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Dollar gains adding fuel to Emerging market fires, as Stocks dip

July 12, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
276.28, 275.62, 274-274.50*         Support
277.76, 278.73, 279.48, 280          Resistance


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

 

SPX - (1-2 Days)- Bearish/Cautious looking to sell into gains if given the chance at 2800-2810, expecting at least a minor pullback to unfold in the days ahead and potentially into the next key turning point at end of month, near July 27.      

SX5E- EuroSTOXX 50Bearish-  Prices have turned down from resistance at 3475-3505, and should pullback to test former late June lows near 3350.

HSCEI- Bearish-  It's thought that the Dollar's surge likely coincides with further weakness now in China and emerging markets and this bounce from two weeks ago likely could be complete.  Pullbacks down to 10188 looks likely. 


Trading Longs:  TNDM, NTCT, RUN, XLP, CPB, MNST, APC, LSCC, MRK, LLY, ACN, PLNT

Trading Shorts:  EL, FOXA, ALK, UAL, HTZ, PCAR, CB, MS, FITB, VGK, SMH, LRCX, KBE, KRE, EWJ, LB, TSCO, CROX


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XOP, with targets at 46.50 and stops at 42.25-  Nothing changed despite Wednesdays selloff, and trends are intact
Long XLP with targets 54.60-55
Long USO with targets at $16.50
Long IYT, with targets at 192, stop 183.41
Long XLV , raising target to 88.50, and taking profits on any close under 85.10

Short XLK at 71.90-72.25 with targets at 70-70.50
Short XLF with targets at 26-26.50

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


Expecting another 1-2 days of selling with downside targets near 2740-5 while under this could cause the larger selloff down to late July, which for now is too early to call.  If Thursday happens to rally, this would cause a much better risk/reward to sell into near 2800-5.  Targets on longs are limited to near this zone for S&P and SX5E reversed from its resistance at 3475-3505 for Europe.

S&P Futures largely held the area near first key support at 2770 throughout most of the session after having hit that level when  additional tariffs were announced Tuesdayevening.   The Dollar rose sharply and commodities and Emerging markets fell.  Bond yields also reversed back lower given Wednesday's auctions and a flight to quality while the Defensive sectors largely outperformed.

Overall, trends showed signs of being close to peak out based on resistance near 2800 on Tuesday, and lack of Breadth and participation earlier this week that reversals could be near during the pivotal time near July 13.  Time cycles and Demark exhaustion looked close, but failed to given real confirmation for late Tuesday/Wednesday.  As ofWednesday's close, it was tough making too much of yesterdays trading as thinking a big selloff right away is imminent, and prices will have to do far more damage to expect a larger selloff, undercutting 2744 which lies near the prior highs from late June and represents a key area for potential trend change.  However, the trend remains defensive given Wednesdays's decline  and it's right to use pullbacks under 2770 as thinking a move down to 2740-5 can happen, while also utilizing any Thursday strength to consider selling into, particularly near the key 2800-5 area.  

Bottom line, there was a bit lacking in enthusiasm to make much of Wednesday's pullback, as prices seemed to peak a bit ahead of schedule and failed to generate any meaningful signs that yesterday was the start of a larger move.  So the next two days will be truly important in either validating 6/10 as a top, or pushing up to peak on 6/12-3 before a selloff into July 27.   By the same token, further weakness into late Thursday very well could bottom out near 2740-5 and turn higher, which can't completely be ruled out given how many indices are at/near all-time highs.  So not a lot of conviction heading into Thursday, but it's right to be defensive, and use both strength up to 2800 along with weakness under 2770 as thinking this could be right to sell into.

Additional charts and thoughts below.

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S&P failed to do sufficient damage to think an above-average selloff had begun as of yesterday's close, and hourly charts show the pullback which largely held overnight lows from late Tuesday evening and settled down on this minor trend.  Thus, two strategies look correct given the thoughts that S&P did look near a peak, but it got underway a bit prematurely yesterday.   Look to use strength back to the highs at 2800-5 to sell into, while using any break of 2770 on hourly closes as being a negative that should drive price down to 2740-5 into late Thursday/early Friday before we attempt to stabilize and bounce.  Until S&P can close under 2744, it's difficult making much of a mild selloff following our most recent rally, but Wednesdays' decline does make it right to be defensive given this week's late week cycle and what might lie in store in late July.
 

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XOP, the Energy Exploration and Production ETF, sold off sharply yesterday but failed to do much technical damage and by the close, had settled near levels that make this attractive to buy dips after its breakout and pullback.  While the selloff in WTI Crude was unexpected, Energy's decline hasn't shaken many of these ETF's that have improved momentum wise and structurally over the last few weeks.  It still looks right to bet on higher prices for XOP and use 42.25 as a stop while projecting up to 46.50-.65 for resistance.  Under last Friday's lows of 42.25 certainly changes the picture, but makes buying into this a much better risk/reward heading into Thursday.  

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 The Dollar's move back up above 1180 in the Bloomberg Dollar index caused a sharp pullback in many commodities Wednesday, while Emerging markets also suffered, with sharp declines in RUB, TRY, ZAR, PLN, HUF while developed market currencies like the Aussie Dollar and Japanese Yen also fell moderately.  In the case of the Japanese Yen, the pullback was strong enough for USDJPY to break out above a one-year downtrend, so while the Dollar has looked to be peaking starting in mid-June, this looks to be a process and could take another couple weeks before this pattern is complete.  Bottom line,Wednesday's Dollar rally looked bullish and could send Emerging markets back lower near-term along with precious metals which might double-dip and postpone any meaningful rally until late July/early August.