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A bit more weakness likely into early Next week- Look to cover Industrials, Financials shorts

June 21, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
274.32,  273.50, 272.57, 270.94    Support
276.70, 277.19, 277.82                  Resistance


LINK TO TECHNICAL WEBINAR from YESTERDAY- https://stme.in/y87RQhYBKd

 

SPX - (1-2 Days)- Bearish-  Thursday's decline canceled out all the benefits ofWednesday's move and puts the original bearish thesis back on track between now and early next week for a bit more weakness-  Pullbacks should reach 2735, but below would be susceptible to a quick move to 2709 before stabilizing and turning back higher.  Note, XLI, XLB, XLF all look to be 2-3 days away from both price and time based support, so one should utilize further declines to cover shorts and consider putting on longs in these sectors.  

SX5E- EuroSTOXX 50Bearish- Europe remains the laggard, and right to be short or avoid buying dips between now and early next week.  Under 3390 should lead to 3300 and potentially a bit lower into next week before a temporary bottom.  

HSCEI- Bearish near-term , and while some minor stabilization happened Wednesday, the break of lows since February is bearish and could lead down to 11250-11300. Any move back up above 11841 would be respected, but unlikely in the short run.   

Trading Longs:  ALXN, CVS, HCA, MRK, ZTS, PRI, TCBI, V, BJRI, FDC, GRUB, ITT, EMN, PX, EL, GILD, NTR, VEEV

Trading Shorts:  XLI, CAT, BA, MMM, PG, MO, PM, SIVB, PSA, LRCX, VNQ, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Short VGK into next Monday
Short SPY with target 273.50 and under to 271
Long XLV with targets 86.85
Long KRE with targets 66.50

Short XLI with targets 70.85
Short ITA with targets at 195
Long UNG with targets at 26
Short VNQ with targets at 77.44



The near-term bearish thesis is now back on the front burner given Thursday's decline, yet should prove short-lived this go-around and likely produce lows into early next week.  This would then likely provide for an early month bounce into July similar to what we've experienced over the last few months.  Given that 4 sectors out of 11 are within 1-2 days of producing counter-trend exhaustion on daily charts, (XLB, XLF, XLI as Buy Setups, XLU as a Sell Setup) it's thought that a reversal back higher in the market is not too far off and that the larger pullback might be postponed until mid-til-late July.   Shorts in sectors like Industrials, FInancials or Materials should likely be closed out at least partially, given the degree of the decline in recent days.   Meanwhile, shorts should shift to the Defensive sectors and both Utilties and REITS seem to be lining up after rallying to resistance that should make further upside difficult in the near-term.  

Overall, it will still require a more meaningful breakdown in Technology to have proof of the broader market experiencing outsized weakness.  For now, Tech and Discretionary are holding up, while many other sectors seem to be nearing support.   This should translate into at least some partial stabilization and allow for a bounce into July.   Movement under 2709, while not expected right away, would put a more bearish thesis on the front burner for all of July, which for now, is tough to call.

Looking back, Yesterday's selloff looked important from a price perspective in Equities, yet volume and breadth were fairly muted.  Bond yields and US Dollar showed fractional weakness and in regards to the US Dollar, trends look to be trying to stallout and produce a bigger reversal after showing negative momentum divergence in DXY, BBDXY, while currencies like AUDUSD and GBPUSD, EURUSD should be close to turning back higher.   A move higher in AUDUSD also might coincide with an above average bounce in commodities which have been under pressure lately, but the Grains along with Gold and precious metals look to be close to trying to form a bottom, and this could come about next week.   With regards to S&P, Sept Futures have near-term support near 2735, and under would allow for a quick move down to 2709 before reversing course.  
  

Additional charts and thoughts below.

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SPX has now broken the uptrend from May and yesterday's decline completely engulfed the prior day, which should allow for a bit more weakness near-term before S&P can turn back higher.  While heading into Thursday, this index showed signs of holding up, yesterday's weakness needs to be addressed and cant be ignored as just a one-day pullback.   Sectors like Financials, Industrials and Materials will all need to make lower lows on Friday than what happened on Thursday, so it's right to avoid buying dips too soon, until prices can stabilize a bit and show evidence of trying to turn back higher.  Overall, this week has played out very similar to how seasonality said it should, but yet again, markets mid-month peak has led lower and heading into the last week of the month, it's right to start to look for lows yet again.  

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Industrials look to be close to trading lows after eight consecutive trading sessions where the close was less than the close from four days prior.   This development helps to achieve what's widely known as a TD Buy Setup, Demark wise, and is very close to forming now in Industrials , Materials and Financials on today's weakness under yesterday's lows, while Utilities should be close to peaking out.   Near-term technical targets for XLI lie near $69-$71.50 between today and early next week, so pullbacks should be used to cover shorts and assume trading longs.   This very well could play out as the tariffs turning out to be far less severe than markets have anticipated, and could allow for a trading bounce into end of month.  

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 Emerging markets should be on the lookout for a potential low sometime in the next week, as the selling pressure has caused price to close in on what could be meaningful support for an oversold bounce.   Weekly charts of EEM show price having pulled back to key trendline support, while weekly charts show a completed TD Buy Setup in place as of this week's trading.  Additionally, the longer-term uptrend which was exceeded last year is now close to being tested on this pullback.   All in all, with signs of DXY starting to produce evidence of negative momentum divergence while several other currencies look to be very close to oversold rallies, EM very well could be set to work in the weeks ahead, and this looks to be one of the first times that daily and weekly charts have come together as sentiment starts to turn negative on EM given the Media's daily discussion about how bad things are.  Overall, it's right to initiate small long positions and add in the days ahead