Please enable javascript in your browser to view this site!

Regional Banks close to bottoming; Energy also at make-or-break support

October 18, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

SPX Cash index
SUPPORT-  2775-7, 2764-6, 2710-2, 2692-5
RESISTANCE- 2815-8, 2825-7, 2830-2, 2941-2


LINK TO TECHNICAL WEBINAR from 10/11: https://youtu.be/_NY6cKzBZSo

SPX - (3-5 Days)- Mildly Bullish up to 2840-2 Wednesday's pullback held where it needed to and keeps the near-term recovery intact.  Rally up to 2840-2 seems likely.  Stops under 2783

EuroSTOXX 50  - Bearish- NO change and still better to sell/short Europe than US in the short-run.  Gains should find strong resistance near former lows at 3276 and likely to stall and pullback to 3100 before any low of magnitude is in.  Above 3300 on a close, However, would stop out shorts and suggest a bit more upside.

HSCEI- Mildly bullish-Bullish unless 9975 broken-  For now, its right to buy this churning and think HSCEI should still move higher.   Shorts aren't as great of a risk/reward here.  Dips should be bought at 9970-10000. 


Trading Longs: CRM, CASY, PFE, HEAR, FB, HSY, EIX, PCG, PPL, NFLX, SCVL, KL,HMY, ABX, AGI.CN, GOLD, 

Trading Shorts:  VGK, FEZ, RHT, AMBA, KMB, JEF,AMP, KORS, PH, WYNN, SGMS, LVS, MNK, M, JWN, R, VMC


TECHNICAL THOUGHTS

Late Tuesday/early Wednesday advance got within 1 point of 2825 before turning down and Wednesday's early decline held where it needed to before snapping back.  Overall, breadth was far less on yesterday's decline than it was on Tuesday's big gains, which proved to be the 2nd est breadth of the year.  I still view the market to be in a recovery process off last week's lows, and until/unless yesterday's lows are breached, near 2773, it should be right to hold longs for a move up to 2840-2 area.   Yesterday's minor weakness helped to alleviate some of the near-term overbought conditions, while the daily and weekly momentum and breadth (despite Tuesday) are still a concern.  Overall, a tactical hit-and-run methodlogy is necessary in markets like this for those who choose to trade.  Buying dips and selling rallies is important, and better to leave trend following to when markets calm a bit, as many sharp moves are being reversed with equally violent counter-trend moves.  Bottom line, I view this bounce as something which likely should pause and give way to eventual selling, but it's tough to say based on the last couple days that markets are there just yet. 

Outside of S&P, we see that Energy has snapped back sharply and now Crude lies near key levels.  This should make Energy an attractive risk/reward to buy dips.  Additionally, Financials very well might deserve another look if Regional banks start to stabilize.  While this was published yesterday morning as still being negative, parts of this group have begun to flash exhaustion after recent selling and might help Financials to stabilize, which would take some of the heavy lifting away from Technology. 
  
 

ACTION PLAN-  

Long GDX with targets at 21
Long XLE with targets at 79
Long XOP targeting 45.50
Long KRE at current levels, looking to add to longs on any close at multi-day highs, or when Demark exhaustion confirmed
Short XLI targeting 76.50 , adding under 78.13, with stops on a daily close over 81


 

Additional charts and thoughts below.

below.gif

The S&P fell down to 50% level of prior 2-day range, but still managed to hold exactly where it needed to before turning back higher.  Overall, with breadth at less than 2/1 negative compared to prior days 5/1 bullish, its early to think stocks are rolling over in my view.  One should use yesterday's lows as a stop for longs- 2773 and use minor dips to buy with a long trading bias towards a move higiher to 2830-42.   Granted, the structure remains a negative from early October and momentum is still a concern.  However, we have the beginnings of Financials starting to stabilize just in the last 24 hours and some near buy signals for Regionals (see chart below) .  So for now, one can still be long and expect a bit higher prices. 
 

prices.gif

Crude oil broke trendline support yesterday, though held where it needed to near 69 which coincides with TDST support while prices formed Demark exhaustion.  Given the sudden uptick in bearishness given the 4th consecutive BUILD inventories while Driving season comes to an end, many are thinking crude has topped for the year.  Technically I think that's premature and would be long here from a risk/reward perspective with stops UNDER 69.  I'm expecting Crude to stabilize and turn up in the days ahead back to the low to mid-70s and one should look at XLE, XOP and OIH to buy dips.  Under 69 on a close for front-month WTI and the bearish case would have to be given better weight. 
 

weight.gif

Regional banks are now down to relative levels which are very close to registering BUY signals vs XLF which should make this group worth bottom-fishing after a very rough few months of decline.  KRE certainly looks broken technically, but yet again, we'll lean on Demark counter-trend buys which are within 2 days of completion and should mark a good tradable low in this group.   Relative charts above of KRE to SPX have neared prior lows and are likely to signal counter-trend exhaustion by end of week.