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Financials nearing key levels as yields spike; GOOGL just minor help to FANG

July 24, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
278.41, 276.28-.52, 275.62, 274-274.50   Support
281.45-50, 282.40-5, 283.75-284              Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- https://stme.in/lnSOjY8ZbO
Tentatively scheduled for CNBC today at 2:20-:30

 

SPX - (1-2 Days)- Neutral- Above 2818 would be bullish for move to 2830-40, while under 2789 turns near-term trend Bearish- Late day move above 2810.50 could result in S&P reaching 2818, but this is the area to concentrate on and above would lead to 2830-40 before stalling out.   However, breadth and momentum are not following and this should be a chance to sell into strength.  Below 2789 turns trend down quickly.  Key turn date lies at 7/26-7, and rallies into this time should find strong time-based resistance
  
SX5E- EuroSTOXX 50Mildly Bullish-  Not much change in the last few days, but arguably prices could still squeak out a bit more upside to 3550 before stalling out.  It's thought to be doubtful that SX5E makes a major rally back over 3650, so any near-term strength this week should be sellable. 

HSCEI- Mildly bearish-  Trend still bearish despite a few days of consoldation, and it's thought that US  Dollar really needs to turn down sharply to help HSCEI start to rebound.  Expect another 3-5 days of weakness before this reaches support and bottoms with key areas at 10200-350 to buy dips next week on further pullbacks.  

Trading Longs:  M, TIF, TJX, BURL, VEEV, KFY, ETSY, TWLO, INFO, SSTI, BZUN, HEAR, MDB, BAX, TLYS, ACN, WIX, ADP

Trading Shorts:  GE, VOD, VIAB, NFLX, FITB, EBAY, XLK, OIH, MDR, SMH, AMBA, PCAR LRCX, EWJ


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XRT with targets at 52, with stops at 49.50
Long XLP with targets 54.60-55, stopping out under 52.07
Long XLV , raising target to 88.50, and raising stops to 86.35

Short XLK  with targets at 70-70.50 and stops above 73.03 on a close
Short XLF with targets at 26-26.50 and stops above 28.20

Short SMH with targets at 96.10 & stops on shorts at 107.84- Press shorts under 103.71
Looking to buy Gold at 1200-1210 late this week, and buy GLD at 113.50-114.50


Upside should prove limited to 2830-40 and above 2818 provides this move, which would be used to sell into Thursday.   S&P still largely unchanged and despite the recent snapback in Financials, most of the market just isn't moving up that quickly, despite S&P being over June and March highs.  Prices are largely in line with levels from 7-8 days ago.  While the late GOOGL earnings beat has that stock up 3% into today's trading, it's thought that FANG stocks aren't great to position long in for anything more than 2-3 days time.    Overall, the near-term pattern will be neutral until S&P gets above 2818 from last Friday, or down under 2789 which held on early Monday'spullback. 
 
S&P has now largely moved sideways for the last 1.5 weeks, with the snapback rally in Financials really not serving to lift prices too meaningfully.   While many are concentrating on GOOGL's beat and stock surge after-hours, most aren't paying attention to Industrials weakening to multi-day lows.  Eight sectors were lower in Monday's trading and breadth was negative by a 3/2 margin, something that's problematic at this stage of the rally when broad-based participation higher has been difficult to come by.   While it's certainly bullish to see Financials strengthening, the XLF charts paint a different picture and both XLI and XLF still lie under key trendline resistance.  Overall, Retailing remains one of the better areas to favor long these days, along with Healthcare, but outside of these two groups, it's difficult to buy Financials at current levels, and the bounce in Industrials almost looks complete.  One should watch Technology carefully to see whether the FAANG space can manage to exceed June highs, which has been difficult thus far in NYFANG index.  However, the earnings for huge outperformers like GOOGL and AMZN are thought to be important, and this week should prove pivotal


Additional charts and thoughts below.

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Near-term Choppy range-bound picture near-term likely the opposite of how many are thinking about Stocks these days- The S&P has largely gone sideways over the last 6-7 days, despite being over June highs, and has not really accelerated, even with a decent bounce out of the Financials.  Bottom line, while most of my commentary has focused on the ongoing issues with breadth and momentum not keeping up of late, from a near-term price perspective, regaining 2818 would allow for a short-lived rally to 2830-40 before prices retreat.  Conversely, getting under 2789 kicks off the summer selloff which looks close, but which will depend on price cooperation.  Near-term, the bounce in Financials and the after hours surge in Tech are doing their part fo boost sentiment further at a time when prices haven't been able to push up too meaningfully of late.  When considering that XLI closed down at multi-day lows, most are ignoring that to focus on GOOGL, which has gotten stretched, and now should face resistance at 1275-85 in the days ahead.
 

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10-Year Yields likely peak out before getting above 3.00%-  Monday's biggest technical development concentrated on the sharp rally in Treasury yields, as the 10-year yield played catchup to the movement late last week in the 30-year.  The yield curve showed its hand early on with a meaningful breakout late last week in 2/10 and preceded to a large extent this move in TNX.   Near-term, it's likely that we're nearing resistance, and it's right to use this yield move to buy into Treasuries, particularly into end of week, with ideal areas at 2.98-3.00%.  Minor backtracking in yield on Tuesday should still result in some Treasury selling into Wednesday/Thursday before this move is complete.  However, given the bearish levels of sentiment that doubled down as yields dropped from May, it's unlikely that this bearish positioning is correct in the months to come.  It's thought that this larger pattern is morphing into a possible Head and Shoulders pattern for yields which should see a move to 3% find strong resistance before turning back down sharply and pulling back under 2.80%.

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 XLF- Sell rally at 28.25-.50--This recent yield rise really hasn't affected Financials too meaningfully, as the bounce in XLF still has not meaningfully broken out of the downtrend from late January highs.  One should expect to see a serious slowdown in Financials in the days ahead, with 28-28.50 area likely containing further XLF movement and producing a reversal back lower, not the breakout that many are expecting.  While technically it's right to be open to any outcome, the combination of a late Demark count (within 2-3 days of a TD Sell Setup in XLF) combined with serious trend resistance from late January should make this rally one to sell into.