December 27, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2429-30, 2407-8, 2385-7, 2346
Resistance: 2473, 2498-2500, 2519-23, 2573, 2630-2
SPX - (3-5 Days)- Bullish into end of week with possible first target 2519-23, or 2548 before stalling and pulling back. Look to buy any early weakness
EuroSTOXX 50- Mildly Bullish as Europe could play catchup. but SX5E still quite a bit weaker and still looks like a 2900 test might be necessary
HSCEI- Bullish- Expect HSCEI holds former lows and turns higher.
Trading Longs: TEAM, SQ, I, ELY, NKTR, ALGN, ECD, STOR, CIEN, PFE, MRK, LLY, VAR
Trading Shorts: VGK, FEZ, LH, QRVO, CAR, MRO, XEC, VMC, WMB
S&P had its largest rally in 10 years as this stunning volatility continues, and this time to the upside. Incredibly enough, S&P was nearly in a bear market down 20% from its peaks and set for possibly the worst December of all time before Wednesday's strong surge. Breadth came in nearly 5/1 positive while volume hit capitulatory levels on the upside, over 30/1 in Up vs Down stocks. So nearly all the volume was on the upside and the TRIN hit a very low .20. Seven sectors rose more than 4% on the day, while three sectors, Energy, Discretionary and Technology, were up by more than 6%.
Overall, this move likely jumpstarted the lows which should carry SPX higher into year-end. This could also make for an interesting "Santa Claus Rally" period if S&P can continue higher, setting the tone for a positive late December period which many believe has bullish implications for the following year.
For now, heading into the final two days of the week, the market is in a difficult spot, as momentum has now carried back to overbought levels quickly on hourly charts, while daily, weekly and monthly momentum are sharply negative. Prices are in "No-Man's Land, having spiked into the close, but yet not back over areas of importance with regards to structure.
My thinking is that the initial bounce off the lows (like what has just started) could carry a bit further, but should fail and then give way to another retest which might actually break lows heading into January. However, the degree to which prices lifted so quickly is thought to be a larger positive from a momentum standpoint in trying to put in a low. Thus, any backing and filling should translate into pullbacks to buy into.
Treasuries are likely a better Short than long now with yields having gotten down to the key 2.70-2% area and reversed sharply.
Long Crude oil, with near-term targets $48.50-$49 , expecting WTI's move yesterday likely continues. Over 50 would be quite positive for Crude
Additional charts and thoughts below.
SPX made a historic leap on Wednesday, exceeding trends from the prior week and making a 5% rise off the lows. While the temptation might be to immediately sell into this, this time of month historically can show strength when a move like Wednesday has gotten underway and caught many off guard. While overnight futures might attempt to weaken a bit, technically it's probably right to stay long into end of week, expecting this to continue higher, buying dips for a push back to 2500-50 before this stalls.
10-Year Treasury yields should be watched carefully as yields got to key support at 2.71% and reversed hard in recent days. The Yield curve also steepened back to near where it broke down near 20 bps in early December. Back in late November, the divergence in yields was a key driver for equities to begin to weaken, as yields dropped sharply and equities ended up following suit. Now yields have turned back higher as sentiment has gotten far less negative. So just in the last two days we've seen counter-trend exhaustion crop up on yields and a rally back to 2.80% quickly. If yields can get over 2.85% this would break out of the entire trend and would suggest yields start to trend higher. This in turn should be good for the Financials space. Stay tuned.
Crude moved quickly back up above $46 in a very dramatic reversal similar to what happened to stocks yesterday. The entire energy sector rose by 6% and this move bodes well for some additional followthrough in the days ahead. Crude would need to break out above $50 to solidify this as a real reversal of the entire downtrend from October, but we're entering a fairly bullish time for Crude seasonally, and this looks to be right around the corner. Overall, a rally up to $48-$49 looks likely in the short run, but it's worth keeping a close eye on if WTI Feb Futures exceed $50 which should generally be a real positive for the Energy sector heading into 2019.