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Bottoming process looks to be at hand with extent of Thursday's rally

November 16, 2018

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



SPX Cash Index

Support: 2683-5, 2666-8, 2633

Resistance: 2753-5, 2764-7, 2776, 2787-9

LINK TO TECHNICAL WEBINAR from yesterday- CLICK HERE: ThursdayTechnicalWebinar



SPX - (3-5 Days)- Bottoming process near-term- Mildly bearish given rally within downtrend, but feel downside limited to 2666 between Friday and next Tuesday- Look to cover shorts and assume trading longs Friday/Monday



EuroSTOXX 50- Bearish-Targets at 3125-50 over next 3-5 days



HSCEI- Mildly bullish with a rise over 10569 allowing for gains up to 10800. Under 10325 turns trend back down.



Trading Longs: ICE, CME, VRSK, CQQQ, AAPL, FIVE, LULU, FIVE, PG, STZ, COST, CCE, FDS, WMT



Trading Shorts: H, PSX, HAL, SLB, DVN, DHI, ALL, TXT, CTAS, LYB, PPG, ALGN, WDC, ETN, LM, WYNN, LVS, MGM, HBI, GPS



S&P managed to show impressive price gains Thursday, but still failed to get back over Wednesday's highs, so the downtrend remains very much intact for now. Breadth turned in a 3/2 gain, disappointing for a 1% rally, but five sectors finished higher than 1%, with Technology leading the charge. However, Tech outperformance has been tough to come by, as the sector is down nearly 4% over the rolling 5 days. Momentum however has been steadily improving while fear has lifted, and many continue to scratch their heads as to how stocks can fall during a seasonally bullish time when the economy is in good shape and earnings are fine. It's worth mentioning that seasonality has largely been a disappointment for the last few quarters, showing the exact opposite of what is expected. Thus to ignore the bearish seasonality periods and just emphasize the bullish doesn't make much sense. Yet the positive momentum divergence, as mentioned yesterday, does seem to be a factor that should limit losses for now.



Overall, while trends are down, I'm expecting a technical bounce over the next couple weeks and could begin either Friday from lower levels - 2666-75, or from next week which would carry prices higher into early December before possibly stalling out yet again. It will be imperative to have Technology and Financials showing better strength to have much confidence in stocks rallying. The late day NVDA disappointment only serves to reinforce the notion that this market is anything but on solid footing right now, with the Semi group showing meaningful signs of slowdown, which is a concern to companies like NVDA.

Overall, the plan is to utilize dips Friday and/or Monday to cover shorts further, planning on some near-term stabilization and bounce. However, until S&P can get above 2735 at a minimum, but ideally above 2755, rallies have to be used to sell for trading, as do pullbacks to recent lows. Given the strength of momentum during rally attempts, it looks increasingly likely that at least a short-term bounce should be right around the corner.





ACTION PLAN- 



Long CQQQ to get China Technology exposure with targets in mid-50s initially

Long XRT to get Retailing exposure ahead of next week, expecting outperformance

Looking to cover XLI Friday/Monday on any decline to 71.50 or below

Long EUO, thinking that Euro decline continues in the days ahead w/ US Dollar breakout





Additional charts and thoughts below.

below.gif

S&P's daily pattern remains bearish, as we've seen five straight days which failed to get over the prior days's highs. Yesterday, despite the rally, was no different. Yet, near-term momentum did improve over the last couple days given the stabilization attempt within this downtrend. While the intermediate-term picture is clearly getting worse, momentum wise, the daily picture seems to suggest a low should be right around the corner. Momentum remains higher than a few weeks ago and has steadily improved since October 11. Breath has also moved higher, though there remain an alarmingly high number of stocks down over 20% from their 52-week highs. For now, with the holidays around the corner, it's right to use recent weakness to buy dips and cover shorts over the next couple days.

days.gif

CQQQ, the Chinese Technology ETF, made a pretty convincing move higher in recent days to help momentum start to turn higher sharply. We've seen prices successfully hold up well above where they bottomed last month and after a test of this trendline, the consolidation proved brief before moving up to test this area again. Overall, Chinese Tech seems like a better bet near-term than US Tech and it looks right to buy/own CQQQ, looking to add on movement over this downtrend from June. Yet it looks right to position now ahead of the breakout given the improved momentum and stabilization.

NVDA could add to Tech's woes on Friday, as post market Thursday saw the stock drop over 16% to sever the late October lows. Key areas to consider buying lie near 162 for Friday, and under near 150-3 which would be a 50% retracement of the entire rally up over the last couple years. The break of the 10-month area of trendline support resulted in the steep drop for NVDA and it now lies nearly 41% lower than its October 1 close as of Friday morning. Overall, we'll need to see some evidence of Semiconductors stabilizing to help Technology rally. As of Friday, a reversal of some sort from early weakness would go a long way towards helping this thesis.