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Market Lows still a bit premature, and NASDAQ weak vs SPX, while Financials holding up

October 30, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

SPX Cash index
SUPPORT-  2623-5, 2615, 2589, 2560-3
RESISTANCE- 2722-4


LINK TO TECHNICAL WEBINAR from last Thursday: 10/25- https://youtu.be/pk7vNaYq5-U

SPX - (3-5 Days)- Mildly bearish-  Yesterday's pullback was quite bearish price-wise after having attempted to bounce, but failed to get back up above 2712.  While SPX rallied into the close, not unlike the last 4 of 5 trading days,  the afternoon decline which still didn't result in fear gauges rising.  keeps the near-term trend negative.  Bounces should be sold near 2667-82 with plans on prices pulling back down under 2603 near 2572 with max weakness to 2521 before a bottom in early -to-mid November.  For now, it's right to sell strength

EuroSTOXX 50- Bearish with the thinking that price pulls back to test 3100 before any lows are in-  Europe likely bottoms out initially into mid-November, so prices seem close, but are likely to revist and test lows. 

HSCEI- Leaning bearish on a close under 10,000 expecting one final washout to this move-  For now, the neutral stance has worked for 2 weeks but now seems to be getting resolved on a move back to new lows.  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, AMBA, SGMS, MRVL, MXIM, AVGO, VGK, FEZ, KMB, AMP,  PH, VMC

 

Still looks premature for longs after yesterday's washout back to new low territory before the late day rally happened yet again.  Incredibly, stocks have rallied in the final hour on 4 of the last 5 days, helping to embolden the Dip buyers, yet prices are still down over 100 points (SPX) from last Monday's close.  So, a very strange selloff in the last week, which has been marked by positive divergence in breadth and momentum, qualities that normally drive rallies.  Yet, Demark exhaustion is premature on daily charts, requiring yet another pullback to new lows for 2-3 days.  And prices remain in downtrends with every minor bounce being sold.   While there has been some mild stabilization in recent days, it's tough putting too much stock into markets rallying, purely based on this stabilization which hasn't rallied sufficiently.
 

ACTION PLAN-  

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

Short XLY with targets at 100
Short XLK with targets near 65-65.50


 

Additional charts and thoughts below.

below.gif

S&P now has rallied for 4 of the last 5 days well up off the lows, yet the trend and net change remains quite negative.  This goes a long way towards explaining the lack of real capitulation in US equities as the dip buyers are rewarded and don't need to throw in the towel as of the close.  Near-term, gains should prove limited and likely result in a bit more weakness before true lows are in.  This could take place at 2575 or 2521, but a test and break of Monday's lows should happen before any meaningful bounce.  

NASDAQ still looks likely to hit new monthly lows vs SPX after having rolled over and underperformed in recent days.  This is at least part of the reason why it remains right to be underweight US stocks in the near-term.  Given that Tech accounts for 25% of SPX, any sharp move lower in relative terms in the NASDAQ puts out alerts that lows likely are still a ways off.  

ways off.gif

Financials have stabilized a bit , with KRE holding up and exceeding the relative downtrend in XLF/SPX would be a bullish sign for this group which could also lead to a near-term bottom in stocks.  For now, still a bit early, but important to keep a close eye on Financials, as they're due to start to turn up in the near future.