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Retail breakout, along with Europe are temporary positive factors

July 19, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
276.28-.52, 275.62, 274-274.50        Support
281.45-50, 282.40-5, 283.75-284      Resistance


LINK TO TECHNICAL WEBINAR from last Thursday-https://stme.in/KWJGLYbh4g

 

SPX - (1-2 Days)- Bullish into 2740-5 next Thursday/Friday-  An immediate reversalThursday back under 278.41 SPY, or 2789 S&P Futures needed to put the bearish case back on track.  Shorts are stopped out over 2816.75 in S&P Futures, and SPX cash above 2820 likely leads to 2840-5 into NEXT Thursday/Friday.  NDX stops are 7480

SX5E- EuroSTOXX 50Bullish-  Wednesday's breakout above the downtrend does in fact turn the trend positive for Europe in the very short run.  This was unexpected, but the combination of the breakout above early July and also a trend breakout from late May are important as near-term positives for this chart.  Movement up to 3534-3575 looks possible while any pullback down under 3429 makes the bear case take front and center again

HSCEI- Mildly bearish-  No real evidence is there just yet like we've seen in Europe and US but prices likely hold lows barring a breakdown in SPX, SX5E.. and this has not happened just yet.  10200 should be area to buy on dips

Trading Longs:  ETSY, TJX, SCVL, FIVE, LULU, M, PANW, TLYS, KFY, NTCT, XLP, CPB, ACN, DPZ, WIX, 

Trading Shorts:  XLK, OIH, MDR, PPG, BMS, OC, PNR, CMI, FLR,  SMH, AMBA, PCAR, CB,, LRCX, EWJ, CROX


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XRT with targets at 52
Long XLP with targets 54.60-55
Long XLV , raising target to 88.50, and taking profits on any close under 85.10

Short XLK at 71.90-72.25 with targets at 70-70.50
Short XLF with targets at 26-26.50

Short SMH with targets at 96.10 & stops on shorts at 107.84



S&P has exceeded key resistance in SPY and right at important levels in SPX, ES.  Meanwhile NASDAQ at resistance (Stop 7870) while DJIA is still under June highs. Given prices have not reversed course into mid-month, it's tough to rule out a lackluster bounce into 7/26-7 which should be sold, unless prices turn down literally right away on Thursday.  

Bottom line,  being above March and June highs is constructive for SPX, despite the lack of confirmation in DJIA and counter-trend exhaustion in NDX-  Given the lack of reversalWednesday, we're moving out of the time zone for trend change and Thursday is likely to prove this case and settle any near-term discrepancy.  The movement in many Rail stocks along with the Airlines was bullish on Wednesday while Financials have also rebounded.  While not wanting to fight the trend, it's important to state that both XLI and XLF are now right at trendlines from late January which mark DOWNTRENDS for both sectors.  So this mean reversion has been positive in helping to buoy the market at a time when Technology and many FANG stocks have faltered a bit, but yet the sector rotation is helping to pick up the slack and for now, it's important to watch both Tech and Financials for evidence of these turning lower.  At present, Healthcare has been the consistent leader in recent months, while most others have gone through minor corrections and then started to rebound.

As mentioned, the issues with breadth and momentum are very real and 90 times out of 100, they matter.  Breadth was flat today.. again.  NDX meanwhile stalled and has two consecutive counter-trend sells within a week after pushing up to new highs on lower momentum.  XLI and XLF will need to get above 76 and 28.25 respectively to think these sectors can work and this is not just a bounce.  Meanwhile sentiment polls like Inv. intelligence have widened out to more bullish readings lately  with a Bull-bear spread of 36.8,  not the same levels as seen in late January at the peak, but important to take note of nonetheless, particularly since the tariff threat or chance of Chinese "re-raise" hasn't gone away.  The CNY/USD Reminbi has continued to plunge to new depths, while the US Dollar has furthered gains, which adds the uncertainty of a possible emerging market crisis to the mix.   Additionally the time near 7/26-7/27 looks quite important for trend change (7/13 really didn't work for US markets) and rallies into late next week would be something to sell into given time considerations.  Overall, it pays not to be complacent, and depending on one's risk tolerance, utilizing a move under yesterday's lows or Monday's lows to be bearish makes sense, while thinking SPY over 281 was important, and might have a date with 283-284.50 before finding resistance that truly matters.  

 

Additional charts and thoughts below.

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The SPY's push above 281 managed to stop out any near-term sells, while "perfecting" the breakout above the TD line from last week.  In English, this means that trends likely should extend into next week before registering any Sell.  While an immediate pullback under 279 would be respected and followed, the path of least resistance now looks to be higher, at least for now, and we'll monitor where prices are into late next week, but a push to 283.50-284.50 can't be ruled out.  (note, S&P Futures still did not exceed the 2816.75 area mentioned, nor SPX cash above 2820, but the SPY chart is the key chart which presents a near-term bullish picture price wise, so stop-outs look important, and at least a minor positive.   Note, the breadth and momentum divergences have not yet amounted to all that much, but yet XLI and XLF being near resistance "should" put a ceiling on how far these can go, but Technology continues to be the sector to watch for leading purposes.  We've stalled a bit in FANG stocks, but yet no material turn down just yet.
 

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Retailing made a very promising technical move yesterday, exceeding early July 49.97 closing highs which can help set its sights on a push up to 50.85 or even a minor new high.  This XRT etf had been showing signs of consolidation in the last month, but yesterday's movement was definitely a bullish move, and argues for strength in this sector in the days ahead.  My favorite stocks in the retail space are: ETSY, SCVL, TJX, FIVE, LULU, BURL, M, DSW, TLYS, ROST, URBN, BOOT, NWY, ENR, and KSS.

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 The Industrials ETF, XLI, made a positive rally on Wednesday that managed to get back above early July highs and exceed $74 on a close, which could help this extend a bit more near-term.  The Transports rebounded given promising movement in Rails and Airlines and points to this potentially getting to 75.75-76 before finding resistance.  Yet, the larger chart remains bearish and won't turn positive until this gets back over 76 on a close, making rallies likely something to sell into.  XLF looks very similar but is closer to resistance.  So for those wondering if S&P can push up to late January highs, not only will we need to see NDX ignore its countertrend sells and XLK start to push up with FANG stabilizing, we'd also need to see both XLI and XLF start to structurally improve by breaking out of these downtrends, which is a tall order.   For now though, another $1.50 looks possible in XLI into next week.