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Healthcare Bullish, while IWM, TRAN, SOX all down 1%;

July 25, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
280.64, 278.41, 276.28-.52, 275.62         Support
282.57, 283.53, 283.75-284, 284.25        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)- Very close to resistance and turning negative- Mildly Bullish, but selling into 2835-45 into Thursday-  Stops placed at 2811. Tuesday's rally was a mirage for the indices given the weakness in IWM, SOX, TRAN to the tune of 1%.  Watchful for signs of market turning down, and not sure if we're quite there yet this week-  Key turn date lies at 7/26-7, and rallies into this time should find strong time-based resistance
  
SX5E- EuroSTOXX 50Mildly Bullish-  No change given very little price volatlity. 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- Bullish-  Trend reversal in HSCEI yesterday should help prices rally up to 11500 near-term, and Emerging markets and China could outperform US and Developed markets in the short run as USD stalls. 

Trading Longs:  THC, NBIX, LLY, BAX, M, TIF, TJX, BURL,VEEV, KFY, ETSY, ACN, WIX, ADP

Trading Shorts:  LUV, ALK, AAL, 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 targeting 89, and raising stops to 86.35

Short IYT, with targets at 185, stops at 195.90
Short XLF with targets at 26-26.50 and stops above 28.20 on a close (CLOSE)

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 2835-45 for S&P Futures-  Tuesday's rise in the indices was largely a mirage to the underlying deterioration seen in much of the price action across various sectors.   Breadth finished negative in yesterday's trading and showed signs of having made a minor peak back on 7/9.  Additionally there remains concerns with the lack of participation in SOX, or TRAN, or IWM, all of which closed down 1% in Tuesday's trading.  While Financials climbed back to key resistance, some of the sectors look to have given up on participating, such as Industrials, and Discretionary, which has fallen for five straight sessions.  Meanwhile Transports now look set to turn lower given Tuesday's bearish close, and it's worth noting that the Russell 2000 and DJ Transportation Avg closed at the lowest levels in at least five days.  A very different picture indeed than what one might think after hearing that the DJIA closed higher by 197 points and the SPX higher by 13.   While the SPX and DJIA close are positives, the DJIA along with XLI and XLF still haven't definitively broken out above the downtrends that have been ongoing from January (and in the case of DJIA-  the resistance trendline from late February, connecting June highs which is being tested as of today)  So, not to belabor the point, but the broader market simply isn't acting like how the indices are showing lately and near-term breadth remains a concern. 

One bright spot concerns healthcare and the extent to which this just broike out to the highest levels of the year, which is a definite positive for this group.  Stocks like CELG, BIIB, LLY, BAX, XRAY, REGN all showed stellar signs of having made at least minor breakouts in recent days, and this sector should continue to be overweighted during this time, when many groups just aren't acting that well.   


Additional charts and thoughts below.

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XLV Breakout helps recent Healthcare outperformance continue- Healthcare still looks bullish, and yesterday's breakout amidst a market where many sectors are hitting new multi-day lows, appears promising and should help this sector continue to outperform in the days ahead.  Stocks like MRK, BAX, LLY, XRAY, CELG, REGN all made minor breakouts in recent days, and relatively speaking, XLV has been a very good source of relative strength these past few months.  Overall, this looks like an area to favor and given signs of Small Caps, Transports, Discretionary starting to wither, the healthcare sector looks like a more appealing option. 
 

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Russell breaking to new multi-day lows - Small-caps have underperformed in July as seasonality suggests should be happening during mid-term Election years, and now Russell 2k's break to new multi-day lows looks problematic at a time when the broader market is looking for leadership.  This minor trend violation looks to have broken the triangle pattern formed over the last month and should lead lower to finish out the last week of the month.  Russell 2k looks to weaken into early August but pullbacks should provide buying opportunities into August given the success of the relative charts in showing strength.  

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 Transports have peaked out every three months-  Has the DJ Transportation Avg peaked again?  similar to tops formed each of the last three months around this time going back since last year? This daily chart shows TRAN roughly at the same levels it was five months ago, having made literally no progress off this longer-term support line since the Average bottomed out post the first correction of 2018 into early February.   Yesterday's decline constituted a bearish engulfing pattern and finished at the lowest level since mid-last week.   The close also undercut the prior high made back on 7/9-7/10.  Bottom line, this group needs to be watched for evidence of pulling back, as the Transports have traditionally peaked at or before the broader market going back since last year.  Any larger violation of 10300 would be a concern towards thinking a larger move lower is underway.