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US resilient, while MSCI All World EX-US hits new lows for the year

August 17, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
280.16-280.44, 279.11-279.16, 276.73, 275.43    Support
285.40, 285.98, 286                    Resistance


LINK TO TECHNICAL WEBINAR from yesterday, 8/16/18- https://stme.in/L3MxzJPlkq

 

SPX - (1-2 Days)- Bullish over 2843- Bearish Under 2825- Shorts stopped yesterday on broad-based gains over 2843- Mildly Bullish with plans to sell 2865-75.  UNDER 2825 puts bear case back on front burner, leading to 2755;  Similarly, breaks of 7600 and 7100 for NASDAQ comp and NDX would be important

SX5E- EuroSTOXX 50Bearish-  No reason to expect anything more than just a minor bounce out of Europe which remains far more negative than anything seen in the US at present.   The early week support violation in Spain's IBEX and German DAX looks important. SX5E has now given up more than 50% of the entire rally from late June.  Expect weakness down to 3340 initially near late June lows.    

HSCEI- Bearish- Minor bounce should prove short-lived and still expect a final pullback on this recent decline down to test 10188 given that August lows were breached.  

Trading Longs: SQ, MNST, MDT, LH, WELL, VTR, VER, VNQ, EXC, AEE, ES, LYB, CVNA, NEP, HRTX, UNH

Trading Shorts:  WHR, MHK, SF, MAR, WYND, FEZ, VGK, AVGO, DE, ITW


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XLU with targets at 55
Long VNQ with targets at 85.50
Long XLP with targets 54.60-55, Stop at 52.95


US stocks managed to hold important support and then turn up over the last 3 days highs (SPX) on much better then expected breadth, which signals that yet again, it's likely premature to bet against US Stocks and selloffs could be postponed yet again barring an immediate move back down under SPX-2825.   Those looking to sell rallies should concentrate in Europe and Asia until the US can demonstrate more signs of weakness.    Movement up above 2843 is a temporary positive given the sharp gains seen iin  broad-based fashion, with yesterday representing the 4th best breadth day all year.  As discussed previously, momentum and recent breadth (ex-yesterday) along with seasonality and ongoing divergences in US indices and US vs Europe/Asia remain key concerns.    The positives focus on A/D trending near all-time highs, lack of High Yield stress, sentiment and technical structure.

Sector-wise the move in the Defensives continues to suggest this area should be one to favor, particularly heading into September in the weeks ahead.  REITS and Utilities have been acting well, and if WMT's move yesterday was any guide, the Staples have also been showing excellent outperformance of late.  Whether or not the Tech rally can continue another 1-2 weeks is not of interest given the lofty levels, and Industrials and Financials strength should prove short-lived.   In Commodity-land, meanwhile the rallies in the Metals and Energy continue to face headwinds given the rising Dollar, and despite a minor stalling out in the USD, there simply hasn't been sufficient weakness to have any real confidence in precious metals stocks and/or oil services to show any real strength.  While a commodity rally is likely in the month ahead, for now, this still looks premature and patience is required.  

One thing to watch for in the days ahead:  If Yields start to turn higher in greater fashion, this very well could lead Financials up into late August before a peak and turn back lower.  As charts and commentary will show below, there are now counter-trend signs of Bond yields potentially bottoming and turning back higher in the near-term.  However, given ongoing structure and negative sentiment towards Treasuries, this likely proves temporary.   

 

Additional charts and thoughts below.

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SPX broke back above the prior highs on some of the best breadth of the year yesterday, with very good participation.  Yet, daily charts show this to be an ongoing choppy consolidation since early July where bounces have met with resistance and turned down, while selloffs also have not gained traction.  While a move over 2843 doesn't represent an immediate technical reason to sell, one should be on alert given the declining momentum, and consider that trends generally might prove trendless for the time being.  ClearlyThursday was more positive than negative, yet technically the market remains one to be selective and tough to have too much conviction as indices navigate a very negative time seasonally when most of the world is moving lower.  The area near late July highs will have some importance, but it still looks doubtful that S&P makes much headway above January highs.  Bottom line, unless reversed right away on Friday, one should look for opportunities into end of month. 
 

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Both German Bunds and US Treasuries showed some evidence of some stabilization in yields over the last couple days, and the counter-trend exhaustion in yields could allow for a bounce between Friday and end of month before any further bond rally gets underway.  As reported last week, sentiment remains quite bearish for Treasuries and the positioning continues to be very negative and growing more so by the week.  Thus, an eventual break of this "neckline" for yields looks likely as markets enter September.  However, for the next couple weeks, one can't rule out a rally in yields, and selling Treasuries here with yields at 2.87 looks right with initial targets at 2.92 and above allowing for a push higher in yields up to 2.95-8 area before yields stall and turn back lower.   

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 The MSCI "All World-EX-US" index has just fallen to new lows for 2018 and the lowest level since early last year.   Given that the US and the World index were moving in tandem into early January, this recent divergence shows the extent to which the US has diverged "big time" in the last couple months.   This index represents an index of stocks globally without the US included, driving home the point yet again of the glaring divergences now present between the US and the rest of the world.   For now, this is more of an intermediate-term warning than anything that suggests the US needs to play catchup to the downside, but should be paid attention to in the weeks ahead.