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Global markets look to be near make-or-break; Reversals in XLF, XLI important

August 14, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
281.19, 280.28, 279.16, 275.43    Support
283.58, 284.90, 285.97                 Resistance


LINK TO TECHNICAL WEBINAR from last Thursday, 8/9/18- https://stme.in/9aXI6EKv6o

 

SPX - (1-2 Days)- Bearish- Under 2820 allows for pullback to 2798-2800- Sell rallies to 2843

SX5E- EuroSTOXX 50Bearish- Breakdown of Italy, Germany, Spain in recent days down to key levels bears watching carefully for evidence of these indices breaking-  Expect weakness down to 3340 initially near late June lows.    

HSCEI- Bearish-  Two separate rally attempts since early July look to have failed.  Pullback does not seem to have run its course, and initial move down to 10188 looks likely

Trading Longs:  M, GES, HRTX, EXC, AEE, ES, TLYS, LYB, DWDP, SA, UNH, MDT

Trading Shorts:  WHR, MHK, TPR, AEM, IQ, BILI, RDC, DO, ESV, SF, MAR, WYND, WATT, FEZ, VGK, LVS, WYNN, NOC, BA, GE, GM, AVGO, BABA, BIDU, IQ, CAT, DE, ITW


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XLU with targets at 55
Long XRT with targets at 52, with stops at 49.50
Long XLP with targets 54.60-55, raising stops to 52.75


Initial rally attempts for US averages look to have failed and yesterday's close brought S&P down to important make-or-break levels near 2820 which connect the trend from April.   Under this level should bring about a quick move to 2798-2800.  At the close of trading though the price action was far more bearish than bullish, yet multiple indices were still holding support both in US and abroad.  S&P has not yet broken its uptrend, despite being under the first key support at 2833.   European indices like Spain's IBEX, or the German DAX have fallen to very important levels, as has the Italian FTSE MIB index, making the next couple weeks of critical importance for these indices to hold and try to turn back higher.   

Unfortunately the move in Financials, Industrials and Transports might have tipped the market's hand, as each of these had attempted to breakout over the last couple weeks but failed and now turned down to multi-day lows as of Monday, violating one-month trends which had held throughout July.  So, while S&P and NASDAQ still haven't shown all that much weakness, the sector indices seem to be fading.  In addition, sectors like Healthcare which had rallied throughout much of July and outperformed sharply in the month of July have now begun to rollover, violating key uptrends.   Most of this suggests the US market is likely on borrowed time, and even if some mild rally happens that helps the indices stay afloat over the next couple days into August expiration (which according to Stock Traders Almanac this week is the most likely period in August for a rally - between the 8th and 13th day of the month, which has stood the test of time over the last 20 years.)  However, the month of August overall has had a dismal record in mid-term election years over the last 50 years, so markets should be in a time-zone when its right to be defensive, and lower prices are expected between now and October, either occurring into end of August, or in the month of September.  But US indices are slowly but surely showing some evidence of stalling out and slowly rolling over to join some of the weakness being seen abroad.  

The movement in the US Dollar will be key as to whether commodities can start to turn higher in the days ahead, and whether Emerging markets can attempt any type of rebound.  The movement in DXY seems to be near key resistance, but the MXEF index looks to have a brief move back to new low territory before this can bottom.   Many EM currencies have broken down, outside of just the Turkish Lira and we're seeing many world equity indices weaken thus far, far more than the US.



Additional charts and thoughts below.

unnamed (17).gif


SPX has pulled back under 2833 on a close, but is sitting near the uptrend line support from late June that could have some importance.   While markets could stabilize here for Expiration week, the action in Sectors with the deterioration seen, makes it right to favor a breakdown in this trend, and pullback to support near 2800 initially.   The larger area of trendline support on SPX daily charts lies near 2755 and should be important if and when prices manage to break 2800.  Overall, while downside is likely to prove limited for US indices into the Fall, most markets are increasingly showing a heightened risk that a pullback should now be approaching.  US markets likely can only avoid weakness abroad for so long. 

Financials, along with Industrials, Transports all look to be breaking back down after failed rally attempts above June highs.  This chart looks important with regards to the reversal, not only for Financials, but for these other sectors as well, and likely results on weakness in the days/weeks ahead.   Yet again, this move up into the first couple days of August looks to have been a false move, and the fact that prices undercut last Friday's lows is seen as a technical negative in the short run.  

unnamed (19).gif

 The breakdown in Emerging markets can be clearly seen in the daily chart of the MSCI Emerging markets index, which violated the one-month rally attempt in this index, making a pullback to test and breach June lows likely for a final pullback of the larger decline which began back in late January.   From an Elliott perspective, many might view this move as the start of wave 5 of this correction, so it still seems a bit premature to buy into this decline, and additional weakness looks likely over the next 3-5 weeks for Emerging markets.