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Energy, Healthcare favored as S&P reaches June, March mid-month peaks

July 10, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
276.94, 275.99, 274.53         Support
278.73, 279.48, 280              Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- https://stme.in/ZcAsX0tbnS

 

SPX - (1-2 Days)- Mildly bullish with gains likely finding strong resistance near Mid-June, Mid-March highs near 2800-5 before a minor backing off come mid-month.     

SX5E- EuroSTOXX 50Mildly Bullish- Looking to sell into gains on Tuesday/Wednesdayat 3475-3505, as this level is strong resistance and should coincide with a stalling out and turn back lower in SX5E. 

HSCEI- Mildly Bullish, as the close at four-day highs likely leads to a bit more strength into Wednesday/Thursday before a reversal.  Rally to 11205 looks possible and above a maximum move to near 11430 before stalling out.  Charts over the weekend showed it was premature to favor Emerging markets for anything more than a bounce, so 3-5 days of gains likely would be a chance to sell into this move, but for now, downtrends have been broken and supports the idea of a bit more strength.


Trading Longs:  XOP, XLE, COP, RIG, SM, WPX, LLY, ACN, PLNT, NTCT, INFO, TZOO, ENR, WEX, GBTC, IYT, XLI

Trading Shorts:  VGK, SMH, LRCX, KBE, KRE, EWJ, LB, TSCO, CROX


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XOP, with targets at 46.50 and then nothing til around 52
Long IYT, with targets at 192, stop 183.41
Long EEM with targets at 45, stops 42
Long XLV , raising target to 88.50, and taking profits on any close under 85.10
Long GDX , but using any Tuesd/Wed rally to take profits near 23 with thoughts of revisiting in late July
Long GLD with upside targets initially at 122, then 127.50

Short SMH with targets at 96.10 & stops on shorts at 107.84
Short HG_F- Copper with targets at 263- Close above 290 is reason to take profits on shorts


Sell into gains between Tuesday-Thursday of this week, with targets near 2805-2810 for S&P and 3475-3505 for Europe's SX5E, thinking that gains should not continue uninterrupted without a stalling out and another minor reversal.  Until then, there have been no meaningful signs of trend reversal to this bounce.

S&P has now managed to gain ground on 5 of the last 7 trading days from the bottom made back on 6/27 in late June.  Near-term momentum and breadth have improved, and NYSE All-stocks Advance/Decline is now back at new all-time highs.  These are encouraging signs, despite the lackluster movement in recent months, and structurally, we still haven't really seen much if any real weakness.  The drawdowns thus far into end of month have all caused fear to spike meaningfully, given understandably bearish reasons.. Trade war possibilities with the likelihood of expanding tariffs, and a Treasury market that doesn't seem to believe in the FOMC's thoughts of growth expanding.

Similar to the past five months, we've seen an early month rally which has now taken prices up to near levels hit back in June and March for S&P, while Europe has engaged in a counter-trend rally within its downtrend.  Emerging markets have shown some signs of bouncing of late, along with precious metals, while the Dollar showed a few signs of rolling over in recent days, outside of Monday's gains on BREXIT uncertainty with the resignation of two key members of May's cabinet.  While Tech and Financials have wobbled a bit, their pullbacks thus far have proven minute, and other sectors such as Healthcare, Discretionary, and Industrials have all come along to help cushion the broader indices. 

Into Tuesday, the rally is now growing stretched, and we're close to seeing intra-day Demark-based exhaustion on a few different timeframes.  Additionally, we see that Bond yields have only made minor progress higher in the last couple days, and over the last couple months have continued to drop, from 3.11 in mid-May, while dropping to 3% into mid-June and now lies near 2.86.  So Bonds have remained firm, while the yield curve has flattened.  Furthermore, there lies a key time into this coming late week that likely should provide a turning point yet again, similar to mid-June, and it's thought to be a minor high.  A couple key points to make here:  Breadth has grown more supportive of late, not less in recent days, with a number of 2/1 or above days of Advance/Decliners.  Second, the sectors we eyed for being at possible support, like industrials and materials looked to have bottomed and just in the last couple days we've seen a flight out of the Defensives, with sharp pullbacks in Utilities, REITS and Telecom.  So it's thought that while stocks might peak out again in the days ahead and make minor corrections, the structure of this Equity rally has not really given way, and has gotten more supportive of the idea of buying dips yet again for a rally from late July into August/September.


Additional charts and thoughts below.

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S&P has now reached price levels just shy of former peaks made both in mid-June and also in Mid-March.   Monday's close looked to have carried prices to within a few ticks below these prior monthly highs, (and in post market futures trading are now at 2792) while Daily Demark counts are 2-3 days away from showing exhaustion counts.  Thus, after nearly an 80 point rally from late June, prices look to be nearing their first meaningful area where they could experience some resistance to this rise.   While a move above 2800 would seem bullish to nearly everyone looking at charts of the sort, it's important to remember the trends in Financials and in Tech are both still suspect at this point, while bond yields have largely ignored this equity rally.  Historically, it's paid to bet on yields leading stocks, not vice versa.  So while longs in Energy, Healthcare and Industrials still look to be correct, one should consider selling into the Tech and Financials moves over the next couple days, or looking to sell into Europe (shown below)

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XOP, the Exploration and Production ETF, has advanced back to a new daily closing high as of Monday's close with XLE and OIH also making sharp rallies.  this sector looks to be underway in another decent rally after below average performance since mid-May.  Maintaining current prices into end of week would help XOP reach the highest weekly closing levels since mid-2015 which should bode well for this group to show further near-term outperformance.  Overall, longs in XOP or XLE both look attractive and pullbacks if any in the next c couple days, likely should offer a good opportunity to buy dips.
  

 Europe has been consistently weaker than the US and is now reaching resistance intoTuesday/Wednesday that should represent a good area to sell into gains and bet the other way for the back half of July.  One should consider VGK, or FEZ as being better shorts than SPY, as the US has held up in much stronger shape.  The area of 3475 up to 3505 for SX5E should be strong resistance near-term.