November 20, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2671-2, 2666-8, 2633
Resistance: 2753-5, 2764-7, 2776
NOTE: There will be NO Morning Technical Comment published Wed-Friday of this week given the Thanksgiving holiday, nor no Mid-day Comment- This will be resumed next Monday morning- Thanks for your understanding, and Happy Thanksgiving to all celebrating
LINK TO TECHNICAL WEBINAR from last Thursday- CLICK HERE: ThursdayTechnicalWebinar
SPX - (3-5 Days)- Mildly bearish- Test of October lows possible, but downside should prove minimal from here and lead to stabilization, not crash- Pullback to 2671-2 looks increasingly likely and possibly 2633, but doubt that 2600 is breached this go-around- Look to still cover shorts over next 2 days
EuroSTOXX 50- Mildly Bearish-Targets at 3125-50 over next 3-5 days- Selling has proven a bit more muted that normally would have been the case, and still well above Oct lows- Minor weakness likely but expect stabilization by end of week
HSCEI- Mildly bullish with a rise over 10569 allowing for gains up to 10800. Under 10325 turns trend back down.
Trading Longs: ETSY, FOXF, LULU, AAP, ICE, CME, VRSK, CQQQ, FIVE, PG, STZ, COST, CCE, FDS, WMT
Trading Shorts: H, PSX, HAL, SLB, DVN, DHI, ALL,CTAS, LYB, PPG, ALGN, WDC, ETN, LM, WYNN, LVS, MGM, HBI, GPS
US Equity indices backed off very sharply yesterday though with NASDAQ being the culprit yet again, with Technology bearing the largest brunt of this decline and proving in no uncertain terms that the rotation out of Tech is very much underway. This sector has quickly gone from 26% of the SPX to now under 20% as of Monday, though still the largest percentage sector by weight. At present, while volume is not as heavy on recent declines and breadth hasn't been that heavy on the pullback, we're still seeing some meaningful price damage in the indices, along with a general lack of fear on the decline. Yesterday's ARMS index reading showed a 0.80 reading, as volume was fairly balanced with the overall Advance/Decline which showed nearly a 3/1 ratio to the downside.
Overall, investors have struggled to come to grips with where to hide on this decline, and we've seen Equities, Treasuries, commodities and Cryptocurrencies all decline in tandem , not really providing much if any safe haven. Meanwhile the confusion abounds as above-average earnings and good economic strength has failed to lead equities higher. But doe it ever? That begs the question.. when do we trust earnings to be good for stocks.. and when do we not? as we can't have it both ways. For now, trends are lower near-term, and while the selling has not "seemed" as strong of late (Momentum positive on daily charts given the extent of the bounce from late October while breadth has been "less bad" the selling across the board in all asset classes is particularly unnerving during holiday time, with most wishing the markets would take their dose of Thanksgiving "Tryptophan" and quiet down and rally.
Bottom line. under 2671 in SPX is bearish for a retest of 2600 and a move under 6580 in NQ should lead to 6250, the 38.2% Fib retracement area which lines up near April lows. However, one needs to be on alert for some
Long CQQQ --targets in mid-50s initially
Long XLU with target 57
Long XRT with prices near Oct lows ahead of seasonally bullish Black Friday- next 1-2 days expect bottom
Short EURUSD with initial targets 1.13
Short SMH with target 88
Short XLK with target 64.75-65
Additional charts and thoughts below.
S&P's weekly pattern deserves some scrutiny as this broke the trend from 2016, though has held above key Ichimoku Cloud support. While a pullback to 2633 is possible, it's important to note that a violation of 2600 would be quite negative for the picture, technically, and would likely coincide with more substantial selling. At present, the decline in Tech looks to be complete by early December, so it's likely that a bounce of some sort materializes. However, the key area remains near the 2600 area and that has to hold for the bulls to have a chance at a year-end rally.
XLK did breakdown to the lowest levels since early November lows and still looks likely to undercut by a small amount. The next 1-2 weeks will bring about weekly TD BUY SETUPS in XLK which should mark a bottom in this group and result in rallies. For now, this looks premature and pullbacks to 64.50-65 look very possible this week, despite the holiday , before this bottoms.
XLF has shown some excellent technical strength in the last week, defying expectations at a time when Technology has dropped off sharply. This is one of the reasons to expect that any lull in the Technology selloff likely should turn trends back higher into end of year. Most of the weakness has transpired in Technology, yet Financials remain quite strong in the last week after a very poor few months, and look to rally. This rally directly follows the steepening in the 10/30 yield curve, while the 2/10 has been largely flat. Overall, Financials looks attractive given this picture at a time when many are searching for alternatives for Technology.