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Banks break down further, while S&P fails to recoup key level

June 27, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
269.10, 268.30-.50, 266.60, 266               Support
273.53-.60, 274.49, 275.20-50,  276.72    Resistance


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

 

SPX - (1-2 Days)- Bearish, until 2735 can be exceeded on a close, and ideally 2747 from a structural perspective.   Tuesday's bounce lacked the quality that would suggest any type of meaningful low was in, so the area near 2735-7 remains important as resistance for the next few days.   Pullbacks that breach 2714 would likely violate 2700 on their way to 2683-5, a key Gann level which likely can provide decent support on weakness.    Overall, expect that lows can happen this week, but should occur from lower prices on one final move under 2700 for this current downdraft.  

SX5E- EuroSTOXX 50Bearish- Look for another 1-2 days of weakness down to 3300-3350-  Ongoing underweight vs US and weakness has reached the lowest levels since early May, and should allow for another 2-3 days of weakness which potentially can reach 3300 before any low is at hand.  

HSCEI- Mildly Bearish, but looks to be 2-3 days away from support which could come about at 10900 down to 10750. HSCEI has nearly given back 50% of its entire rally since 2016, but is getting oversold, while being 1-2 days from generating counter-trend buy signals.  Overall, its likely initially that this first pullback should be a buying opportunity.    

Trading Longs:  ENR, SUPN, GLD, IAU, GDX, EPAY, ALXN, XOP, HCA, MRK, BAX, PRI, TCBI, BJRI, ITT, EMN, PX, EL, GILD, NTR

Trading Shorts:  KBE, ZION, FITB, SMH, AMD, NVDA, LRCX, MU, HPT, CMI, ADSK, 


TECHNICAL THOUGHTS


ACTION PLAN-  

Short VGK with downside targets at 54.50-55
Short KBE with targets at 47.25
Short SMH with targets at 101.50
Look to cover shorts in SPY at 268.50-269, or on ability of SPY to move over 274.50
Long XLV with targets 86.85
LONG XOP with targets at 46.50
Long GLD at 119.50 or below down to 118, with upside targets initially at 122, then 127.50



S&P's rally Tuesday failed to rise sufficiently to think lows of any sort were in place, and price will need to get above 2735, but really 2747 is needed for more conviction.   While a Tech bounce is typically constructive for the broader market, it happened on the heels of a pretty vicious breakdown which had violated the 2 month uptrend.  So it's tough making too much of yesterday's Tech move.  Additionally, Financials also have failed to show any real stabilization and charts of the Money Center banks remain in tough shape.   KBE, the Banks ETF, broke down under a multi-month uptrend yesterday, while KRE looked to be on the verge.   This kind of environment still seems to be quite difficult and requires a very short leash on longs and a very tactical hit-and-run type approach.   

Overall, I'm looking for a possible low this week, but we'll need to go HIGHER to get above resistance, and/or lower to get down to near support which is attractive to buy.  At current levels, the market just is not that favorable in the short run.   Precious Metals have neared key support as we've discussed in several of the reports, and on Dollar and Yield weakness, I expect the precious metals to begin a rally.  So this area is of interest on the long side, along with the E&Ps in Energy, and Healthcare stocks.  Outside of these areas, I expect the landscape for Financials and Tech to be much more difficult to make money.   


Additional charts and thoughts below.

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The S&P chart hasn't recovered enough to think lows are in, and as such, a near-term bearish stance is still correct until S&P can close above 2735 at a minimum, with 2747 being the area of greater importance.  Hourly charts from the mid-June peak show the possible five-wave formation ongoing from 6/21 where the fourth wave potentially peaked out right near former lows made on 6/19 near 2735.  That area was key for prices today, along with representing nearly a perfect 1x1 price/time angle from late January, being 151 calendar days and points from the 2788.25 high close from 6/12.   Overall, a pullback down under 2714 would allow for a test and final pullback under 2700 on this go-around which likely should find strong support near 2683-5 before bouncing.  

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KBE has now broken similar support which happened recently in XLF, while KRE looks to be quite close in doing the same.  This should put further near-term selling pressure on the Financials, which might temper an larger stock market rally given the size of this group within the S&P.   Near-term, one can expect a likely pullback to 47 before this stabilizes and will have to bounce up above prior 48.40 lows to have any sort of conviction of a false breakdown.   Overall, while Industrials, Materials and Financials had all reached areas which seemed important heading into this week, Financials certainly has not obeyed, and the banks remain a source of weakness.   This will need to be watched carefully going forward given that this remains an importnat sector for the market.  

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 The snapback rally in WTI crude has not really been followed by Energy stocks, a divergence that initially occurred back in March before this sector snapped back.  For those playing Energy, XOP is the preferred ETF, and is much stronger technically than XLE, or OIH, the latter which has lagged substantially in recent days.  Until this changes, the Exploration and Production stocks look to be the preferred area within Energy.