October 5, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: firstname.lastname@example.org
SPX Cash index
SUPPORT- 2898-2900, 2883-5, 2864-5, 2835, 2817
RESISTANCE- 2940-5, 2848-50
LINK TO TECHNICAL WEBINAR from yesterday: https://www.youtube.com/watch?v=NQtSxfx4P1o&t=1s
SPX - (3-5 Days)- Bearish- Pullback looks to be starting-Thursday showed the first evidence of a break of 2903 in SPX cash (2907-Dec Futures) and both SPX and NASDAQ broke trendlines from June- Additional downside likely into October 13-4 before a rally
SX5E- EuroSTOXX 50 Bearish- Pullback down to 3300-5 looks to be underway. While prices didn't technically get under 3370, it was close, and closing down near the lows makes for a negative trend in the days ahead.
HSCEI- Closed this week for Golden Week holiday. Under 10769 is a green light to press shorts for a pullback to 10500.
Trading Longs: ITT, CME, CBOE, MCS, OKTA, VZ, GDX, HAL, DNR, SM, CRC, XLE,LNG, TSS, PX, ZTS, VNOM, NEP
Trading Shorts: XBI, RHT, AMBA, MNK, DGX, WYNN, LVS, MHK, WHR, M, JWN, LB, FB, AAL, ALK, WGO, ADNT, UPS, R, CAR, RHT, MNK, VMC, AMBA
Bottom line, we finally saw some evidence of prices pulling back to confirm what breadth and momentum had been saying was likely over the last few weeks. S&P and NASDAQ fell to break four-month trendlines on very negative 4/1 breadth, and volume expanded. Technology proved to be the weak link, falling nearly 2% on the day, while Consumer Discretionary and Telecom also joined suit. Financials did show a strong showing, as did Utilities, but those were the only two of the major sectors with positive gains yesterday. While this market has been prone to snap back violently on any sign of weakness lately, the fact that prices broke down to join an already weak breadth and momentum situation and expanded negatively on the move, adds credibility that at the very least, some type of correction should be getting underway. Technology should be watched carefully given its weakness yesterday, while Biotechs look to weaken with XBI dropping to the lowest levels since May. In the days and weeks ahead, it's still thought that Energy might offer some of the better outperformance given that Crude's rise doesn't seem complete. Movement back higher is likely in Crude into next week, and it's thought that Energy stocks likely follow suit.
The real talking point over the last few days had to do with Interest rate spikes and the larger breakouts being seen in 5, 10, and 30-Year Treasury bonds, not to mention UK Gilts and German Bunds. Near-term this move looks extended, and on a 3-5 day basis, one can make the case for yields to stall out and reverse. However, given the extent of the rise (which on TNX broke out above channel resistance that had held since 1994) it's thougth that intermediate-term Treasury weakness (yield gains) are likely. Charts shown below.
Long XLB with stops at 57
Long XLE with targets at 79
Long XOP targeting 45.50
Short KBE based on Thursday's close, targeting 42.50
Short XLI targeting 76.50 with stops on a daily close over 81
Additional charts and thoughts below.
The first evidence in the last couple months of prices violating the four-month uptrend, making prices pullback to confirm what breadth and momentum have been suggesting for over a month. With Advance/Decline having peaked out on Aug 30, this recent push higher last week was never confirmed by momentum and then turned down sharply to violate support yesterday, with Technology underperforming. While a snapback rally can't be thrown out given the nature of this uptrend in recent months, unless Tech and Financials both turn up sharply, yesterday's pullback should likely begin the process of atleast temporarily serving as a corrective process in stocks.
XBI managed to undercut the lows going back since May yesterday, something which likely causes a minor hiccup in the ongoing stellar uptrend for Healthcare. It's likely that Biotech pulls back in the next 1-2 weeks as a result of this move, as anytime prices fall to break several prior lows spanning back 4-5 months, normally there is some follow-throughlower. Near-term, it's likely that XBI reaches the upper $80's and this should allow for some stabilization. At present, further weakness in this space looks likely in the short run.
Treasury yields made the most important move of the year in the last couple days. While yields have been prone to quite a few false moves of late, this latest yield rise is something which has occurred globally, with Bund yields, Gilt yields and US Treasury yields rising above resistance which has largely held for 20+ years. In the short run, it's thought that 3.25% should hold and provide a peak for a near-term pullback to 3.10-5%. Thus, in the short run, it's right to buy Treasuries, particularly as Equities are fading, as there should be some flight to quality in this notoriously volatile month. Yet, pullbacks should be used to consider selling Treasuries given the long-term breakouts on weekly and monthly charts. Unless this is given back completely in the next few weeks, this will stand as being an impressive long-term breakout.