December 21, 2018
Mark Newton CMT, Newton Advisors, LLC
HAPPY HOLIDAYS and HAPPY NEW YEAR TO ALL !!
VIDEOS- Click below
Friday Technical Video
Thursday's Technical Webinar- 20 min- SPX analysis, TNX, DXY, NDX
Newton Advisors CNBC Appearance- Thursday 12/20/18
SPX Cash Index
Support: 2468, 2429-30, 2385-7
Resistance: 2583-5, 2600-2, 2630-2
SPX - (3-5 Days)- No change- Expecting Market low and reversal between now and Friday's close and using dips to cover shorts and attempting to put on longs selectively. Prices have undercut 2482 and now just striking distance of 2376, the 50% level, which is strong support. While downtrend is very steep at this point, it's right to cover shorts and expect a reversal from a trading perspective.
EuroSTOXX 50- Bearish- Expecting 1-2 days of weakness before possible stabilization attempt. Look to buy early next week
HSCEI- Mildly bearish - Look to buy early next week. For now still short on Friday- 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: TLT, TMF, TECD, STOR, CIEN, PFE, MRK, LLY, VAR
Trading Shorts: VGK, FEZ, LH, MCK, HUM, QRVO, CAR, MRO, XEC, VMC, WMB
S&P held up a bit better than might have been expected and despite being down below 2465 early, futures rallied up to 2487 and showing evidence that a low could be right around the corner into Quad-Expiration While the trend remains quite steep, it's right from a TRADING perspective to look for a reversal to buy into this pullback, with expectation of a possible bounce to 2580-2630. However, from an investment perspective, it's necessary that prices get back up over this 2630 area to have any hope of a larger rally into January. Technically, i'm expecting a 5-8 day rally is right around the corner, but one that likely should prove sellable into late December/early January for a cyclical low in mid-January (which should provide the framework to buy dips for a move higher into the Spring. Healthcare, Energy and Financials are sectors of interest into year end.
The one key development for Thursday was the rapid reversal in the US Dollar index, which had spiked following FOMC, but faded and broke down on Thursday. This likely puts the precious metals long trade BACK on the front burner, and Deficit concerns along with a fading US Economy likely turn the US Dollar back down which should support the commodity trade also into next year. For now, commodity longs still look early until beginning of 2019 as a group, but I do think the Dollar breakdown should help the metal trade.
ACTION PLAN- No need for big bets in any of the sectors that are trending down sharply, and until some evidence of stabilization and reversal, cash is a good place to be.
Utilizing any further weakness to buy DRG names like MRK, PFE, LLY and ABT into next week, expecting Healthcare is near the end of its decline
Long Gold-Near-term Gold target 1275
Long Treasuries, expecting TNX gets to 2.71-2% before reversal.
Additional charts and thoughts below.
SPX is now within striking distance of the 2376 area, which represents the 50% retracement of the entire rally since 2016. It continues to be relevant to review this chart given the breakdown of the pattern since early this year while the larger trend on an arithmetic basis has NOT been violated. Thus, on any further weakness, this should translate into a bottom for stocks and a rally which could regain much of December's losses into next Spring. Given cyclical reasons along with bearish sentiment on the rise and ongoing bullish seasonality, there are ample reasons now to start to look for trading lows to develop in the next 2-3 trading days. However, the near-term technical deterioration remains a problem, and unless prices get back up above 2630, gains should be used to pare down longs into the new year, expecting further weakness into mid-January before any real low is at hand.
DRG, the NYSE Arca Pharmaceutical index, still looks quite constructive and is one sector that looks appealing to buy on recent weakness. The Healthcare group has been one of the worst performing groups in December while still one of the best performing Year-to-Date, and Pharmaceutical names are particularly appealing given the current volatility and tend to offer a bit more stability during times of market turmoil. Weekly charts of the DRG show the attractive base in this group after the breakout, and now the test of all-time highs has consolidated a bit, offering what I believe should be a compelling opportunity to own Pharma names heading into 2019. Stocks like ABT, MRK, PFE, LLY are all quite attractive technically.
Technology remains difficult to own near-term and despite many of these names down 20-30% just since October, technically we've seen a real rotation out of Tech, which looks to continue into next year. So despite there being some signs of markets potentially on the verge of bouncing entering the final full week of the year, one should use rallies in this group to pare down exposure. RSI on weekly charts of the S&P Information Technology index vs SPX broke nearly a three-year uptrend two months ago. So while many investors continue to try to "bottom-fish" in this group, many stocks remain in steep downtrends and will need substantial stabilization before thinking any sort of V-Shaped bottom occurs. Overall, it's wise to use rallies to reduce exposure in this group into next year, as relative charts have not gotten as oversold as the group was back in 2013 which represented a good buying opportunity at the time.