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Equal-weight Technology dropping to new relative lows could make correction extend

October 9, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

SPX Cash index
SUPPORT-  2898-2900, 2883-5, 2864-5,  2835, 2817
RESISTANCE- 2940-5,  2848-50


LINK TO TECHNICAL WEBINAR from last Thursday 10/4: https://www.youtube.com/watch?v=NQtSxfx4P1o&t=1s


SPX - (3-5 Days)- Bearish- Prices have now closed down for three straight days.  While SPX has breached its daily Bollinger band, the trend is bearish and one should look to use rallies to cut long exposure, with resistance near 2918-20 and downside potentially to 2825-35

SX5E- EuroSTOXX 50 Bearish- Support near 3250 which was hit in early September and also in March, yet trends remain negative-  Near-term, shorts could be covered in Europe given what looks to be a poor risk/reward near former lows, but underperformance is ongoing and rallies should be used to sell.

HSCEI-  Bearish but nearing support which should materialize at 10200-10300-  Pullbacks into end of week should translate into buying opportunities given the test of former lows from September which have held since July. 

Trading Longs: ITT, CME, CBOE, MCS, OKTA, VZ, HAL, DNR, SM, CRC, XLE, LNG, TSS, PX, ZTS, VNOM, NEP

Trading Shorts:  ALK, AAL, OC, XBI, RHT, AMBA, MNK, DGX, WYNN, LVS, MHK, M, JWN, LB, WGO, ADNT, UPS, R, CAR, VMC


TECHNICAL THOUGHTS

The selloff which started last week still looks damaging in the short run technically, and despite the late day rally attempt, failed to rally back sufficiently to think any sort of carrythrough should happen on Tuesday.  NASDAQ still managed to breakdown under September lows, and S&P and DJJIA have both violated uptrends from June.
Breadth came in flat, which even at the peak of Monday's selling was just 2/1 negative, improving to unchanged by end of day. US stocks have attempted to rally up off early lows both yesterday and last Friday, yet have been unable to recoup the damage done last week.  Momentum is bearish and not oversold, while trends remain pointed lower with no evidence of any exhaustion.  

Sector-wise, technology has still underperformed dramatically as the NASDAQ has taken the lead in this decline, while yesterday saw dramatic outperformance in both Utilities and Staples, as the flight to Defensives got underway. While the US outperformed both Europe and Asia, this has been an ongoing theme, and even with US weakness, still early to think US is catching up with the amount of underperformance being seen in Europe.   
 

ACTION PLAN-  

Long XLU, with upside target at 47
Long XLE with targets at 79
Long XOP targeting 45.50
Short KBE, adding under 46.77 with targets at 42.50 and stops at 48
Short XLI targeting 76.50 , adding under 78.13, with stops on a daily close over 81


 

Additional charts and thoughts below.

below.gif


The decline extended yesterday with SPX pulling back to test September lows.  Near-term, prices are stretched on hourly charts after 3 straight down days, but the trend is definitely negative.  SPX requires a move back up over 2918, the same area which was violated last Thursday morning, to improve the trend.  At present, downside looks likely to 2825-35, and it looks right to sell into strength on Tuesday/Wednesday on any bounce attempt.  MACD remains negatively sloped, while RSI is trending down and not yet oversold.  No evidence of any Demark based Buys are in place on daily charts given that prices have only been lower for 3 consecutive days.  

days.gif


NASDAQ futures on daily charts violated the uptrend from early April and took the lead in getting below September lows.  This underperformed the SPX and DJIA but yet all markets closed up off earlier lows.  This snapshot of NASDAQ mid-day Monday shows the pullback getting down to the lowest levels since late July.  While an oversold rally is possible on a 1-2 day basis, trends have just turned negative given the break of multi-month trendline support.  One would use rallies up to 7500-7550 to consider hedging/selling for a potential decline back down to 7060 in NASDQ 100 which would represent a 50% pullback to the rally up from April.

April.gif

Shanghai Composite showed outsized losses on Monday, with prices falling nearly 3.5%.  Daily charts show the ongoing downtrend, but momentum turning more positive, given the crossover in MACD over the signal line back to bullish territory even with this pullback.  This suggests that further weakness in China could be buyable in the coming days and one should use any further drawdown to consider FXI, or Chinese Technology stocks into mid-to-late October.  However, for the next 3-5 days, Monday's reversal can allow for a bit more weakness, and one should anticipate a retest of 2650-2700 which will be the area to concentrate on into October Expiration.