November 8, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2742-3, 2730
Resistance: 2817-9, 2825-7
LINK TO TECHNICAL WEBINAR from last Thursday: https://youtu.be/M0QTkufNncA
-Today's Technical webinar starts at 1pm EST-
SPX - (3-5 Days)- Expect stallout and Reversal between today and next Monday- Prices have moved too far too quickly. 2817-2825 stands out as being important for Thursday
EuroSTOXX 50- Mildly bullish- Look to sell into gains at 3275-3300 Thursday/Friday, expecting a stallout in Europe. Still expect European underperformance to US
HSCEI- Bullish, with a good likelihood of a rally up to 11100.
Trading Longs: PG, STZ, COST, DG, CCE, FDS, WMT, DIS, DISCA, CASY, PFE, ZTS
Trading Shorts: AN, KMX, MAS, ETN, JCI, LM, WDR, MS, FTNT, SWKS, WYNN, LVS, MGM, SGMS, HBI, GPS
S&P showed very strong one-day performance yesterday, exceeding the 61.8% level of the entire selloff from early October, on breadth of more than 3/1 positive. Consumer Discretionary, Healthcare, Technology all gained more than 2.5% while every sector except Consumer Staples managed to turn in performance of greater than 1%. While seemingly bullish price wise, indices have now gotten overbought on an intra-day basis while the weekly and monthly trends remain negatively sloped. While this appears like a very constructive comeback (and will start to make investors bullish again on the prospects of markets moving back to new highs), it looks to have happened a bit too quickly.
Specifically, both XLI and XLF, the two sectors which helped to jumpstart this rally, will show daily signs of Exhaustion on this bounce by Friday at the latest (most likely) Technology has managed to achieve a minor breakout just yesterday, but also is nearing an area where this likely faces some strong resistance into next week. Ideally, Stock indices would stall out and turn down for a minor 38-50% pullback of what's been gained since 10/26/9 before turning back up.
Outside of stocks, both the US Dollar and Treasury Yields turned down sharply after Election results revealed "no surprise" and the near certainty that gridlock would rule the political spectrum in the final two years of this presidency. Near-term, peaks in Treasury yields and in the US Dollar seem to be near. Yet, at present, there's no definite sell in either and by end of day, both yields and the Dollar had turned back higher, holding where they needed to. (One can make a stronger case that Yields hold former highs and peak out along with stocks in the next 2-3 days) Overall, with regards to equities, it's tough technically to think that Wednesday's surge should translate into an uninterrupted move back to highs. If anything, it's still highly likely (given the damage done from 9/20 into 10/26-9 that this proves to be a two steps forward/one step back type process. After a very big rally in recent days, it looks to be nearing that first important crossroads, and a near-term peak looks likely in the next 2-3 trading days.
Taking profits in XLF and shorting at 27.50-.75
Taking profits in XLI and shorting 74-74.50
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.
S&P managed to recoup a bit over 62% of the prior drawdown from early October into Wednesday's close. As daily charts show above, Bollinger band resistance lies directly above, and intra-day momentum has gotten overbought as a result of the quick 175 point S&P move since 10/29. While this looks attractive in terms of a snapback, momentum remains negative on weekly charts, and short-term overbought conditions while the broader trend in breadth and momentum trends are negative is a concern towards thinking that prices extend too much more. Technically, we're nearing a 38.2% Fibonacci time retracement as of Thursday after 10 calendar days higher while having pulled back 26 calendar days from 10/3 into 10/29. Additional Gann based resistance shows this coming in on Thursday or Friday of this week, while Demark's 120, 180 and 240 minute charts show a confluence of counter-trend exhaustion. Bottom line, we should be close to a time when stocks stall out after this impressive price rally off the lows. Breadth as has been mentioned, really has not been all that impressive, outside of yesterday, so we'll continue to monitor this closely. But it looks wise to consider taking initial profits in the next 1-3 trading days and anticipate at least a minor reversal.
HSCEI looks likely to be on the verge of a breakout of the entire downtrend from earlier this year, which should drive this higher up to 11100. While US and European stocks look to potentially peak out in the short-run, China might very well breakout near-term and outperform for 3-5 days before stalling out. However, this near-term outperformance should lead to the start to a larger bottoming out for China, and in particular in relation to US stocks. Near-term, FXI and CQQQ look like attractive risk/reward longs.
US 10-Year Treasury yields look to be closing in on their first real area of resistance near former peaks, and Demark TD Sell Setup should register exhaustion by this Friday. While yesterday's yield pullback provide premature, it looks likely that such a move very well might be in the cards for the weeks to come. One should look for yields to stall out into mid-November on the upside and one could consider buying Treasuries and/or TLT, while selling TBT in the next 3-5 trading days, particularly on a bit more yield strength.