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Rally is a work in progress- Lows around the corner

October 26, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

SPX Cash index
SUPPORT-  2667, 2640, 2623-5, 2615, 2589
RESISTANCE- 2722-4, 2742-4, 2752-3


LINK TO TECHNICAL WEBINAR from yesterday: 10/25-  https://stme.in/xkEdLXiLRP

SPX - (3-5 Days)- Bounce held where it needed to in short-run. and failed to hold above Oct 11 lows at 2712 which was thought to have importance.  Stabilization is an ongoing process-  2 steps forward, one step back-  Above 2723 should lead to 2742-50, while under 2663 would lead back to fractional new low territory

EuroSTOXX 50- Bearish until 3246 can be exceeded on a close-  While positive divergence suggests a bounce should be near from oversold territory, trends remain bearish and more bearish than US on a daily basis.  However, weekly support hits near 3100 which should prove quite strong.  Thus, this decline looks to be nearing an end soon.  For now, it still appears a bit early, so we'll stick with a bearish stance.   But any further weakness would be used to cover shorts down at 3100 and consider being long. 

HSCEI- Neutral -HSCEI still holding up much better lately than US or Europe.  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.  Above 10500 is bullish 


Trading Longs: MHK, IIN, TNDM, VZ, MCD, ZION, C, FITB, KEY, CME, WMT, JWN, TBT, DIS, DISCA, CASY,  PFE

Trading Shorts:  MNK, SGMS, LVS,  MRVL, MXIM, AVGO, VGK, FEZ, RHT, AMBA, KMB, AMP,  PH, VMC

 

The rally at this point is a work in process. While Thursday's bounce was encouraging, multi-day downtrend line resistance near 2723 held the rally and ended up repelling it, while futures fell in after-hours trading with GOOGL and AMZN both trading lower after-hours.   SPX did managed to exceed prior October 11 lows by a brief amount before falling into end of day.  However, where futures traded after hours did little to add to the conviction of a big rally underway.  Prices still lie in downtrends from early October and even from October 17, and require a move back up OVER 2750 to have confidence that a move higher can happen uninterrupted.

As mentioned yesterday, US index charts show positive divergence on daily charts, which is bullish.  Yet fear has not yet gotten to levels that would deem this recent pullback to be capitulatory in nature.  Equity Put/call lies well below early October highs, while the TRIN, despite a 1.88 reading Wednesday night, still lies below the February and April peaks when it registered readings north of 3..  Thus nearly all the volume earlier in the year was in down vs up stocks.  Now we see a chance for potentially a second 10% decline in a year, which hasn't happened in over 40 years.   Overall, there are reasons to feel optimistic about a bounce into November.  Yet price still needs to show a bit more proof that it has bottomed.  Stay tuned. 


 

ACTION PLAN-  

Long XLF, adding on close over 26.31
Long KRE given pullback to Fall 2017 lows - Expect bounce to high 50s



 

Additional charts and thoughts below.

below.gif

S&P's late day pullback failed to keep prices up above the prior October 11 lows at 2712 which was thought to be critical to hold by the close to give prices a chance to extend.  Into mid-day Thursday, S&P rallied right to the area of the one-week downtrend from 10/17 and stalled near 2723 which was thought to be quite important.  Into Friday and into next week, the ability to surpass 2723 will be a meaningful step on the road to recovery, which is thought to help S&P lift up to 2742-50.  Conversely, any drop back under 2667 on an hourly close likely results in yet another retest and minor break of 2652 before a better low in place.  However, declines at this point are thought to prove minimal and likely buyable, particularly as fear grows.  
 

grows.gif

KRE looks close to bottoming in relative terms to XLF after a very severe selloff for the last few months in relative terms.  Looking at ratio charts of KRE/XLF, we can see a fairly well defined pattern of Setup counts accompanying most turns in the last couple years.  These Setup counts provided attractive selling opportunities for the Regional banks early this year and in early 2017, while providing buy signals in mid-2017.  A similar signal will be in place by the end of this week as the market enters November.  This should favor Regional bank exposure for a good bounce in this group in the weeks ahead.  
 

ahead.gif

SOX having dropped under prior support lows keeps this near-term trend bearish for this part of Technology until 1220 can be recaptured, with thought that another 2-3 weeks of selling is possible.  This would help the weekly Demark exhaustion to align while sending prices down to near 1070-1100 which would represent a good area to consider Semi longs into early November.  For now, buying dips clearly looks premature until prices can prove some evidence of stabilization by closing back up above the area of the breakdown.   For now, while the FANG stocks attempted a minor recovery into the close, most of that looks to be given back on the open given GOOGL and AMZN earnings.  Semis however have been consistently weak all year, so this will need to change before starting to favor this group again.  Those who attempted to position long in AMD, or NVDA, MU in the last couple weeks have found that lesson out the hard way.