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Reclaiming prior support is a positive for SPX, though sentiment, intermarket divergence a concern

May 31, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
270.43, 269.38-.50, 267.45-.76,  266      Support
274.25, 275.88, 276.61                           Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- 051718- https://stme.in/MpyuOSOZca  TODAY we'll be having another Weekly call-  1pm:

 

SPX - (1-2 Days)- Mildly Bullish, turning bearish with move back under 2698-  S&Ps move back up into the range resulted in Short covering and bullish buying in Financials as indices regained prior losses on heavy positive breadth.  A Flip-flop to bullish is necessary given NASDAQ making its highest close since mid-March, while indices recouped losses and moved back into the prior range- Upside target at 275.88-276.61

SX5E- EuroSTOXX 50Mildly Bearish-  Wednesday's reversal is supportive of the idea that a bounce can happen, but trends are far more negative than in US and a minor rally should lead to selling opportunities.  Area at 3480-3520 could have importance, while any move back under 3389 would allow for a full retest of 3261.

HSCEI- Bullish- Prices are now down to initial support and should rally back up above 11900 in the days ahead.  Weakness has reached February lows and Demark exhaustion is present, so it looks wise to cover shorts and attempt to play a bounce.  

Trading Longs:  X, NUE, UNP, AMZN, HCA, CAH, LHCG, DCT, FRGF, TDG, PGR, BAX, BSX, COST, FDX, TWTR, LVS, WYNN

Trading Shorts:  LL, DISH, DISCA, USB, PCAR, ITW, BLL, MMM, SWK, CMI, GE, MAS, MAT


TECHNICAL THOUGHTS


ACTION PLAN-  

Long SPY w/ target 275.88-276.61
Long QQQ w/ target 172.50, and closes above this lead to 175.20
Long IHI w/ target 202.80
Long NYFANG index @ 2730 with expectations of a move back up to new highs which could reach 2860-70 within 2 weeks before a peak
Long HSCEI at 11575-11650
Long Grains through WEAT, or CORN
Buy Gold on any daily close above 1309, anticipating a rally back to 1346-1365




Wednesday's snapback proved important, with S&P getting back up above the area of the prior breakdown, along with NASDAQ closing at the highest levels since March, and could allow for rallies to now play out. While Tuesday looked bearish for quite a few valid reasons, Financial deterioration, the breakdown in Treasury yields (which have led stocks in recent weeks) and Credit widening, as the FX/Rate volatility seemed to be spreading to US, the reversal yesterday happened on sharply higher breadth, something which had been sorely missing for some time.   Wednesday's session registered nearly a 4/1 Advance/Decline reading, with volume flowing into UP v Down stocks at nearly 8/1 positive.  While this was nearly capitulatory in how much volume flowed into advancing issues, the price action accompanying the positive breadth is necessary to pay attention to.  

Concerns revolve around Bond yields NOT having regained the area of their most recent breakdown while the DJIA has been a severe laggard, and we've seen some evidence of intra-market divergence lately.  While the Bulls are quick to point out the Small-cap Russell pushing up to new highs, it's more positive to see broad-based strength among all the US indices, not signs of lagging on a push up to new high territory.  Volume also proved to be quite weak in trading yesterday compared to Tuesday's post-holiday return, which seems odd given the degree of near-90% upside seen yesterday.  For now, it's tough to put too much trust into this move, but for now, a few of the short-term negatives have been erased, and it looks like a bit more strength can now happen.  If we see a violent reversal again, to take out 2698 in the days ahead, switching back to negative will make sense.  Overall, it's better to have a quick sense of when trends are reversing and take small losses than to sit long or short and have the market go against us.   There remain plenty of good and bad stocks and ETFs to choose from to please bulls and bears alike until the trend shows more conviction in either direction.


Additional charts and thoughts below.

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S&P managed to do the impossible, and after dropping under a series of lows that had held for the last few weeks, it promptly reversed and re-entered this consolidation.  Highly unusual, but one that often leads to short-covering and chasing the rally which looks to be precisely what happened yesterday.   We saw evidence of Equity put/call ratios dropping back into the mid 50's, a cautious signal about the duration of any upcoming rally heading into the seasonally bearish month of June.  Additionally, the DJIA looks far worse than the Russell 2k, or NASDAQ of late, and this intermarket divergence IS in fact important.  For now, it looks right to favor this move continuing up a bit longer, but with an eye on the exits as markets enter June.  Movement back to the highs of this range can't be ruled out, particularly given Tech strength and attempts of Financials to stabilize.  But yet, given that volume dried up considerably in Wednesday's trading, despite the breadth, the wariness of this choppy pattern since late January continues and necessitates a very short-term tactical view, rather than swinging for the fences.  

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NY Fang index pushed back higher after just a minor consolidation in the month of May.  This pattern from March now resembles a bullish Cup and Handle pattern which could allow for brief strength back to new highs.  Yet the weekly charts and monthly have suffered some momentum deterioration of late as the pattern has moved more sideways, giving some indication that it's right to sell into a move back to new highs.   At present, trends do look to extend higher and this group has carried Technology in recent weeks.  Movement up to 2860-70 looks possible for the Fang index, but it looks right to be long here tactically in the near-term heading into the final day of May/early June.  

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 Rallies in the Healthcare Medical device manufacturers ETF, IHI proved to be quite positive Wednesday, and sets up for a further push higher up to 202.   While the XLV itself has struggled lately, the Medical Devices ETF has proven far more resilient, and yesterday's push back to new closing highs should allow this group to continue its recent outperformance.