October 23, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: firstname.lastname@example.org
SPX Cash index
SUPPORT- 2710-2, 2692-5
RESISTANCE- 2781-4, 2815-8
LINK TO TECHNICAL WEBINAR from last Thursday 10/18: https://www.youtube.com/watch?v=BJeYb8vRVAI&feature=youtu.be
SPX - (3-5 Days)- Bearish this week into Wed-Friday with a likely retest of 10/11 lows near 2710-2 before any low is at hand- Area at 2790 has to be surpassed to have any sort of bullish stance, and for now is premature
EuroSTOXX 50- Bearish- Pullback to 3100 likely before any low of magnitude is in. Above 3250 on a close, necessary to stop out shorts and suggest a bit more upside.
HSCEI- Bullish- Expect yesterday's rally can likely continue a bit longer- Bullish unless 9975 broken- Shorts aren't as great of a risk/reward here. Dips should be bought at 9970-10000.
Trading Longs: I, FRPT, VALE, DISCA, WMT, CASY, MRK, PFE, HSY, MOS
Trading Shorts: UTX, GCI, VGK, FEZ, RHT, AMBA, KMB, JEF,AMP, KORS, PH, WYNN, SGMS, LVS, MNK, M, JWN, R, VMC
Yesterday's late day selling keeps the near-term bearish thesis intact, and despite a bounce in Technology, we saw Financials, Materials, Energy and Industrials all show multi-day declines. Breadth came in flat, which is arguably a positive for stocks vs the hugely negative breadth seen two weeks ago coupled with lesser volume on declines. Additionally, fear has slowly but surely been returning to the market as the Put/call ratios have been trending higher in recent days, which had been largely absent prior to this past few days. As of Monday evening, Electronic futures selling has taken S&P down under 2750 which had held since last Thursday's lows and is seen as a real negative which should set up for a test of 2710-2 and likely minor break into late week before any stabilization. The inability of S&P to regain 2750 into Tuesday's open suggests markets have entered a final capitulatory phase where volatility could expand over the next couple days as stocks fall before a bottom and reversal happens into November. For now, unfortunately, the TRIN and Put/call data does not yet fit perfectly with levels that would suggest a trading low is in , and charts on SPX, DJIA, TRAN and many of the Sector ETFs remain near-term bearish. Some evidence of a time-based low could come about between Wednesday and Friday of this week. At present, it's right to remain defensive until/unless 2790 is exceeded with thoughts of an upcoming retest.
Short QQQ with targets at 168.50 and stops on closes back over 176.70
Long KRE at current levels, looking to add to longs on any close at multi-day highs, or when Demark exhaustion confirmed
Short XLK with targets at 68 and stops over 72.25
Short XLI targeting 70.80-71 , with stops on a daily close over 74.50
Additional charts and thoughts below.
As of 8pm Monday night, S&P broke down under 2750, which held no fewer than 3 prior occasions just since last Thursday. This is the break that should start to lead down to test October lows. Unless Monday night losses manage to regain 2750 prior to Tuesday's open, it's likely that prices start to accelerate lower Tuesday into Wednesday before any low is at hand. The breakdown late Monday looks negative technically and early to buy.
XLI has just gotten underneath prior lows which should allow for a final pullback in XLI over the next 3-5 days before this group can carve out a low. The possible Elliott wave counts of this move down from September is shown on the daily chart above, which similar to XLF, shows prices having pulled back down to the lowest levels since this past Summer. Probable support lies near former lows that were hit both in May and also in late June, and are likely by the end of October. Thus, this recent selling should represent a buying opportunity, despite how bearish this recent downtrend appears. One would look at covering shorts and buying XLI under 71.25 with ideal targets at 70.80-71 on further weakness.
Financials dropped back to the lowest levels since 2017 yesterday, something which has caused XLF to make an official "5-wave down" from its peak in September. This group was mentioned as one to favor on a relative basis in the weeks ahead, and on an absolute basis, it was thought that a pullback to 26 or lower should actually cause a low in this group, where XLF and KRE could begin to rally back. While technical trends remain quite bearish and the pattern in the last year looks quite unattractive with XLF now back at new multi-month lows, it's thought that lows should be right around the corner by end of week potentially that could allow this group to stabilize and turn back higher. One should consider taking a stab at buying XLF at 26 or better and buying KRE, which looks very much washed out and should begin to trend back higher, following yields as the bond selloff continues.