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Minor stabilization, though trend, momentum still Negative; Energy remains the best sector Overweight

October 10, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

SPX Cash index
SUPPORT-  2862-3, 2850,  2835, 2817
RESISTANCE- 28984-5, 2902-3, 2917-9, 2940-5


LINK TO TECHNICAL WEBINAR from last Thursday 10/4: https://www.youtube.com/watch?v=NQtSxfx4P1o&t=1s

 

SPX - (3-5 Days)- Bearish- Minor stabilization attempt, but insufficient to think lows are in.  Above 2895 could allow for 1-2 days of bounce, but the most likely is a break of 2874 bringing about a move down to 2830 into early next week before a low

SX5E- EuroSTOXX 50  Neutral- Expecting that prices likely do try to stabilize and hold early September lows which also lies near March lows.  However, still a bit premature to call for a big rally just yet.  The next 2-3 days should bring about some stabilization attempts and this would be used to consider covering some shorts in Europe.    Support lies near 3250.

HSCEI-  Neutral, with expectations that longs can be attempted by end of week/early next.  For now, still a bit premature but shorts aren't as great of a risk/reward here.


Trading Longs: APA, HAL, DNR, XLE, ITT, CME, CBOE, MCS, OKTA, VZ, LNG, TSS, PX, ZTS, VNOM, NEP

Trading Shorts:  ALK, AAL, DAL, JBLU, LUV, OC, XBI, RHT, AMBA, MNK, DGX, WYNN, LVS, MHK, M, JWN, LB, WGO, ADNT, UPS, R, CAR, VMC


TECHNICAL THOUGHTS

Yesterday brought about just minor stabilization in prices, which have held for the past couple days near the same level, but yet no convincing argument of a low.  Evidence of Industrials weakening was very much present given Airline underperformance while many Brokers and Asset managers suffered, which put pressure on the Financial group.   The Materials group came under severe pressure (which had been a group which was thought to be bottoming) and yesterday's decline here postpones this a bit longer.  Utilities, meanwhile, gained ground, as did Energy which remains our preferred long sector right now for outperformance.    Technology still looks to weaken into next week and given this drop to new weekly lows, and as discussed previously, given this huge weighting in the SPX, this will be the most important sector to monitor for signs of finding support.

Meanwhile, outside the US, weve seen very persistent selling in Europe and Asia, which has been much greater than the minor drop we've seen thus far in US.   Even the Japanese NIKKEI has made a minor peak and has been backtracking.  Importantly, given signs of downside exhaustion, many European indices look close to trying to bottom out and could do so by end of week in the short run.   China in particular is starting to look more appealing to buy dips, and one could consider buying into Japan if /when the NIKKEI gets down to 23000.   Europe also could stabilize, but this is the worst of the three choices in my view, given the combination of their ongoing poor technical structure and lackluster growth.  


 

ACTION PLAN-  

Long XLU, with upside target at 47
Long XLE with targets at 79
Long XOP targeting 45.50
Short KBE, adding under 46.77 with targets at 42.50 and stops at 48
Short XLI targeting 76.50 , adding under 78.13, with stops on a daily close over 81


 

Additional charts and thoughts below.

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The S&P's bounce attempt on Tuesday largely failed, but it also didn't make much progress lower.  However, the pattern on hourly charts here still can allow for a retest and minor break of lows, which is expected in the days ahead.  Movement down under 2874 would be a real negative, allowing for the start of a decline which could take prices down to 2825-35 into early next week before a bottom.   The key for Bulls will be to regain 2920 initially, while for the bears, prices will need to violate Tuesday's intra-day lows.  At present the odds still favor weakness, but on early strength that closes near the highs tomorrow, that could bring about 1-2 days of gains before some final selling pressure into next week.  
 

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Airlines have come under severe pressure in recent days, and are nearing their first important area of support which could come about by end of week.  While this group still looks to face selling pressure into Thursday/Friday of this week, stocks like DAL, UAL, JBLU and LUV can all be looked at to find support by early next week and attempt to bounce.   Near-term momentum has gotten oversold in this group, and Demark exhaustion is close to forming which should be in place by end of week.  Overall, while weekly charts remain under pressure for the Airlines, this group should at least face some minor letup in the selling and a bounce should be right around the corner next week.  

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Crude oil came storming back in the last couple days, and whether one gives more credit to hurricanes or the threat of Supply coming off the market, this remains something to favor for further gains in the days/weeks ahead leading up to the Iranian sanctions on Nov 4.  Yesterday's gains managed to regain this uptrend and XLE, OIH and XOP should be favored for further gains in the days/weeks ahead.  Apache (APA) was just added to the Bloomberg Long/Short portfolio yesterday,  (YTD performance 34.05% through 10/9/18)  (For those who would like to view longs and shorts in this portfolio, please let me know, and will forward.