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Tariff escalation coinciding with equities drawdown in a very seasonally weak period

June 19, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
274.95, 274.32,  272.57, 270.94         Support
276.70, 277.19, 277.82, 279.43          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- https://stme.in/L2s6RGiWrJ

 

SPX - (1-2 Days)- Bearish- Monday night futures weakness should lead to further declines in Tuesday's trading, as this post expiration week for Quad-witching in June tends to be very seasonally weak.  Pullback to near 270.94 looks possible.   Use weakness under 174.94 for QQQ and 274.95 for SPY to add to shorts.     

SX5E- EuroSTOXX 50Bearish-  Pullback has reached near-term support based on mild June uptrend, yet S&P weakness might lead Europe to violate 3450 on a close, which should lead down to 3300.   

HSCEI- Make-or-break on pullback-Pullback in the last week has reached an area near February lows which is thought to be important.  Movement under 11635 however, should lead to acceleration down to 11426. 

Trading Longs:  BJRI, FDX, FDC, GRUB, ITT, EMN, PX, EL, HCA, GILD, CF, NTR, VEEV

Trading Shorts:  FOSL, MU, PG, MO, PM, JEF, IVZ, SIVB, PSA, LRCX, VNQ, M, KSS, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Short QQQ with targets at 163. 
Short SPY with targets at 270.94
Short ITA with targets at 195
Long UNG with targets at 26
Long GDX, with targets at 23.50 and stops 22.12
Short VNQ with targets at 77.44



Bottom line, The prospects of a growing trade war remain the near-term catalyst that are coinciding with weakness in Equities.  While the amount might be economically insignificant, the perception of a growing trade war can't be considered anything but negative and Trump's attempts at "upping the ante" likely leads to stocks selling off further into end of week.  

This week, seasonally speaking, has the dubious distinction of being the most bearish week of the month of June, down 24 of the last 28 years post 3rd Quarter Expiration.  Financials and Industrials have struggled lately, yet Large cap Tech was able to successfully show enough outperformance that Technology finished positive.  Yet, Semiconductors were hit hard, and remain an area of concern, technically after their steep run-up and subsequent stallout.  

Stocks have now drifted lower in three of the last four sessions, and for DJIA have been down five days straight.  S&P has pulled back to right above last week's lows and trendline support from early May which intersects near 2755.  This will be the true Line in the sand which when broken would result in trend acceleration during the latter part of this week before any recovery.

As of 9pm Monday night, stocks have weakened based on S&P and NASDAQ futures on the news of Trump redoubling efforts towards China, and technically speaking, this directly coincides with many of the reasons noted last week for why equities could weaken.  In the short run, getting down under 2755 would lead to a more meaningful selloff into end of week, and given the start of Semiconductor weakness, it's unlikely that most of Technology can continue to ignore this weakness given the overbought state of many FANG stocks based on the extent of Monday's rally.   Both Treasuries and Japanese Yen are rallying in a flight to quality Monday evening and S&P futures have pulled back to near Monday's lows, which also lined up near last Friday's levels.  Overall, 2761 has importance, then near 2755


Additional charts and thoughts below.

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S&P 500 has now pulled back for 3 of the last 4 sessions, and seems poised to test 2745 which intersects the uptrend from early May as well as the former mid-May highs.  This should be the key area of importance for S&P in the coming days.  On any evidence of Tech starting to turn down with greater force, this area likely should be broken, leading to 2709 before any low.  As of Monday evening, futures had weakened down to Monday'slows, so failure at recouping should lead to a break in Tuesday's session and test of this key 2745 area. 

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Semiconductor stocks are slowly but surely losing steam, and momentum has begun to rollover in recent days coinciding with the trend break and failed rally attempt.   Pullbacks are more likely than rallies in the days/weeks ahead, and any minor rally attempt likely faces strong resistance, as this pattern gives way to a broader pullback given the symmetry and start of technical deterioration.   Stocks like TXN, MU, CY, ON all appear like attractive risk/reward shorts for this week, while weaker Semis like AMAT, LRCX, TSM still look early to buy and likely also trend lower in the days ahead.  

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 Small caps look to continue showing better relative strength than the broader market in the near-term, and weekly trends of RTY v SPX show this trend from 2014 having given way in the last two weeks.  Counter-trend exhaustion counts are premature, so while the broader market looks to technically weaken, Small-caps should be favored for out performance near-term.