July 17, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: firstname.lastname@example.org
S&P 500 ETF Trust SPDR (SPY)-
276.28-.52, 275.62, 274-274.50* Support
279.48, 280 -280.8 Resistance
LINK TO TECHNICAL WEBINAR from last Thursday-https://stme.in/KWJGLYbh4g
SPX - (1-2 Days)- Bearish/Cautious- No meaningful damage on Monday, but yet definite evidence of distribution which should have begun the near-term topping process for this recent 2 week rally. Look to sell 2803-10 for SPX, thinking that this area is important. Movement down under 2793 would be something to consider following, not buying right away, but with Stop and reverse at 2810 on a close.
SX5E- EuroSTOXX 50- Bearish- No real evidence of any real progress, and the stalling out should give way to weakness back to recent lows at 3350 and below into end of month.
HSCEI- Bearish- Weakness in the days ahead likely with support to buy for trading down at 10200.
Trading Longs: QID, VXX, VRTX, HCA, PANW, TLYS, KFY, NTCT, XLP, CPB, ACN, DPZ, WIX,
Trading Shorts: XLE, OIH, MDR, IYT, PPG, BMS, OC, PNR, CMI, FLR, GDI, ITRI, XLK, SMH, AMBA, RHT, FOXA, ALK, UAL, PCAR, CB, MS, LRCX, EWJ, LB, CROX
Long XLP with targets 54.60-55
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
Markets should be at an inflection point near-term, and expect that gains prove muted before prices turn back lower to give back at least 50% of what's been gained since early July by 7/26-27.
Bottom line, Monday's trading showed far more evidence of distribution than what might be implied by the DJIA moving higher by 44 points. Despite a much needed bounce in Financials, neither Tech, nor Industrials were able to join suit, and both fell on the day, along with most other sectors, with 8 out of 11 sectors finishing down on the day with breadth of roughly 2/1 negative. The after-hours plunge by NFLX to the tune of 60 points wasn't too unusual for any that have studied this stock's history during earnings in July or January for that matter, but did result in a late selloff in NASDAQ futures back under mid-June highs. Overall while minimal damage happened by the close, there was significant damage in Transportation stocks and Energy, while most Tech stocks also failed to pick up the slack. Overall, this looks like a market that's quite tired and after a decent start to the 3rd quarter, many charts still appear to be under pressure when looking at Industrials, Financials, Transportation, while the overbought Tech stocks have all begun to wane. Unfortunately this is happening during a time when quite a few technical factors are pointing for stocks to make at least a minor correction into late month.
Near-term, it's right to be selective and under 2793 likely leads to a selloff down to 2770, the larger line in the sand. Whether or not Financials can follow through on Monday's strength will be key. Additionally, Transports and Energy have taken a turn for the worse, so its important to see these sectors hold and not give back too much near-term. In the event that stocks manage to rally into Tuesday, this would set up for a more attractive risk/reward opportunity to lighten up into Wednesday, as its thought that global indices have begun the process of turning back lower, which has little to nothing to do with Earnings, and more to do with market cycles, sentiment and recent divergences. Charts below will help to put some of these thoughts into perspective.
Additional charts and thoughts below.
The after hours selling in NFLX post close caused a drop in the NASDAQ as NFLX fell nearly 60 points post close on lower subscriber growth, erasing about 1/3 of the gains it's seen this year. NASDAQ Futures have dropped back under prior highs from mid-June, and while it's tough to rule out a minor move back to new highs, it should occur on much lower breadth and volume and has maximum upside to near 7461. Meanwhile, any move back under 7204.50, the intra-day lows from last week, give confirmation of a top in place and can allow for more meaningful weakness down to 7000 to test late June lows. For those that study momentum, note the negative divergence present in NASDAQ as it logged this most recent push to new highs while momentum did not follow suit. TD Sequential sell signals on Nasdaq futures will be confirmed by Tuesday's close under 7253.75, or by Wednesday's close (far more likely) under 7382.75, or current levels. Overall, a top looks near, and any gains should be used to sell into, by Wednesday.
WTI Crude's pullback in the last couple weeks has led most of Energy lower, albeit in choppy fashion where Exploration and Production stocks have largely outperformed, while both XLE and OIH have trended largely lower from mid-May. Interestingly enough, while Crude was hitting new monthly highs into early July, most of the Energy sector was well off highs made back in May. This relative chart of the OIH vs SPX shows the extent to which most of this sector has lagged badly in the last two months since May's peak. Monday'strading brought about a break in minor three-week uptrend lines for XOP and XLE, suggesting additional near-term weakness might lie ahead. Overall, this chart of Energy, shown by the relative performance of the Oil Service stocks, suggests that further weakness is likely before this sector can bottom out, relatively speaking. Therefore, despite Crude looking to be close to near-term support after nearly a 10% loss in the last two weeks, Energy looks early to buy into for the most part, and extreme selectivity is a must.
Transports have taken a turn for the worse with Monday's close down at multi-day lows which is now challenging a larger area of key trendline support. Many of the Rails dropped to weekly lows, while the Airlines continue to trend lower from mid-March. The DJ Transportation Average can't afford to get under 10300 without violating the entire pattern from February which would lead to a test of February lows near 9800. Overall, this was one particularly weak spot in Monday's trading, and those involved with this sector should take notice of what an important spot price has pulled back to which is considered a Make-Or-Break for pullbacks.