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LOWS still PREMATURE, but could be in place by early next week

December 6, 2018

Mark Newton CMT, Newton Advisors, LLC



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S&P Chart and Technical Comments:


LOWS still PREMATURE, but could be in place by early next week- Use Thursday’s bounce to consider lightening up for trading, expecting retest of earlier lows

After getting down to the 2600-22 range, S&P has bounced nearly 50 handles off the lows from this morning. Yet, trends have not yet shifted to bullish and S&P is still within a downtrend from highs made earlier in the week.   Breadth and momentum are a bit better than what was seen on Tuesday, but yet given the severe pullback yesterday and today, it’s still difficult to think a low of any magnitude is in.  Interestingly enough, Treasury yields are closing in on support and given that yields diverged from equities last week and moved lower, one should keep a close eye on US 10YR yields for any evidence of bottoming (as this could be the catalyst for a steepening in the yield curve and for Financials to push back higher, along with the broader market.

For now, heading into Friday/early next week, it’s still right to be defensive and expect a retest of lows, again, but yet increasingly this should look to hold as support and start to produce some kind of meaningful bounce (and much more meaningful than today)  One should consider selling Treasuries when yields get to 2.80-2% into early next week, and to consider buying this dip in Equities, expecting that markets are starting to show MORE signs of fear this go-around on this pullback from 12/3, as evidenced by the spike in Equity put/call today and the Tuesday TRIN move above 3.25, and that any larger breakdown under 2600 likely might be postponed until January.

2697 is an important area for S&P futures to get back over that would suggest some kind of larger low might be in place. On the downside, 2600-22 is still important and one should consider using any retest of this area again to cover shorts and buy.