October 24, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: firstname.lastname@example.org
SPX Cash index
SUPPORT- 2692-5, 2682-3, 2650
RESISTANCE- 2770-1, 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)- Mildly Bearish- Despite the retest and move up off the lows, prices did not rally sufficiently to think the worst was over. While having finished up at the highs of yesterday's range, the trend remains negative and prices require a move above 2770 for confidence. Yet another pullback could happen Wednesday, which is expected to be volatile.
EuroSTOXX 50- Bearish- Close on lows failed to follow suit to the late rally in US stocks and still right to underweight SX5E and/or SXXP vs SPX. 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- Neutral -Pullback yesterday failed to follow through higher but prices still largely unchanged from the last few weeks -Shorts aren't as great of a risk/reward here. Dips should be bought at 9970-10000.
Trading Longs: VZ, MCD, D, FE, DIS, ZION, I, FRPT, VALE, DISCA, WMT, CASY, PFE, HSY, MOS
Trading Shorts: UTX, GCI, VGK, FEZ, RHT, AMBA, KMB, JEF,AMP, KORS, PH, WYNN, SGMS, LVS, MNK, M, JWN, R, VMC
US stocks look to have made a successful retest of former 10/11 lows yesterday, and while prices rose well up off the bottom after briefly undercutting S&P 2710, it still looks difficult as of the close to think the lows are in. Holding at current levels for 2-3 days and/or rallying off these levels further would go a long way towards thinking stocks could begin a longer rally. However, at present, its more likely that this takes a couple different retests before any meaningful low is in place.
Looking back, volume did spike near the lows mid-morning around 10:15-1030 when futures bottomed. The NASDAQ also provided some classic non-confirmation of the breakdown by holding above 10/11 lows which was important to note. However, prices failed to close positive on the day and still finished down about -0.50%. This was welcome relief for the bulls after earlier 2% losses. Now comes the tough but necessary part for the bounce. We’ll need to see evidence of prices continuing higher to reclaim 2770..
Given that there was no real jump in TRIN (Arms index) nor equity put/call ratios exceeding former peaks made in early October, it’s tough making the case that markets can move straight higher from here. However, the ability to have rallied well up off the lows is more positive than negative and argues that the case for a low in stocks should be right around the corner and could be in place by end of week.
Outside of equities, we saw a meaningful drawdown in WTI Crude and Energy was hard hit yet again. Undercutting the key 68.25 level is a negative and suggests that prices now might extend the recent selloff even more after initially trying to stabilize near 68-69. Additionally the bond rally caught many off guard, but made perfect sense in an environment where stocks and bonds have shown increasing signs of positive correlation. Moreover, the risk-off attitude likely contributed to some Treasury buying after the recent runup in yields and yields made a fairly important near-term trend break in violating the uptrend of the last few weeks. Meanwhile, Gold turned higher and the combination of bullish seasonality, a bearish USD and rates pulling back helped to fuel the metals trade.
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.
S&P's bounce caught most off guard yesterday, getting briefly down below prior lows before spiking higher for 4 hours in a fashion that resulted in some short covering and an oversold bounce. Notably, fear was not present during the decline, despite a near 2% loss on the day. Equity put/call reached a maximum of 1.10, still well shy of levels hit in early October when it spiked to over 1.35. Additionally, the TRIN, or Arms index fell well shy of levels which would support the idea of a real downside capitulation. Volume, despite being near 9-1 negative early in the day, merely mirrored what was being seen in breadth and failed to show outsized downside vs upside volume that has been the hallmark of lows in the last few years. Bottom line, more work needs to be done to have confidence that a low is at hand. Given the lack of serious technical confirmation, while structurally prices lie UNDER key areas of resistance which need to be exceeded, it still seems a bit early to think Tuesday marked the lows, and its "off to the races" The area from 2750-2770 is important based on prices revisiting the former lows that were violated and often will result in some stalling out on the first retest. Additionally, the downtrend from 10/17 hits near 2770. Until this area is surpassed, it's likely we see a couple different "back and fill" attempts before lows are in.
WTI and Brent crude both experienced fairly meaningful drawdowns yesterday with WTI getting back under its former 68 level which was thought to be important. The act of closing down at 66.5 makes this a much more difficult chart to embrace after recent weakness. Saudi indicating that they could potentially begin pumping in large amounts to make up any supply shortage directly coincided with prices dropping. Given the recent news of a possible demand slowdown, the combination of lower demand along with higher supply has put pretty relentless pressure on Crude in the last few weeks. The Energy sector in particular has been very hard hit on this Crude decline and never really participated to the extent it could have on crude's rally. Yet the decline resulted n energy breaking relative trends and pulling back sharply. The near-term picture has to be seen as bearish with Crude under 68, so this a key line for bulls/bears in the days/weeks ahead.
Yields look to have followed stocks lower yesterday, showing signs that the recent positive correlation between stocks and bonds wasn't all that set in stone just yet. Yields broke a two-month uptrend which had been fairly symmetrical. Near-term, the pullback could reach a max of 3.0-3.05% which should be a chance to sell Treasuries, expecting yields to move back higher. However, the 2-3 day trend has in fact changed pretty meaningfully given yesterday's yield breakdown and it looks right to expect this to continue into end of week before any yield reversal back higher.