October 2, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: firstname.lastname@example.org
SPX Cash index
SUPPORT- 2918-20, 2898-2900, 2883-5, 2864-5, 2835, 2817
RESISTANCE- 2937, 2940-5, 2848
LINK TO TECHNICAL WEBINAR from last Thursday: https://www.youtube.com/watch?v=j9Qb4M6pMNc&feature=youtu.be
SPX - (3-5 Days)- Minor Bullish given minor breakout above 2928- Breadth was negative, but yet still a bullish price move and over next few days, still looks likely to trend a bit higher. Targets are near 9/21 highs at 2942 initially with a possible brief overthrow to 2950.
SX5E- EuroSTOXX 50- Upside limited to 3475-3500. A bit of churning in the last week, but yet no meaningful evidence of prices turning down. Upside should not get much above August highs before reversing course.
HSCEI- Closed this week for Golden Week holiday. Under 10769 is a green light to press shorts for a pullback to 10500.
Trading Longs: RST, SM, LNG, PX, GWR, GIL, NRG, ADSK, ELY, MPC, XLE, V, PX, ZTS, VNOM, NEP
Trading Shorts: WGO, OC, THO, ADNT, PII, KBE, KRE, IAI, TCF, TCBI, UMPQ, PBCT, FITB, ZION, KBE, BKU, OZK, JBLU, ALK, AAL, UPS, CMI, JCI, JD, R, CAR, RHT, MNK, WYNN, LVS, MHK, VMC, AMBA
Overall, a seemingly bullish breakout on the part of the SPX, and for most that don't study the internals, it seemed like a pretty positive day for stocks. However, the IWM Russell 200 was lower by over 1.3% while S&P Mid-cap 400 index also fell greater than 0.75%, and has been down for the last two weeks. Why some might write off the breadth deterioration as being solely a Treasury move (as the bond components of NYSE have caused some of this damage) is partly correct. However, the movement in Financials continues to worsen, and KBE is down at the lowest closing level of the year.
Overall, this divergence is starting to grow, and US stocks are showing increasingly more erratic price behavior , with Airline weakness greater than 1% while TRAN was positive yesterday. Technology has shown some impressive ability to snapback, but indices like the NY FANG are now nearing resistance which should be in place by Wednesday of this week. Energy remains the area to overweight and XLE now looks to be playing some catchup with the bullish moves seen recently in XOP and OIH. Overall this outperformance should continue to work this week and potentially next, and its right to have sectorlongs in Energy vs looking to sell into the recent bounce in Technology.
The real key for those who utilize Demark's TD Sequential and TD Combo indicators, is waiting for when S&P and TNX both align with counter-trend sells which looks to be a possibility later this week, potentially on Thursday or Friday on a bit further gains in both. This confluence likely will be important and allow for both to turn down into the second week of October. For now, it's right to hold off on fading the stock market rally, but yet keep a close eye given the degree to which this recent breadth and momentum dropoff has occurred.
Long XLB with stops at 57
Long XLE with targets at 79
Long XOP targeting 45.50
Long CQQQ with initial target 50.65
Short KBE based on Thursday's close, targeting 42.50
Short XLI targeting 76.50 with stops on a daily close over 81
Long EURUSD with initial target at 1.1935
Additional charts and thoughts below.
The S&P's breakout of its minor consolidation from last week is seen as a small positive, despite the negative breadth with more declining than advancing issues, along with more stocks hitting new 52-week lows than highs. The area of importance on this chart lies near 2925 which is the first peak on this ascent from last Friday. Under that would bring in last Thursday/Friday lows at 2907. For now, it still looks more likely that the S&P can rally out of this and move slightly back to new highs into mid-to-late week. But the degree to which Small-caps, mid-caps are now not participating could prove problematic and the negative breadth on a 0.30+% rise is typically not something to utilize to initiate new long positions in the indices. For now, longs should be placed in Energy and Healthcare, with some evidence of Materials being ready to start moving higher.
XLE looks to be starting to play catchup with OIH, XOP lately and yesterday's gains back above 76.50 represent the highest daily close for XLE since July. This downtrend in the group was exceeded last week on an absolute basis, and now the consolidation has begun to start to ratchet higher in recent days. This goes hand in hand with our recent theme about Energy outperformance given the recent upside acceleration in Crude, and bodes well for additional gains in the days/weeks ahead.
Small caps have started to turn down quite sharply lately, with four out of the last five days of weakness in the Russell 2000 while relative charts of IWM/SPY show this to have peaked out in June. The degree of downside acceleration in Small-caps vs the broadermarket has reached the lowest levels since March. For those seeking preferences on what capitalization size to favor, it's still right to overweight Large-Cap, instead of Small, and recognize that both Small-caps and Mid-caps lately have begun to weaken relatively.