December 20, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2482-9, 2468, 2429-30, 2385
Resistance: 2583-5, 2600-2, 2630-2
SPX - (3-5 Days)- Expecting Market low Thursday- Friday and using dips to cover shorts and attempting to put on longs selectively. Prices have reached the target at 2482-9 in March Futures and while downtrend is very steep at this point, it's right to cover shorts and expect a reversal.
EuroSTOXX 50- Bearish- SX5E closed before the US Fed decision and subsequent pullback, and expect Europe to play catchup to US and selloff to test and break 3000 on its way to 2900.
HSCEI- Mildly bearish - Expect pullback to 10,000-10100 but that October lows should not be violated. Would use any weakness into Friday/Monday to cover shorts
Trading Longs: (No New trading longs given yesterday, and stabilization is essential)
TLT, TMF, PFE, MRK, LLY, VAR, UUP, EUO
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
Bottom line, stocks failed to turn up following FOMC, despite the rate hike, and many will start to question the Fed's actions if the market doesn't stabilize soon. This should be precisely the time to watch closely, as many investors will throw in the towel quickly, thinking that the FOMC decision was the last possible catalyst to help stocks move higher. This in turn could lead to the Capitulation for Equities that has been sorely lacking in recent weeks. Stocks have sold off in a very orderly fashion and not violently in a way that causes fear to escalate quickly. However, Sentiment polls, the VIX backwardation and Equity Put/call ratios have risen to levels that traditionally start to favor buying dips. Moreover, daily charts have seen momentum finally dip into oversold territory (No , it HASN"T been chronically oversold already like many in the Media claim) While Demark indicators are premature to show trading buys, (4-5 days away) we do see intra-day signals nearly complete on 60, 120, 180 and 240 minute charts which could be successful in helping stocks stabilize.
Overall, the trend in US Equities is very steep and bearish at this point in the near-term. Prices have reached the upper edge of the support zone 2482-9 area which I thought could have significance for Thursday/Friday of this week. From an investment standpoint it's proper to stand aside until more evidence of stabilization happens (and that requires a move back OVER 2630) However, from a trading angle, one can try to use early weakness Thursday to cover shorts and try to buy for a bounce in the time between 12/21 and end of year. Charts and additional analysis below:
Covering short XLF
Exiting Gold and Silver given Dollar rally yesterday which looks to continue- Long USD through UUP and EUO for Short EURUSD
Long Treasuries and while yields are down at 2.78-9 target, there's a small chance of move to 2.71% before reversal.
Yield curve FLATTENING might last another 2-3 days before stabilizing.
Additional charts and thoughts below.
SPX broke down from a large reversal pattern that many are discussing as being a Head and Shoulders. Prices are now down to the first important Fibonacci level of this entire rally from 2016 lows and the area at 2500 should have some importance in providing some support to this decline in the next 3-5 days. While the intermediate-term view looks challenging right now technically given this break, any attempt to stabilize in the next couple days that results in a snapback to regain 2600 and in particular 2630 area would be seen as a real positive for the short run. The 50% level lies near 2376 and is something to consider important under 2450 as a legitimate target. For now the next few days are very important as to how this pattern turns out and worth paying attention.
SOX, the Philly Semiconductor index, broke sharply in recent days and should be watched carefully as the SOX performance tends to have some major implications for the Tech trade. Near-term this break looks to challenge 1100 and get slightly below into Friday, but from a trading perspective, it's right to considering covering shorts in SMH by end of week given the extent of this move and structurally.
2/10's curve has flattened out as expected post FOMC and now within a few days of signaling Demark exhaustion. This likely can put a temporarily floor in this flattening in the yield curve, so despite the intermediate-term view of the curve flattening to 0, I doubt this will happen in a straight line. One should consider closing out Flatteners given the extent of the move yesterday and feel like the curve starts to stabilize here and 10, 30 yields are close to turning back higher.