April 3, 2018
S&P JUNE FUTURES (SPm8)
2532-3, 2500-2, 2465-8 Support
2600-2, 2610-2, 2550-5 Resistance
LINK TO TECHNICAL WEBINAR from Thursday 3/29-
SPX - (2-3 Days)- Trend bearish until 2600 is exceeded, but it looks right to consider covering shorts and gradually putting on longs between today and Thursday, thinking a low is right around the corner. A test of February lows looks to be imminent, but time-wise markets should be close to bottoming and attempting a counter-trend rally in the weeks ahead.
SX5E- EuroSTOXX 50- Bearish- It's likely that Europe plays catchup to the move in US on Tuesday, and better to hold off until prices visit and/or breach recent lows until trying to buy. Prices have attempted to hold February lows, yet the counts are not in place for any kind of low. Therefore, one should still hold off on trying to pick bottoms here and expect a final pullback down to near 3170 near the 50% level of the rally from 2016 which should be an excellent area to buy dips.
HSCEI- Bearish- Tough to get too bullish just yet, but the next 2-3 days could bring about trading lows and right to consider covering shorts and buying into Wed/Thursday of this week
Trading Longs: MU, STX, TWTR, FIVE, VICR, LULU, TLT
Trading Shorts: SIG, DO, CRK, SLB, SYY, BBBY, FB, DB, CS, XLI, PCAR, EZU, FEZ
Buy IWM 147.50-148.20, expecting a counter-trend snapback up to 155
Buy SPY 252-4, with targets near 270. A bit more weakness needed Tues/Wed
Long EURUSD 1.2276 to 1.23 with targets 1.2650 and stops 1.2240
Long GLD 125-126 adding above 127 with targets initially 129.50, and stops 125
Long TLT with targets 123.50
The acceleration lower Monday was just what was needed to try to put in a Low for Equities that had been sorely lacking last week. After the last 4-5 days of sideways action, it was thought to be premature to expect a meaningful bounce off those levels that would be sustained. While breadth was strong during last Thursday's session, prices did not successfully get up above levels that were important to suggest the trends were giving way to a bullish bounce. Now, after Monday'sdecline, US indices look closer to areas that are truly make-or-break for this entire consolidation since January, as February lows are tested in the upcoming days. Price-wise, Monday's break certainly looked negative, and it remains difficult to fight this steep downtrend that's been in place from mid-March.
However, given the ramp up in pessimism in the last week, combined with counter-trend signals close to being triggered (not only in Indices, but sectors like XLI, XLF) as well as evidence of volume coming in in a capitulatory fashion (Heavy volume into Down vs Up stocks, triggering a very high ARMS index ratio above 2.5) we've begun to see some of the commonly looked for technical signs to suggest a low should be right around the corner. Bottoming out after having made a false breakdown attempt when counter-trend tools are aligned gives far more confidence than trying to buy into a dull, lifeless churning pattern such as last week, in thinking a low is at hand. We're now also beginning to see evidence of positive momentum divergence on several time frames, as momentum has failed to match the lows from early February, even though price is well lower.
Furthermore, the act of getting down under the 200-day moving average was seen by the Media as being "bearish to Technicians" while as we all know there is much, much more to solving the equity puzzle than watching how price acts vs a moving average (which sometimes can work, and other times not) Attempting to use this M.A. as a timing tool can sometimes be effective, but often when it works, most investors come up with other reasons as to why it wasn't effective ( It was CHINA !!!.. It was Trump's Cabinet shifting!!!.. it was the FED!!!! ) As we all know, many latch onto reasons like this to attempt to explain price volatility when in reality, most of these have been in place for some time and have little to no true predictive power. When price and time come together, we have trend change. If one is lacking, then the moving average fails. Moving averages tend to be far better utilized as a simple gauge of market health, or analyzing the slope of the moving average and how it's changing, or how far above and below a certain security trades in relation to the moving average, than attempting to use it in a binary "Bullish or bearish" fashion like many are prone to do. While i respect those that utilize averages as a risk management tool, there often is far more at work to solving the puzzle as to how prices peak and trough at regular intervals. For now, the trend is certainly bearish, but there's a few factors in place that make watching for a false breakdown important in the next few days. Movement back above 260 in SPY, ie 2600 in S&P futures, would help get back up above the prior consolidation that was broken, raising the odds of a false breakdown in place. Until then, the trend is bearish and difficult to advocate trying to pick a bottom, and better to await some evidence of stabilization and/or prices snapping back through important levels that were violated.
Additional charts and thoughts below.
Monday's breakdown violated prior lows from the last week that had held prices intact in consolidation mode. It was thought that this range-bound type movement should not lead to a true breakout higher without moving first back to new lows, and Thursday's gains, despite on positive breadth late last week, failed to surpass key trendline resistance and promptly failed. Given the positive divergence seen on hourly charts with Demark signals appearing in the next few days in XLI and XLF together, both which were sorely lacking recently, we're getting closer to an area which could produce some type of counter-trend bounce to this decline. From a pure price perspective only, it looks premature, but we're in a window where a counter-trend bounce could begin to play out in the next few days. Any move back up over 2600 in S&P would be given credence as to potentially completing the decline from March 13 and lead to an above-average counter-trend bounce. Until that happens, the trend is bearish, and could lead to further near-term weakness to challenge February lows.
This two-hour S&P chart shows the extent to which prices have declined down to within striking distance of February lows. This minor consolidation from last week was thought to suggest additional weakness, and now that this has occurred, it's right to start to look for evidence of prices nearing areas where a snapback rally could occur. Movement back above 2600 would warn of a false breakdown, along with naturally a break of the downtrend from mid-March, or pullbacks to test 2533 which produce counter-trend signals of exhaustion which might indicate some type of low.
Interestingly enough, the relationship between Crude oil and Gold looks to be finally shifting in favor of Gold. While the uptrend in WTI has been ongoing vs Gold since last Summer, the break of this uptrend in WTI/Gold this past week coinciding with counter-trend signals of upside exhaustion (Demark) should now lead to Crude underperforming Gold. One can favor Gold vs Crude, expecting meaningful outperformance by Gold, and in turn, Gold mining stocks vs Energy stocks in the days/weeks ahead.