November 1, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2707-9, 2673, 2626, 2600-3
Resistance: 2736-7, 2743-5, 2773-5
LINK TO TECHNICAL WEBINAR from last Thursday: 10/25- https://youtu.be/pk7vNaYq5-U
SPX - (3-5 Days)- Bullish- Long for a move up to 2745 and then 2773-5 into mid-term elections using any pullback Wed-Friday to cover shorts and buy dips. Support should materialize near area of the breakout near 2707-12 and should be good to buy weakness
EuroSTOXX 50- Mildly Bullish- Still expect Europe to underperform US, but 3100 looked to b very good near-term support for SX5E, so expect that Wednesday's end of month rally likely follows through a bit- Long in small size, looking to add on weakness
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: CI, CCE, EWZ, CME, SBUX, NVDA, XLNX, TEAM, BABA, TLYS, FB, VICR, YEXT, IIN, TNDM, VZ, MCD, C, FITB, KEY, WMT, JWN, TBT, DIS, DISCA, CASY, PFE
Trading Shorts: K, GPS, GILD, XLU, KMX, MNK, SGMS, KMB, AMP
It looks right to be bullish on Equities in the short run, thinking yesterday's rise has the potential to continue. Wednesday's surge managed to successfully break out above near-term trendline resistance as well as exceed prior LOWS from 10/11 on the first move down. The combination of these developments is positive, and bodes well for further follow-through in the days ahead. Yesterday was the first sign of price confirming many of the bullish divergences in breadth and momentum that we'd been seeing in the last week and now should allow for at least a short-term healthy bounce into the mid-term Elections. While breadth came in only around 2/1 positive, we did see robust technical strength out of both Technology and Financials, the latter group which broke out above prior lows from this past Summer and broke out above minor downtrend lines. Given that sentiment had been overly pessimistic of late and seasonality remains very positive for this time of year into the mid-terms, long stances look correct, using any minor pullback Wednesday-Friday to buy dips.
Overall, it's worthwhile to mention that markets failed to deliver any of the real capitulation which was thought necessary before turning higher. Equity put/call and TRIN both failed to deliver the kind of fear based readings that were seen back in February and April. Yet, near-term, this doesn't look to matter all that much, as price confirmation delivered the gains necessary to help indices likely extend. Charts below should help to put some of yesterday's gains into context.
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.
NASDAQ managed to make a very bullish one-day rally Wednesday, exceeding the downtrend from early October (shown in red) along with getting back OVER prior lows made on October 11. The combination of these developments is quite constructive for a further rally in the days/weeks ahead. Upside targets lie near 7285-9 and then above near 7400, while any pullback n the days ahead should provide opportunities to buy dips provided that 6590 is not breached. For now, this should change the picture from near-term bearish to near-term bullish and a rally is expected into the Elections.
Financials made a very impressive rebound indeed yesterday, not only exceeding the one-month downtrend from early October, but also recouping the prior trendline support that had held since February of this year. XLF specifically looks to have made five completed waves down from late September, which should set the stage for a near-term bottom in this decline. Overall, this likely should result in at least a healthy bounce in this group in the short run, as this recent deterioration looks to be fully recouped on the rally back above $26 in XLF. Overall, given that XLI and XLF both look similar, this looks like a positive development for US stocks in general in the days ahead
Ratios of Growth vs Value which had shown signs of turning down from late September, now look to have reached initial support which can allow for this recent pullback to stabilize and likely turn higher. As daily charts of the IVW vs IVW show, this pullback in Growth has hit levels which were in place back in October and also July and May, making this a likely formidable level of support which needs to hold. Given the NASDAQ's reversal today back up OVER prior lows from early October, this index could very well take the lead and help Growth to rebound at a time when most have clearly given up. Note, the larger chart shows this consolidation in recent months as part of the longer-term uptrend, so additional deterioration will be necessary to truly "throw in the towel" on the growth trade. For now in the days/weeks ahead, it seems right to favor a growth rebound, and IVW is preferred over IVE.