Please enable javascript in your browser to view this site!

TY Yield, USD brekdown could lead to weakness in US stocks in the short run: 20 Key Technical Longs/shorts

March 29, 2016


2020-2021, 2004-5, 1956-60, 1927-30 Support
2040-2, 2048-50, 22063-4, 2075-7 Resistance

Key Themes:

1. S&P near-term bearish.  Prices remain below its uptrend from mid-February that was broken, and despite Monday being a very light volume low volatility session, momentum worsened given the lack of upward progress in the short term.  Technical indicators like MACD are now showing clean breaks of the signal line, a rollover which likely should result in at least temporary weakness during this seasonal weak time for stocks as the 1st quarter comes to a a close.   Key resistance for S&P June futures remains near 2040, and above that 2048.  Similar to Monday's levels, selling SPY at current levels near 203.25 up to 204.50 looks right for aggressive traders, with stops at 205.  Movement back above 205 should allow for gains to 207-208, albeit at a weaker pace in momentum.  Breaks of 202 would be used to press shorts/hedges for a move down to 195.50-196.

2. 10 and 30 Year Treasuries strengthened in a manner which looks to lead higher in the short run, along with the US Dollar index turning lower following Monday's economic data.  Breaks of 1.85% in TNX would allow for a test of 1.60-5, while TYX looks to be even more negative in the short run, and could get down under recent 2.61% lows to 2.50% before stabilizing.   If yields begin to accelerate lower in the next few days, this would be a key piece to the puzzle to thinking equities likely follow suit. 

3. Sector mean reversion looks to be happening as indices near quarter end, with the formerly strong sectors like Materials and Energy, which have led over the last month showing weakness, while Healthcare and Utilities, which both lagged in the rolling one-month period, showing greater strength.  Utilities stands to best all other sectors for 1st Quarter outperformance, and given declining Treasury yields along with uncertain environment for stocks has shown defensive qualities as well with still a very high number of stocks on the list for new 52-week highs given XLU's recent push back to all-time highs.

4. Industrials behemoth General Electric pushed back up to new 15-year highs in Monday's trading, something which keeps the rally in good standing, as former market peaks nearly always coincided with GE turning lower at the same time.  (September 2000 and October 2007) While the recent outperformance in Industrials is certainly not just GE-based, it's important that this stock follow suit as the group hits new monthly highs and shows good relative outperformance vs SPX.  GE looks to continue higher over the next few months, with key resistance just above $33, which lines up with the 50% retracement ratio of the entire downtrend from 2000.   Transportation stocks were notable laggards, again, and fell for the fifth straight day, something that took the wind out of the sails for this sector in Monday's trading. 

BOTTOM LINE-  No real change in view based on Monday's trading, and if anything, the pullback in Treasury yields and the US Dollar is encouraging in the near-term to expect minor weakness in stocks to consolidate recent gains before additional gains can occur. Both Small-caps and Transportation stocks have been laggards of late, something which is a near--term concern, while breadth and momentum have been dropping off measurably.  Note that most of the concerns remain short-term in nature, and have little to do with the intermediate-term trend, which continues to demonstrate above-average momentum, while the breadth surge still should lead stocks higher, after brief consolidation.  The fact that Industrials are participating is a definite positive overall to the bullish picture for stocks into late Spring. 




S&P Futures broke down under the one month trend, and have since rallied back, while momentum continues to wane.    This still appears like a better risk/reward short for trading purposes after this trend violation, and would need to get back up above 2048 to cancel the negatives.


30-Year Treasuries made a fairly pronounced breakdown in the last few days similar to what happened to equities, but most investors blamed the weak Economic data and downward revisions for Treasury strength.  Yields look to potentially face further weakness and could hit 2.50% before rebounding.

TNX broke down after Monday's downward revisions in Spending data, and yields are now threatening key support near 1.85% which is considered important in the short run.  Violations of 1.85% would likely hurt Financials performance, and help Utilities, while putting pressure on stocks given recent correlation trends.

GE moved to the highest levels since mid-2001 in Monday's trading, a breakout to new 15-year highs.  Given the stock's history though of spiking to new highs and then immediately reversing course, it's difficult to recommend immediately using this breakout to buy.  Former peaks in March 2010, February 2011, September 2012 and April 2015 all occurred near temporary market peaks.  However, GE's move is considered bullish for Industrials and for the market overall, as Industrials have recently moved to new monthly highs relative to SPX.  Upside technical targets for GE lie just above $33, which is a 50% retracement of its entire decline from 2000, which surprisingly, has not yet been tested.



This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein, and may be subject to change without notice.   Newton Advisors, LLC has no duty or obligation to update the information contained herein.   Further, Newton Advisors, LLC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.  The information provided in this report is based on technical analysis. Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer. The investments discussed or recommended in this report may not be suitable for all investors.  This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction.  Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.  

Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.  Newton Advisors, LLC believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.  From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report:   This report, including the information contained herein, has been prepared exclusively for the use of Newton Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Newton Advisors, LLC.