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Semi decline troublesome, yet insufficient weakness to turn bearish just yet

April 20, 2018


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

LINK TO TECHNICAL WEBINAR from yesterday, 4/18/18- Thursday 4/5- 


SPX - (2-3 Days)- Mildly Bullish- Yesterday seemed to be a "Shot across the Bow".. important in many ways. though still could lead to another retest of highs or slightly above into early next week before a turn lower.   Overall, i think upside is limited.  But difficult turning bearish just yet given incomplete Demark counts, cycles which point to next week and trendlines from early April that have not been broken.   Look to sell strength Friday and into Monday, while respecting breaches of 2660 as turning trends bearish.   Upside should be capped near 2748. 

SX5E- EuroSTOXX 50- Mildly bullish up to 3525-  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-  Still looks right to be long commodity space and fade the US Dollar (Long Pound Sterling( while favoring strength in Aerospace/Defense and Transports while fading the interest rate sensitive areas like the REITS and Utilities.  Interest rates can rise a bit more, but the risk/reward is growing worse for Treasury shorts, and longs should be assumed if rates jump over 2.95%

Long SPY with initial targets 270, then 274.25-275
Long TBT, expecting 10-Year Treasury yields to rise to 2.95-3.00% and then stall
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

Yesterday seemed important and a "Shot across the Bow" in many ways as the market showed its hand, with distinct weakness in Semiconductor stocks, while Financials attempted to bounce while not making much of a dent in the ongoing underperformance this group has shown since February.   Given the possiblity of ongoing Semi and Financials underperformance, this would represent over 30% of the SPX and represent a true Headwind to gains in the upcoming weeks   Markets now are approaching trendline resistance from January highs, along with being an important 90 day anniversary of former highs, often an important time frame when projected from highs or lows in the past.  This period in April represented peaks in stocks two years ago along with lows in 2013, both important anniversaries that it pays to keep track of in any given year.

Interestingly enough, 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 into early next week technically, taking a tactical approach to this upswing given the preponderance of negative technical factors.

Additional charts and thoughts below.


S&P- Still tough to get too negative ahead of next week- Look to sell 2740-50-  S&P reversed sharply on Thursday, yet managed to rally slightly into the close to keep the uptrend from April intact.  Counter-trend sells remain premature, so given the lack of sufficient deterioration, it still looks possible for a "last gasp" rally to test Wednesday'shighs and get over this level, rallying to the 2740-50 area into next week. S&P is now approaching the 90 day cycle from January highs, and given that the 45 day worked well in providing the Mid-March highs, this looks to be an important time for S&P   Overall, insufficient weakness Thursday to suggest imminent trend reversal, but the action in Semiconductor stocks looks troublesome for the bullish scenario.  Given Thursday'spullback, any further rally back to highs should create short-term negative divergence and provide strong resistance near the uptrend from January.   On any pullback under 2660, there would be more conviction of a high in place.  


SOX- PHLX Semiconductor index-  Yesterday's pullback proved quite negative for the Chip space, with price declines stripping away most of the rally from early April.   The trend has been neutral overall since last Fall, though the extent of the selloff is troublesome with regards to the broader pattern since last Fall.   SOX is increasingly resembling a large Head and Shoulders pattern over the last six months, and the area at 1250 has importance, and under that near 1200 which lines up to be the official "neckline" to this entire pattern.  Given its leading qualities, Semis can't afford to weaken too much more without casting doubt on the entire pattern as being anything other than a giant reversal pattern to the rally in recent years.  For now, still a bit premature, but the extent of the declines both into February and into early April have been lengthy and damaging.  


Financials-  Bounce doesn't eliminate the degree to which this sector has lagged since mid-February.  This group has been under an increasing amount of pressure since violating the uptrend from last Fall.  Financials peaked a few weeks following the market top i late January, while contributing directly to the negative momentum from March highs.   Most of the Banks have struggled in the last few months, despite stellar earnings and have been a source of real confusion to the fundamentally oriented.  Overall, this group has lagged all but Consumer Staples in the last month of the major S&P sector groups, while also underperforming in the past week, despite yesterday's 1% gains.  This bounce shows how despite the strong gains yesterday, this trend remains very much negative.  For those seeking attractive stocks in Financials, the Exchanges and E-Brokers look to be some of the better areas of relative strength within the group, with stocks like NDAQ, CME, showing good strength, or others like AMTD, or IBKR.