November 7, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2742-3, 2730, 2707-9, 2696-8
Resistance: 2763-5, 2773-5, 2781-2, 2791
LINK TO TECHNICAL WEBINAR from last Thursday: https://youtu.be/M0QTkufNncA
Early Election results show no real "Blue Wave" materializing as of 10pm Tuesday night
SPX - (3-5 Days)- Bullish- No change- Additional gains likely following the mid-term elections based purely on price action alone (without viewing poll results) Upside targets lie near 2782 and then 2791. Buy dips at 2730 and under near key support at 2707-10
EuroSTOXX 50- Mildly bearish- Yesterday's pullback to three-day lows suggests this bounce for Europe very well could prove complete. Gains possible up to 3275, Expect that Europe should largely still underperform US.
HSCEI- Bullish, with prices now up to make-or-break resistance with a realistic chance of breaking out in the days ahead. Over 10700 bullish for move up to 11100, and look go buy dips, provided prices don't break 10330
Trading Longs: PG, STZ, COST, DG, CCE, CME, ICE, FDS, SBUX, OLLI, SCVL, ROST, 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
S&P trend still shows no real faults in the short run, and as of yesterday's close, managed to reach the highest levels since October 22. While breadth was only mildly positive at less than 2/1, the pattern has improved after the last few days of choppiness. Markets also showed all 11 sectors finishing positive, with both Technology and Financials managing to register gains of more than 0.50%. At present there still isn't much to suggest an imminent reversal technically with regards to either price, nor momentum, and price targets still lie marginally higher into end of week/early next, with S&P potentially reaching 2782 up to 2791 before any stalling out.
As mentioned in recent days, the success of both Financials and Industrials in recouping former lows was thought to be a very important technical development in two sectors which represent a combined 23+% of SPX. The growth vs. Value trade looks to have held former lows and stabilized, while the credit markets have stabilized quite a bit in the last two weeks. Overall, while Technology has been still somewhat shaky and less robust than we saw during the first part of 2018, other sectors seem to have stepped in and picked up the slack. Bottom line, where there are understandable worries about the degree of momentum damage having been done on the selloff into late October (and the resulting bounce hasn't been all that strong in turning breadth up that sharply) at present, it seems premature to fight the near-term uptrend. Heading into Wednesday, it looks wise to still have a long bias, using dips to buy.
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 XLP with targets at 58.90
Long EUO, thinking that Euro decline continues in the days ahead w/ US Dollar breakout
Additional charts and thoughts below.
NDX shows ongoing emerging base with initial breakout followed by minor consolidation & then yesterdays rally making some meaningful headway at a time when Election uncertainty ruled the day. However, still right to think Equities can trend higher with results showing no Election surprises, while trendwise, it's right to play for a move to 7300 at a minimum. This should go a long way towards helping Technology make a decent bounce into end of week. Only a pullback down under 6850 would postpone a further rally into end of week.
Crude downtrend showing no real signs of exhaustion, and still right to bet on a pullback to near $60 or slightly below before a bottoming out in WTI Crude. While energy snapped back in recent days and has acted a bit better, the commodity remains under relentless pressure, and shows neither positive momentum divergence, nor counter-trend buys per Demark that would allow for a bounce to unfold. Therefore, additional pressure likely in Crude.
Consumer Staples breakout argues for additional strength. Just in the last couple days, we've seen XLP breakout to the highest levels since early February. Daily charts can allow for at least another 3-5 days before peaking, and initial targets lie near 58 before this stalls and consolidates gains. But we've definitely seen a trend of the defensive Staples kicking into high gear lately, breaking out on both absolute and relative terms vs SPX. Stocks like CCE, PG, STZ, COST are all attractive and should be overweighted for further near-term gains. These stocks might be worth looking at, for those looking for Technology substitutes.