November 14, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2709-11, 2684-6, 2633
Resistance: 2759-64, 2767, 2787-9, 2793-5
LINK TO TECHNICAL WEBINAR from last Thursday- CLICK HERE: TECHNICALWEBINAR 11/08/18
SPX - (3-5 Days)- Bearish- Look to sell rallies with a move down to test 2709-11 likely initially- An advance back over 2764 is necessary to think any sort of low is in place
EuroSTOXX 50- Bearish- - Targets at 3192, then down near prior lows 3090-3100
HSCEI- Bearish- Pullback under 10354 should lead to a potential "final" move down to test 10k and early Nov lows before December rally. Target could end up near 9700-9800 for covering shorts and buying
Trading Longs: XLU, WEC, DTE, SCG, QID, SQQQ, FIVE, PG, STZ, COST, CCE, FDS, WMT, DIS, DISCA, CASY, PFE, ZTS
Trading Shorts: FXI, EEM, H, BYD, FLIR, PSX, SLB, VLO, NOV, DVN, TXT, CTAS, EMN, LYB, FCX, PPG, ALGN, GPN, WDC, CDK, MAS, ETN, JCI, LM, WYNN, LVS, MGM, SGMS, HBI, GPS
S&P attempted a couple different rallies on Tuesday before pulling back to within striking distance of lows and initial support near 2710. This hits the 50% retracement level from late October and is considered the first real area to consider covering shorts and attempting to buy. Yesterdays early rally failed to take breadth that much higher, which is still negative while prices closed right near recent lows. This still looks early to think that any sort of low of magnitude is in place
However, there were some encouraging signs that need to be mentioned that were not n place last week. First, hourly charts have begun to show positive breadth divergence, given yesterdays early rally attempt. Breadth and momentum improved on the pullback and did not make new lows. Second, counter-trend indications of exhaustion are nearly complete on hourly S&P charts. Third, Financials have shown some ability to stabilize and rally in recent days, bucking the trend at a time when rallies in this group are sorely needed. Finally, near-term market cycles suggest that 11/15-6 could be a low for stocks. Therefore, while the trend is indeed still down for US indices, there should be some attempt at stabilizing and rallying into the shortened holiday week next week.
Short XLF with targets near 26
Short XLI with initial targets 71
Short EEM with targets 70.25-70.50
Taking profits in XLP as downturn looks likely near-term
Long EUO, thinking that Euro decline continues in the days ahead w/ US Dollar breakout
Additional charts and thoughts below.
S&P's daily chart shows the extent of this recent drawdown, which nearly lines up perfectly with the prior lows made in mid-October. While it's much too early to have any kind of thoughts on a Reverse Head and Shoulders pattern in the making for S&P, i'm incline to think this very well might be possible if sentiment continues to deteriorate at this same pace. Recent TRIN readings have escalated, showing far more volume into "down" vs "up" stocks, and Equity Put/call ratio looks to be consolidating on the verge of a final push higher. Overall, trends remain down, yet risk/reward doesn't look as appealing between Wednesday and Friday for shorts. One should utilize movement down to the 50% retracement zone near 2710 to consider covering at least partial shorts and then allow markets a chance to stabilize a bit.
One consequence of the rising dollar lately has been the rolling over in commodities, which doesn't yet look complete. The severe weakening in Energy has been at fault for some of this move, but this doesn't yet look complete. One should utilize any further weakening in commodities to consider buying into weakness come late November, as it's likely that the Dollar will at that time be close to peaking out and turning back lower. For now, the break of recent lows still argues for a bit more weakness, and Crude's weakening in particular looks to have failed to hold where it needed to and now pulling back in parabolic fashion which could allow for a move down to the low 50s before any stabilization.
Russell 2000 is now within striking distance of having its 50-day moving average cross its 200-day, an occasion that's labeled the "Death Cross" and which many financial media likely will mention in the days and weeks ahead as being a bearish omen for stocks. However, this looks to be a fallacy at best and has no real predictive power. Over the 8 occurrences of this Death cross in the last 20 years, only two of these were detrimental and occurred right at the bull market peaks of 2000 and 2007. While these often do occur at the onset of new bear markets, most of the signals are well too "late to the game" and occur after a substantial amount of weakness has already occurred. In this instance, we see that RTY index has already declined by 12.5% from late August and is now showing some positive divergence on daily charts. Thus, it looks better to use any further decline in the days ahead to buy weakness, not expect that this continues.