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Materials could be set to outperform as Dollar falls

June 6, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
274.34, 273.58, 272.94          Support
275.70, 276.28, 276.61          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday: https://stme.in/Z1TiZuapkS

 

SPX - (1-2 Days)- Bullish, No Change, the Technology move is growing stretched, while Discretionary has pushed higher to help, while Industrials and Financials remain largely absent thus far.  A bit more strength looks possible for this week, though evidence of negative momentum divergence is growing and any move down under 2740 is problematic for the near-term bullish case

SX5E- EuroSTOXX 50Mildly Bullish-  Yesterday's weakness happened prior to US Equities snapping back, but Europe remains the weak link and should be underweighted relatively.  A bit more strength can happen up to 3520-30, so its likely that the next couple days continue to show further upside.  Any move back under 3389 would allow for a full retest of 3261.

HSCEI- Bullish- No change-Move up to 12400 without too much trouble and movement above should allow for 12525-12890.  Bounce ongoing and expect Dollar weakness leads this higher

Trading Longs:  FDC, PX, DBX, GRUB, LYB, KKR, BAC, XLF, MRK, GILD, ORLY, HCA, LHCG, EBAY, WU, PGR, BAX, COST, FDX

Trading Shorts:   AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Long SPY w/ target 276.61
Long QQQ, but looking to sell 175.20+ with stops under 173.07
Long XLY with targets 110
Long XLF with targets 28-28.50
Long IHI w/ target raised to 205, and stops raised to 200.78
Long NYFANG index @ 2730 with targets raised to 2950 and stops raised to 2800
Long HSCEI at 11575-11650, targeting 12500
Long Grains through WEAT, or CORN
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365

Short Utilities and REITS-  XLU and VNQ after the recent rally and now stalling out



Bottom line, while trends are positive, Equity markets just don't feel all that sound heading into early June.  Financials continue to act poorly, while the breakout attempt in Transports looks to have failed for now.  The SOX looks to be close to resistance, and Technology as a whole looks right to pare down a bit into this advance and take profits in favor of putting money to work in Materials.  The Dollar downturn should result in the Metals trade gaining traction once again.  We've seen a bit of that in the Base metals (Huge move higher in Copper yesterday) and Chemicals and paper stocks have acted well of late.  Though the Precious metals should be next to start turning higher.  Sentiment has gotten quite pessimistic on Gold again, and given that Gold has held its longer-term uptrend, this could be near an area where this bottoms out and turns back higher.  For now, not much proof just yet, but something to consider joining quickly if Spot Gold can get back above 1309.  

Overall, the move in Discretionary has been largely Retail related, but a positive nonetheless, while Tech and various Healthcare push higher.   Given that Treasury yields still seem primed to push up into FOMC next week, Financials should get a much needed bounce, which might provide some solace even if Tech does stall out.  For now, the Regional banks continue to act much better than Money Center.   Within Technology, Semiconductor issues look to be stalling out and should turn back lower vs Hardware, which loosely translated, means, buy AAPL and STX and sell SOX/SMH.  Watching yields carefully in the next couple days should give some clues as to whether stocks turn down this week, or can hold out for next.  But evidence of negative momentum divergence has been building of late, and so a rally in Financials is a MUST to expect equities to be able to weather this and for SPX and DJIA to power higher to join the NASDAQ.  At present, this seems unlikely, but a near-term bullish stance is still recommended, until/unless 2740 is broken, which would shift this to a bearish stance quickly. 

Additional charts and thoughts below.

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S&P looks to be nearing a possible short-term peak, as momentum divergence has been building on this recent runup which was seen yesterday, and momentum did not join S&P back at new multi-day highs.  Key level for the Bulls to pay attention to will be 2740.  Under this and trends could experience a pullback to 2700.  For now, it pays to stay long albeit with an eye for the exits given this negative divergence while Equity Put/call levels remain low.  

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XRT gains show the key driver behind much of the Consumer Discretionary move in the last week, as eight of the 10 best performers in Discretionary have all been Retail based, and this sector continues to exhibit an extraordinary amount of near-term strength.  Prices are now within striking distance of former highs, which could be a temporary stopping point and similar resistance lies on XLY charts.   For now, Retailing still has to be favored until some evidence of weakness arises.  

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 Semiconductor stocks are likely to peak out vs Hardware in the next few days/week, which should provide more strength in AAPL, STX, FFIV vs stocks like MU, or INTC, as the Semis are poised to take a back seat in the weeks ahead.   Relative charts of this ratio shows the rally in May which now has reached the area of resistance and attempted to rollover.  This could be problematic to the bullish case for further Semi outperformance, and one would favor Tech Hardware or Software within Technology vs the Semiconductors.