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Stocks push up to key Price and Time based resistance - Stallout/Reversal expected

July 13, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact:

S&P 500 ETF Trust SPDR (SPY)-  
276.28, 275.62, 274-274.50*       Support
279.48, 280 -280.8                       Resistance



SPX - (1-2 Days)- Bearish/Cautious- Yesterday's surge brought prices right up into the sweet-spot for what could be a reversal similar to what's happened in recent months into mid-month-  Look to sell 2803-10 for SPX, thinking that this area is important.  Movement down to new multi-day lows would be something to consider following, not buying right away, but with Stop and reverse at 2810 on a close.  

SX5E- EuroSTOXX 50Bearish-  Regardless of minor strength yesterday, prices still have major resistance near-term at 3475-3505, and should pullback to test former late June lows near 3350.

HSCEI- Bearish-  No Change- 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. 





Long XOP, with targets at 46.50 and stops at 42.25-
Long XLP with targets 54.60-55
Long USO with targets at $16.50
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 Thursday's push back to new highs represents a much better risk/reward to sell into given classic divergences, near-term overbought conditions while breadth and momentum have waned in the last week.   Specifically in Technology, exiting gains and taking profits looks prudent, awaiting reversals, but time-wise, if a reversal is going to happen, it should happen today into Monday.   SX5E reversed from its resistance at 3475-3505 for Europe.

Bottom line, Thursday's push higher helped XLK, NDX create exhaustion signals (per Demark indicators) while as expected, none of the other indices followed suit.  While some might view this as a bullish breakout, keep in mind that this has happened several times in recent months where prices has gone slightly above prior highs, only to fail into mid-month and pull back.  One particular cycle hits mid-month that i'm watching which could have importance in causing strong upside resistance for SPX at 2805-10 and reversing course, and if a stallout/reversal is going to happen, the key times for this month are now, and at the end of July.  

Thus with Summation index and Advance/decline having stalled out in the last week and turned lower, we've managed to push higher on less than optimal breadth while momentum is still under pressure after the peak and selloff from mid-June, so classical momentum indicators are not following prices back to new highs for NDX, and could be problematic at a time when Technology seems to have hit some meaningful resistance.  

Financials will truly be the key given the degree that this group has lagged, and given the push higher in the Dollar index while a threat of a China response to Trump's 200 billion Tariff re-raise could be in the cards, it seems like a good risk/reward to lighten up at a time when optimism has risen yet again, largely given Technology's comeback, with GOOGL, NFLX, AMZN, FB, AAPL all showing recent strength.  Meanwhile, groups like Utilities and telecom, REITS have all outperformed Technology in the last month.  Overall, I favor cutting risk and flattening out while adding exposure to implied volatlity at current levels, thinking "Vol" has gotten well too cheap with whats happening both technically and also on the geopolitical front.  The next 2-3 trading days will confirm whether this thinking is right, or whether this rally can possibly continue into July 26-7.  My thinking is it's right to take some profits here, technically and flatten out and await what happens, looking to pounce on any decline Friday or Monday in thinking it might extend. 

Additional charts and thoughts below.

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S&P has followed nearly perfect symmetry in recent months and yesterday's lift helped SPX to come within 1 day of perfecting its upside exhaustion right as prices have lifted into the 2800-10 zone which was thought to be important heading into mid-July.  While some might see this as a bullish breakout, keep in mind that momentum has not followed price back to new highs and breadth has dropped off in the last week, while optimism has swung back into favor as Tech has rallied.  This looks to be a rather inopportune to "play the breakout" at a time when everyone is eyeing this 2800 level and expecting a move through to be a real positive.  The cyclical picture along with sentiment, and near-term breadth/momentum decline in the last week should be important here in mid-July, and it looks like an area to take off risk, nearterm.  

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XLK looks to be nearing an area to fight the trend, as momentum has barely followed suit to price's rise back to new highs, and counts show a completed Sell Setup per exhaustion counts that have religiously appeared at both highs and lows in XLK in recent months near turning points.   Given that price has had a history of making minor new highs before failing, I put less credence in this being a traditional breakout to follow, but the next few days should speak volumes as to what's happening.  For now, given that we've gotten long into late June/early July, i'm expecting that price could follow the scenario seen in recent months and peak out mid-month, so while shorting might seem too aggressive or counter-trend in nature, it looks right at a minimum to take some risk off the table and await the next 2-3 trading days to see what unfolds.  

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 The "All-Stocks" Advance/Decline has made a minor peak about a week ago, so this recent surge to new highs has not occurred on above-average breadth or participation that should be thought of as a broad-based breakout of any sort.  If anything, movement to new monthly highs in indices where breadth is moving lower should often lead to attractive opportunities to take profits and await some type of counter-trend reaction which should lead to better buying opportunities at lower levels.  While the A/D moving to new all-time highs was thought of as being bullish a few weeks ago for the broader market's health, the near-term deterioration is what's concerning and likely leads to a minor slowdown/reversal.