Bulls now which just flipflopped this week, with 28.4% Bulls and 40.8% Bears.  The last occasion this happened this year was early April 2018, coinciding with a low and rally in the days ahead.