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Energy and Metals strengthen further, while Financials, Semis lag

April 19, 2018


2684-6, 2662-4, 2655-6, 2636-7, 2620-1    Support
2718-20, 2724-6, 2747-50                          Resistance



SPX - (2-3 Days)- Bullish- Upside likely is capped near 2748 next week, but for now, still looks early to pull the plug.  Further upside makes sense given the premature Demark counts on Daily and many intra-day charts, but one should be more selective about what to buy in the upcoming days.  The area starting at 2740-50 should serve as strong resistance at the 90 day, three month anniversary of January highs.  Near-term weakness on Thursday/Friday should be buyable for a final push up into early next week. 

SX5E- EuroSTOXX 50- Gains likely to prove minor into next week and right to underweight Europe vs US-  Minor strength for Europe, and getting above 3500 allows for fractional strength to 3575-3600.  For now, still expect this area is important and can hold.   

HSCEI- Make-or-Break after pullback-  Breakdown from trendline resistance keeps trend down and now a necessity to hold 11680, or else this results in a larger break which would violate uptrend from last May.  Important for immediate stabilization.   




ACTION PLAN- No changes heading into Wednesday but on evidence of stalling out, might revisit

Long SPY with initial targets 270, then 274.25-275
Long DBC for commodity exposure- $16.94 with targets $17.85
Long GBPUSD with target 1.4370, 1.50
Long IYT with target 195
Long ITA with target 205.50-206
Long XLK to 67.24 up to 68.20 this week

Long GLD 125-126 adding above 127 with targets initially 129.50, and stops 125
Short VNQ with expectations of a test of 72.65 and breach which could lead to 70-  Stop at 76.70
Short XLU with targets down at 47.88-48.25, Stop at 51

Evidence of some splintering in the rally lately, as Financials and Semiconductor stocks were both negative in Wednesday's trading, and while prices still managed to close positive on the session, this kind of dropoff in participation from leading sectors is normally important to monitor after the last couple weeks of rally. Breadth has proven mildly positive in recent days, though lacking the upward thrust that would be necessary to see to have conviction of a larger move higher back to highs.  The 150 point S&P rally has not been strong enough to carry prices back to intra-day overbought levels, and breadth gauges remain below where they peaked in March, and remain negatively sloped since last October, which managed to turn in a higher high than this past January (Summation index)  Near-term, we've neared a crucial time where prices have neared trendline resistance from January highs, while counter-trend signals are close to forming on this bounce.    Given that the technical structure, along with weekly momentum remain negatively sloped from January, it looks right to sell into this move as of Friday/next Monday technically, taking a tactical approach to this upswing given the preponderance of negative technical factors.

Importantly, there are a few interesting and positive developments taking place in stocks despite Financials having lagged in recent weeks.   Energy has turned sharply higher, and followed suit to WTI Crude's continued strength.  Sector ETFs like XLE, OIH and XOP all look to still trend higher into early next week, and taking profits at current levels looks premature, technically.  Additionally, the metals trade looks to be close to starting on a more widespread basis, as Silver has gained ground on Gold lately (confidence in precious metals turning higher) while the Metals and Mining ETF (XME) has broken out of trendline support.  Given that unease remains par for the course in the Middle east right now, this very well could lead to some volatility in the upcoming couple weeks which might be blamed for causing weakness in equities, while at the same time, leading WTI Crude and Gold, Silver higher.  Overall, diversifying away from Financials and into the Metals and Energy space, (along with commodities as a whole) looks correct.  

Additional charts and thoughts below.


OIH vs SPX-  Further strength likely to test January relative highs into next week.
Energy continues to gain ground in the short run, with yesterday's surge in WTI Crude back to new highs coinciding with XLE, OIH and XOP all showing above-average outperformance and extending higher to new weekly highs.   Relatively speaking,  the upturn in this group began back in February when it bottomed out, not unlike the extremes witnessed two years ago in February.  However, the acceleration has been most dramatic this past month with Energy showing dramatic outperformance.  Due to its weighting in SPX, this sector doesn't have much effect these days. But just in the last couple days, the push back above former highs after a TD Sell Setup was logged has helped this relative strength to continue.  Further outperformance looks likely in the short run, and XLE, OIH and XOP all look to offer above-average gains between now and next week before any short-term resistance.  Relatively, the OIH vs SPX chart is likely to test prior highs from mid-January which is the first meaningful area where this could stall out.  


XME- SPDR S&P Metals and Mining ETF Breakout-   Metals and mining sector looks to be beginning a new period of acceleration after yesterday's gains successfully broke out above a key area of resistance that connected highs since mid-January.  While Gold has struggled in its attempts to breakout recently, Silver has begun to gain ground rapidly, while Aluminum has been showing stellar outperformance of late.  Technically, this area should be favored for outperformance again, as this consolidation from January looks to be giving way to strength yet again, (after strong performance last year) and should lead XME back to test and exceed January highs.  An upcoming decline in the US Dollar index should coincide with this strength, and could serve to help the commodity trade in general.  


Silver gaining ground rapidly on Gold, eliminating divergence-  The ratio of Gold to Silver has started to drop off rapidly in the last couple weeks given Silvers outperformance, which had been sorely lacking in recent months.  Gold's attempts to breakout thus far have been thwarted, yet the metal remains in striking distance for a larger move higher.  Yet the strength in Silver is encouraging to think the precious metals trade can in fact work, as prior efforts showed the divergence between the two that made investors suspect, rightly so, that gains might not occur right away.  Bottom line,, the start of Silver turning up should help to gain conviction that the precious metals can begin to strengthen and in turn, the metals and mining stocks.