December 14, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2635-6, , 2621-3, 2583, 2575-6, 2557-8
Resistance: 2674-6, 2687-90, 2697-2700
SPX - (3-5 Days)- Bearish into FOMC and still early to expect market bottom time-wise. Expecting a final pullback to test 2583-2600 into next week, with Transports, Financials and Small Caps still likely to underperform. Daily close over 2687 needed for bullish stance
EuroSTOXX 50- Mildly bearish but Europe starting to show evidence of some outperformance vs US just as Draghi announces an end to QE. Expect 3115-20 proves important and allows for a minor pullback, and over 3248 needed to be constructive.
HSCEI- Increasingly more positive and HSCEI has held up relatively better in recent days and weeks. Willing to own in small size, using dips to add to longs. Movement above 11077 needed for a larger bullish stance.
Trading Longs: KMB, CHD, PG, TWTR, HEAR, TNDM, D, AEE, EVRG, AIV, PEG, EXR, TLT, AMT, PFE, LLY, ETSY
Trading Shorts: AAL, JBLU, RF, KEY, ABCB, TREE, R, EMN, WFC, CE, DOX, FCX, QRVO, CAR, BWA, MAS, ITB, PHM, LEN, FOSL, BBY, BCC, BGG, KORS, RL, FLIR, MRO, XEC, VMC, OI, NFX, WMB
Three straight days now where prices have closed down under the day's open, yet prices are still up +0.5% from Monday's close. An odd market in the short run, with lots of moving pieces and some violent sector rotation taking place. Overall, the fact that the DJ Transportation Avg, XLF (Financials ETF) and Russell 2k have broken down to new low closes for 2018 suggests that a bit more weakness is likely into next week's FOMC.
However, some interesting price action in the Equal-weighted Technology sector in the last week, which has strengthened, despite some of the large cap Tech still being under pressure. We'll expound on that in a chart below and more over the weekend, but this is a promising development for Tech which carries quite a bit of weight when looking at the possibility of this sector starting to stabilize a bit, which could lead to the long-awaited Santa Rally. Financials also have been showing some internal developments, as The Brokers and Insurance have both been outperforming, and on an Equal-weighted basis, Financials as a sector has not been hitting new lows, despite the weakness in XLF. Demark signals on weekly charts show this sector to be close to trying to bottom out in the next 2-3 weeks, which likely coincides with a larger Treasury yield rally.
Overall, given Thursday's movement, a small short bias looks right into next week, but underweighting Transports, Financials and Small-caps near-term and looking to buy into any dips given the chance into FOMC.
Short IYT 174.63 with targets at 170 into next week
Short XLF into early next week, expecting one final pullback from 24.48 to near 24
Looking to buy WTI Crude on weakness below $49 over the next couple weeks
Long Gold and Silver- GLD, IAU and SLV for movement higher
Long Treasuries with plans of TNX moving to 2.80-2 before stabilizing
Play for a continued FLATTENING of the 2/10 curve from 10.5 bps to 0-
Additional charts and thoughts below.
While the market has been under pretty constant pressure since early December, it's insightful to view the QQQ pattern which has begun to show some signs of stabilization and making higher lows, vs plummeting to new lows like we've seen with SPX in making a deeper retrace, or in IWM moving to new lows. This bodes well for the market in the weeks to come most likely given the start of a bit of relative strength in the NASDAQ vs the broader tape. Overall, one would use movement back up above 7100, or 173 in QQQ as being quite positive for a larger rally. But the ability to hold up well above mid-November lows is also thought to be a positive and at least one thing for Bulls to "hang their hat on"
Small caps remain a tough area in the market, breaking down to new lows vs the QQQ in the last day. For those wishing to have relative shorts, Small-caps via the IWM still looks like a viable option and preferred technically vs selling the QQQ. This breakdown looks to continue in the days ahead and should be taken as a signal to avoid IWM, both relatively speaking here, but also on an absolute.
While XLF has moved to new lows for 2018, the IAI has begun to outperform KBE in a pretty dramatic fashion in recent days. This ratio chart shows the breakout in IAI vs the Banks, the latter which largely has been dragged down by Regionals lately. Stocks like SIVB, TREE, RF, KEY, STI, WBS, HBAN have all been down by more than 8% in the last week. Meanwhile, Stocks like PJF, GHL, MKTX, and LAZ have all be positive in the rolling days, serving as a bullish influence (or less bearish) for IAI. Overall, this breakout looks to continue in relative terms, so when looking amidst this sector, IAI should be overweighted.