October 31, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: firstname.lastname@example.org
SPX Cash index
SUPPORT- 2623-5, 2615, 2589
RESISTANCE- 2707-12, 2722-4
LINK TO TECHNICAL WEBINAR from last Thursday: 10/25- https://youtu.be/pk7vNaYq5-U
SPX - (3-5 Days)- Mildly Bullish- Increasingly thinking that lows might have been made on 10/26, despite no real capitulation in volume- Small longs here, looking to add over 2707 on a close, and using any pullback Wed-Friday to cover shorts and buy dips. Support
EuroSTOXX 50- Mildly Bearish thinking that we'll need to get over 3200 to have any inkling that SX5E can rise, getting more constructive over 3282- Still could churn near the lows for awhile longer, and much depends on other global indices turning higher, which might lead the way
HSCEI- Bullish OVER 10220, bearish under- The last few weeks have been largely neutral and while it's looking increasingly likely that a low is close, it's necessary to see proof of the price strength.
Trading Longs: NVDA, XLNX, TEAM, BABA, TLYS, FB, VICR, YEXT, IIN, TNDM, VZ, MCD, ZION, C, FITB, KEY, CME, WMT, JWN, TBT, DIS, DISCA, CASY, PFE
Trading Shorts: KMX, MNK, SGMS, MRVL, MXIM, AVGO, KMB, AMP, PH, VMC
Increasingly i'm thinking that indices might have made their low for this current decline on 10/26 and that a snapback rally is underway. While movement OVER 2707 is necessary on a close for confirmation, we're seeing more and more evidence of positive breadth divergence, better momentum of late (gradual stabilization) and 5-wave declines having been made in XLF, XLI and good support in IWM near prior lows that's now starting to stabilize.
Additionally, many continue to mention the need for capitulation, something i've mentioned here countless times. Yet, the more investors that come out of the woodwork suggesting this is a necessary ingredient, adds to the likelihood that this is priced in and we very well won't see it this time around. Additionally, movement OVER 2707 would then result in a squeeze, as many have turned bearish in the last week, given understandably negative developments with momentum. The media has gone out of their way to make sure the public understands this is the worst month for the NASDAQ since 2008, and increasingly the sentiment has gotten more and more subdued. However, a decline doesn't always materialize in a straight line, and we've seen definite signs of stabilization lately which could make further weakness become a definite buying opportunity for a larger bounce. Overall, trends are negative and a pullback on Wednesday/Thursday would not be a surprise whatsoever. Yet the longer that indices hold here after the initial decline and fail to make further downside and begin to stabilize. the more likely it is that a bounce gets underway, even if short-lived and leads to another retest in mid-November. For now, the seasonality is quite positive ahead of mid-term Elections and is another factor to consider. We'll be watching 2707 carefully in S&P and this time around, won't be as surprised if this area gives way (which would turn the near-term trend back to bullish )
Long XLF, adding on close over 26.31
Long KRE given pullback to Fall 2017 lows - Expect bounce to high 50s
Long XLI, looking to add over 70.67 for a move to 74.50-75
Long EUO, thinking that Euro decline continues in the days ahead w/ US Dollar breakout
Additional charts and thoughts below.
S&P pattern is very much trending lower, yet the stabilization has built up in impressive fashion lately, and amidst all the talk of the "worst month for stocks in 10 years" we see increasing churning and a lack of downside progress lately that would match up with the degree to which bearish sentiment has started to rise. Overall, there remains a very well defined area of risk for the bears at 2707 in S&P- Getting over this would likely cause a fairly serious squeeze, as both Financials and Industrials have begun to act a bit better of late. So while one can't rule out minor weakness Wednesday, and it certainly is still a bit premature to call this decline over from a price perspective, shorts should have tight stops and movement OVER 2707 would argue for upside acceleration at a time when many least expect it. Bottom line, keep aware of the trend, and consider using dips to cover shorts and/or buy stocks of interest in small size for a bounce, looking to add on proof of this downtrend being exceeded.
Increasingly , both XLI and XLF look to have made 5-wave declines in the last week which should now give way to a sharp counter-trend rally. While getting under the prior lows from this past Summer is definitely a negative technically, any bounce that gets back above has the potential to set off a squeeze that could carry XLI up to 73.50-74. Overall, it's right to be not as bearish here given this structure and stabilization coupled with recent uptick in fear, despite the lack of capitulation. Going forward, any bounce that gets back above these former Summer 2018 lows (now resistance) would be an important short-term technical bullish catalyst.
Russell 2000 vs SPX has managed to stabilize near former lows, which is a temporary positive development after the selling we've seen since mid-September. The ability to bounce more should be a real positive for stocks in the short run.