December 19, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2510-3, 2482-9
Resistance: 2583-5, 2600-2, 2630-2
SPX - (3-5 Days)- Mildly Bearish into Wednesday, but expecting LOW in Stocks Wed-Friday of this week with optimal targets at 2510-3 for SPX and max target on this first go-around at 2482-9. Important to let this decline run its course, but SPX looks to be getting close to support in price, and time.
EuroSTOXX 50- Bearish, (No Change) expecting test and mild violation of 3000 into Wednesday before bounce, with 2900 being important as an area to consider covering shorts and trying to buy dips. If prices manage to get back above 3128, that would change the thesis to mildly bullish.
HSCEI- Mildly bearish for 2-3 day basis but should hold up better than US, or Europe- Movement above 10590 on a close would be constructive-
Trading Longs: TLT, TMF, PFE, MRK, LLY, VAR, UUP, EUO, GLD, IAU, SLV
Trading Shorts: VGK, FEZ, LH, MCK, HUM, ABMD, XLU, VNQ, 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
Stocks failed in several different bounce attempts yesterday and yet again, turned lower to test the prior days lows. Overall the trend remains strongly bearish near-term, but signs of near-term oversold conditions are nearing (not there yet, despite what the media says) while counter-trend exhaustion should arrive by Thursday/Friday of this week. Additionally, time cycles project this week to be a turning point and given the decline, should be a low for stocks for a bounce into year end. Finally, sentiment continues to worsen, and Equity Put/call has now reached levels coinciding with prior market bottoms.
Overall, it's difficult to try to fight this tape from an investment standpoint until prices stabilize and will need to get back up over 2583 at a minimum before one can have confidence. (However, on a China deal, this could happen quickly. ) From a trading perspective however, it's right to look to cover shorts into 2510-3 over the next 1-2 days if given the chance, and start to look to buy dips in Financials, Technology and Healthcare. While momentum and trends remain awful, the near-term technical picture combined with cycles, counter-trend exhaustion and sentiment should provide at least some near-term relief. For those that didn't study the methodology for why stocks could bottom, some of this is written below and should be reiterated (for those that care)
(REVIEW)- SPX is now closing in on time targets from the peak in September (90 days- always important) along with 45 days from 11/7 highs, 60 days from 10/17 lows and 315 days from the 2/9 lows. Given my reliance on time angles of the circle to show confluence for turns, this is about a strong of a lineup from prior highs and lows that we can find heading into a given week like this, while Demark TD Sequential and TD Combo signals are now present with exhaustion TD 13 buys on 60 and 120 minute charts. While not wanting to stand in the way of any downside acceleration, there are price targets at 2533-45 for SPX and below would take prices to 2479. Meanwhile, a reversal back up over 2583 has minor positive importance. Charts and analysis below.
Short XLF with targets to buy 23.70-8 Wednesday-Thursday on weakness
Long Gold and Silver- GLD, IAU and SLV for movement higher
Long Treasuries , expecting TNX to get to 2.78-9 into Thursday/Friday and then reversing
Yield curve has steepened a bit ahead of FOMC which I expect to stall and turn back lower- Expect FLATTENING of the 2/10 curve from 10.5 bps to 0-
Crude has extended its decline, and awaiting stabilization before buying
Additional charts and thoughts below.
SPX finished right near prior days lows, and is extended down to its lower Bollinger band while nearing a target that would allow the initial trend down from September to equal the most recent decline from November in price points lost. This often can be effective possible near-term turning points in the decline and key support for this target lies from 2482-9. Above however, is another closer area of support that could be effective on any decline post FOMC which lies at 2510-3, and based on projections from the September highs. Bottom line, it's right to be defensive, but a few indicators based on momentum and time could allow for this initial decline to bottom out by Friday. Thus for traders, it's right to try to buy into this pullback, despite fighting the downtrend, given some of the positives mentioned above while SPX enters a very bullish seasonal part of December following one of the worst starts to this month in over 80 years.
US 10-Year Treasuries should extend gains into Thursday/Friday before reversing, but yields are getting down to targets to sell Treasuries on this recent decline in yields and the area at 2.78-9 looks ideal to take profits in longs and consider going the other way. The yield curve meanwhile has steepened ahead of the FOMC, but technically looks susceptible to reversing course and should be vulnerable to flattening back out in the weeks ahead.
Healthcare has been one of the weakest sectors in the last week, following the overturn of Obamacare by the Texas Federal Judge last week. Many expect this decision to be reversed, and technically charts tend to agree. The trend in Healthcare vs SPX had gotten a bit extended into November before this reversal took place as this ratio chart shows above of XLV/SPX. Overall, Healthcare remains quite attractive to own in relative terms and should be overweighted vs the market. However, this pullback looks to extend near-term and stocks like BIIB, HUM, ABMD, MCK, UHS, LH, SYK, CI, and WCG are better shorts than longs in the next 2-3 days before these bottom out.