December 7, 2018
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2649, 2622-7, 2582-4
Resistance: 2729, 2745, 2764-7
SPX - (3-5 Days)- Mildly bearish with above-average possibility of stalling out on Thursday's late day bounce attempt. A crash seems doubtful given the spike in Put/call, and breadth/momentum are better than a few weeks ago. Bottom line, pullbacks into early next week should be used to buy.
EuroSTOXX 50- Mildly bearish with target at 2900, though Thursday's move left prices stretched. Rallies will need to get back over 3125 to have any real confidence of a low at hand.
HSCEI- Mildly Bearish- Pullback not as severe as US and should be used to buy- Test of 10188 and even 10000 is possible but should be used to buy, as China is relatively stronger than US.
Trading Longs: TLT, IAU, GLD, CHD, LLY, CQQQ, TMO, VRSN
Trading Shorts: BCC, BGG, M, LEN, STX, WDC, ATVI, TTWO, KORS, GIS, CCEP, EZU, STX, WDC, ETN, RL, FLIR, EMR, VMC, OI, NFX, WMB, BCO
Despite the late bounce attempt, it's worth reiterating: the structure has definitely begun to get worse in the last two sessions. Seeing two major rally attempts fail and end up back near recent lows supports the idea of an eventual breakdown, even if it holds off until early next year. Near-term, the late day bounce failed to get back above the area of the gap at 2695, and this will be the first real area of importance for Friday/Monday. For now, we've seen an awful lot of volatility in a short period of time and seasonality studies thus far have proven to be a bust. Breadth yesterday was not nearly as poor as Tuesday's session, and the prior 3.3 TRIN reading barely eclipsed 1 on Thursday, (though much of the improvement was due to the late Rally)
Overall, Yields still look to trend down to 2.80-2% into early next week before Treasuries peak out(yields turn back higher) For now, the Dollar has stalled out on its rally but hasn't turned down all that sharply just yet. Oil has slipped back down to new lows, but yet shows evidence of strongly positive momentum divergence that should signal an upcoming low in price. Looking at Europe, there was a very strong breakdown under 3100 for SX5E, and this will be increasingly important to pay attention to, with prices down at six-year trendline support from 2012.
Sector-wise, it's important to watch Financials carefully in the upcoming days/weeks, as Demark's TD Sequential indicator has flashed a 13 buy signal on XLF/SPX after the recent sharp weakness with TD Combo right around the corner. Any upturn in Financials would be quite positive for the overall market, and this sector has already experienced severe weakness and should be close to turning back higher into next year.
Long Gold and Silver- Buying GLD, IAU and SLV for movement higher
Long Treasuries with plans of TNX moving to 2.80-2 before stabilizing
Additional charts and thoughts below.
SPX hourly charts show the area at 2695 as being important to this picture given that prices have risen to fill the gap from the prior trading session. These areas can often serve as support and resistance and should be respected as the first real area of importance on the upside that could hold after yesterday's comeback. However, given the extent that VIX and Equity put/call spiked, any further pullback likely will prove buyable.
SPX weekly chart shows 2600-22 being the true "line in the sand" for longs and until broken, it's tough making too much of a larger bearish case for equities based on index prices alone. (The individual stock is down much more, and a different story indeed) Until/unless 2600 is violated, the structure since this time last year is more representative of a larger neutral pattern, and breaks of the minor uptrend which occurred in October, appear to have been contained. Movement back higher is a possibility into year end as well as next Spring before any larger weakness gets underway.
Put/call ratio on Equities has quickly gone from the lows of the yearly range to the highs in the matter of one week's time. This is important for those looking for lows, as readings had been largely subdued of late, but the spike back to new highs indicates the start of real concern, and from a contrarian point of view, makes for an easier time buying dips during times of fear. Overall, trading lows in stocks look likely sometime next week, and weakness back to the lows into next week should coincide with a chance to cover shorts and consider buying, as opposed to expecting a larger crash.