December 13, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2639-41, 2621-3, 2583, 2575-6, 2557-8
Resistance: 2674-6, 2687-90, 2697-2700
SPX - (3-5 Days)- Still willing to lean bearish into FOMC until/unless S&P gets above 2687 -Yesterday's rally largely failed where it should have and backed off into the close with two back to back days of 1% declines off early highs. After hours bounce on May win failed to help S&P regain 2687. Overall, it should still pay to sell "rips" and buy "dips"
EuroSTOXX 50- Sell into yesterday's bounce to 3107. Bearish with target at 2900, the 50% retracement of the entire move up from 2011. Rallies will need to get back over 3125 to have any real confidence of a low at hand.
HSCEI- Mildly Bearish- Bounce in last couple days still prone to failure, unless 11077 is exceeded.Target 9900-10100 sometime this week before stabilization and then rally in back half of December- Pullback not as severe as US and should be used to buy- HSCEI has been strengthening vs US relatively , so recent weakness is not expected to break October lows.
Trading Longs: CHD, PG, TWTR, HEAR, TNDM, D, AEE, EVRG, AIV, PEG, EXR, TLT, AMT, PFE, LLY, ETSY
Trading Shorts: EMN, WFC, CE, DOX, FCX, QRVO, CAR, BWA, MAS, ITB, PHM, LEN, FOSL, BBY, BCC, BGG, STX, WDC, KORS, CCEP, ETN, RL, FLIR, MRO, XEC, VMC, OI, NFX, WMB
Yesterday's gains looked quite similar to Tuesday's, yet by end of day, S&P backed off again, more than 1% off early highs. While end of day gains still finished positive and trended higher post close on May's Survival vote, the trend sure seems to be having trouble in making any sort of meaningful rebound. As mentioned in recent reports, a move ABOVE 2687 on a close is necessary to fuel any market bounce. For now, despite the minor rally in Technology, the group remains under pressure, along with Financials, accounting for over 40% of the SPX. While Healthcare has been persistently strong, leadership from Tech is thought to be important if indices have any chance of turning December around. Thus far, the month is down nearly 4% and the year as a whole turned negative in the last week, lower by -0.84% (SPX) through 12/12/18.
The late day Theresa May confirmation could cause the Pound to bounce further in the days ahead ,and this should be important to watch given that the US Dollar has wobbled of late. If the Dollar starts to break down, this should serve as the catalyst for commodities and specifically, Precious metals and Grains, to continue their recent bounce. The commodity space is thought to be quite attractive heading into 2019 given that many expect a slowing economy which would put downward pressure on the US Dollar.
For Thursday and Friday, it's tough using one days' gains to fight a downtrend which has been ongoing since early December, but it's right to watch carefully if 2687 is surpassed, as this would lead to further gains into year end before a January decline. As mentioned, it's important to see Tech stabilize and for now, Technology remains quite weak and VIX has firmed quite a bit along with widening credit spreads. The back to back 1% pullbacks off early highs just aren't that inspiring. For now, the benefit of the doubt still goes to the Bears.
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.
Despite yesterday's gains, prices closed well off highs yet again, after a 37 point decline from Tuesday's highs, they closed down 34 points from Wednesday's highs to finish at 2656, only 9 points up from Monday. Heading into Thursday, the two straight days of selling off substantially from early highs , over 1% each day, this still casts some understandable doubts as to the longevity of any bounce which seems to be having real difficulty. Overall, heading into Thursday/Friday, a close over 2687 would warrant being long for a move to 2730. Any decline back UNDER 2636 at this point warrants a retest of 2583 and slightly under heading into next week's FOMC before any meaningful rally.
Technology on an equal-weighted basis, peaked out in June and recently turned down sharply at a time when it was threatening to possibly breakout headed into late November. Thus, despite yesterday's strong gains in Tech, it's important to put things in to perspective and realize how much this group will need to rally to truly get the group back on track and help the market. At 20% of SPX, we'll need to see meaningful strength to break back out above this downtrend and help engineer a larger stock market rally.
Healthcare, our best performing group of 2018 still looks quite attractive in relative terms on a monthly ratio chart vs SPX. The breakout of nearly a dozen year base consolidated before turning back up in mid-2018. Thus, at a time when Technology has waned, Healthcare still seems to be the risk-on group to favor outside of the Defensive groups, particularly the Pharmas during times of volatility like what has occurred.