November 6, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2722-4, 2707-9, 2696-8, 2673
Resistance: 2743-5, 2751-2, 2763-5, 2773-5
LINK TO TECHNICAL WEBINAR from last Thursday: https://youtu.be/M0QTkufNncA
SPX - (3-5 Days)- Bullish- Expecting S&P move up to near 2775 following mid-term Election before any serious stalling out occurs. Yesterday's weakness was largely limited to Technology, and largely served to disguise the strength in other sectors. Buy dips at 2722 and a max near 2707-10
EuroSTOXX 50- Mildly Bullish- Gains possible up to 3275, but expect that Europe could stall out, and should largely still underperform US. Insufficient evidence of weakness to avoid and near-term trend still positive
HSCEI- Bullish, looking to buy any pullbacks given the chance in the next 3-5 days. Movement back over 10700 a chance to press long bets as this would signal a larger breakout of the entire downtrend this year.
Trading Longs: DG, IIN, CI, CCE, EWZ, CME, ICE, FDS, SBUX, OLLI, SCVL, ROST, VZ, MCD, C, FITB, KEY, WMT, JWN, TBT, DIS, DISCA, CASY, PFE, ZTS
Trading Shorts: LM, WDR, MS, DUK, D, SO, NI, XLU, WYNN, LVS, MGM, SGMS, HBI, GPS, GILD, KMX, MNK, KMB, AMP
Stocks still look to be able to rise further despite some minor stalling out over the past few days prior to this week's Mid-term elections. Looking back, yesterday proved that technology does not necessarily have to work every day for stocks to be able to log decent gains. Trends have remained bullish since 10/26 and still look early to fade, despite the importance of mid-term elections. Momentum and breadth have been steadily rising, and yesterday's 1% gains out of 5 different sectors bodes well for additional strength on Election day and following into end of week, with targets near 2775 before any stalling out. Overall, Demark exhaustion is premature and prices are not all that overbought on daily charts, while still understandably weak on weekly and monthly. Yet, insufficient signs of weakness out of the NASDAQ yesterday were present to think this bounce has yet arrived at levels to sell.
Technology was definitely the weak link and most of "FANG" stocks fell off with NDX down an early 1%, yet rallied back sharply to only close lower by -0.50%. Meanwhile, Energy, Financials, Utilities, REITS and Staples all rose more than 1%. While the defensive tone to yesterday's move was more present than not, the huge gains in Financials helped this group break a six-month + downtrend in relative performance that still bodes well for Financials to advance in the days ahead. Thus, when casting some degree of skepticism at the degree of rally which has transpired, it's important to see Financials and Industrials both having broken back into prior ranges, a constructive development.
Long XLF, with targets near 27.50
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- Rally yesterday given five sectors showing 1% gains or more is a positive development for stocks, despite technology not performing. Hourly charts for S&P show last week's breakout and then what appears to be a choppy few days of some overlapping price action. While under 2700 would be a negative for this chart, leading down to 2685, it looks more likely that the momentum continues and this can reach 2765-75 in the days ahead, which would then be used to trim longs, expecting consolidation. At present, this still looks very much premature. Use minor dips to 2722 to buy with more critical support at 2707-12 near the area of last week's breakout.
Financials breakout bodes well for additional near-term strength in this group and is overall a positive for US stocks. Over the last few days, we've seen some compelling evidence of Financials starting to exhibit much better relative strength than they've shown in some time. XLF vs SPY as a ratio has exceeded the downtrend from April, and is early to peak out on this rally. Thus, the next 2-3 days should bring about even more Financials outperformance, and this group should be overweighted for further strength. Technically speaking the act of getting above a downtrend that's held for six months or longer typically will be quite the positive development towards thinking this group can rally further.
Technology still holding up well- Despite yesterday's huge underperformance by Tech, we still see constructive patterns at work in XLK, not dissimilar from what's transpired in SPX. XLK backed off just two days after the breakout of this one-month trend, and even on yesterday's weakness managed to close well off early lows, a constructive signal. Overall, it's still likely that Tech can hold and attempt a larger bounce than what's happened since last week. While this sector remains out of favor compared to ones like Healthcare, it's right to use Monday's late day rally to own XLK, expecting a rally back to test and exceed last weeks highs.