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Facebook plunge could be the catalyst for broader Setback- AMZN key

July 26, 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         Support
282.57, 283.53, 283.75-284,       Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- https://stme.in/lnSOjY8ZbO

 

SPX - (1-2 Days)- Bearish-  Shorting into this recent rally makes sense Thursday into next week, as FB likely set the tone for a broader market pullback, and AMZN due out Thursdaypost close likely should provide further clues.  UNDER 2879 would lead down near 2800.  As told previously, key turn date lies at 7/26-7, and rallies into this time should find strong time-based resistance
  
SX5E- EuroSTOXX 50Bearish-  Expect stalling out and downturn in SX5E- 3650 is a stop for Shorts

HSCEI- Mildly bearish-  Pullback possible after 4 straight days of gains and evidence of bottoming process at work.  expect some backing and filling, but this is likely buyable into next week

Trading Longs:  VXX, QID, FB (160-70) THC, NBIX, LLY, BAX, AEE, TSG, TWLO, SSTI, TIF, BURL,VEEV, KFY, ETSY, ACN, ADP

Trading Shorts:  SMH, ON, LRCX, AMAT, ON, LUV, ALK, AAL, GE, VOD, VIAB, NFLX, FITB, EBAY, XLK, OIH, MDR, SMH, AMBA, PCAR 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-  S&P got to the upper part of this range yesterday before reversing sharply post close on Facebook woes, (FB lower by 23% at 7pm Wed night) and with two of the four FANG stocks now lower (FB, NFLX), with AMZN on deck for Thursday post close, it seems like the market is getting closer to a time when the beloved FANG stocks don't serve to garner all the attention (which will come about by a meaningful pullback in this group)  As we all know, the Advance/Decline did push to new all-time highs into 7/9-10 on a larger rally than just "FANG", with Small-caps, Mid-caps and Equal-weighted S&P showing strength.  Yet the last two weeks have been lacking for real leadership as Tech has shown some signs of stalling relatively, while Discretionary, Russell 2000, Airlines, Semiconductor shares, and Financials remain under pressure.  The breadth dropoff in the last two weeks has been noticeable for those paying attention, and it's thought that a combination of poor breadth/momentum along with complacent sentiment, seasonality and time cycles all can lead to stocks making a minor top into late July, as opposed to thinking earnings carry stocks back to highs right away. Wednesday's post close FB drop might have been a catalyst, but it's important to see the other importnat index constituent, AMZN, also show weakness.  But overall, the market seems to be at another inflection point, whether it be Thursday, or Friday, and it should be right to keep longs on a tight leash and look to hit singles, not swing for the fences. 

While daily charts of SPX show a minor breakout above June highs, as i've discussed in recent days, the DJIA has not done the same, nor has the Russell 2k, nor DJ Transports.  We've seen the US diverge from Europe as well as seeing divergence among the various US indices.  Sector-wise, the rally has become splintered, and not as robust as what should be happening on a major index getting to new monthly highs.  Quite a few sectors remain laggards and /or ae not participating and this should become more important within the next few days.  As for a good risk/reward, Healthcare still looks ideal and one could look at the Oil Services sector which has fallen for 9 of the last 11 days despite Crude rising.  Gold and Silver also look to be finally trying to perk up (yet we've discussed this before and have been proven wrong.  Technically, it should be right to position away from Technology and Financials and Industrials and favor Healthcare, Energy and overall be defensive in the days ahead.   Movement down under 2789 will still be key for S&P, cash and Futures and will be watched carefully during Thursday and Friday's session. 


Additional charts and thoughts below.


NASDAQ weakness not too problematic.. yet.  Wednesday's post close in the NASDAQ futures saw prices decline by nearly 0.50% to levels right near the last couple days lows.  While this isn't a sell signal yet per se for NDX, prices are growing tired, as seen by momentum failing to make a higher high coinciding with price into the July highs.   June marked the highs in momentum.  The last couple weeks have produced a distinct churning which is much different than most in the Media would have the average investor believe when watching.  The constant chatter on FANG names will now start to take on a different meaning with both FB and NFLX, 50% of FANG, down after earnings and AMZN on deck.  In the event AMZN "whiffs' and NDX drops under 7292, this would be the first real sign of selling which should lead to a 1-2 week selloff after the rally from early July.  

unnamed (1).gif

Semis should begin to weaken-  Semiconductor shares look vulnerable in the weeks ahead, as prices in SOX/SMH have violated a minor uptrend that had provided support for the rally from late June higher.   The broader pattern in SOX had been problematic for some time, with a series of rising highs and similar lows, while changing to show a lower high into June.  This consolidation won't be a problem for the longer-term SOX chart until prices get under 1200, but near-term, the breakdown over the last month has been an issue for Technology, and stocks like LRCX, XLNX, AMAT, ON, MU have traded much worse than the broader market, and appear like attractive risk/reward shorts.  

unnamed (2).gif

 Facebook (FB- 213.59)  No imminent warning given technically of decline, but several factors suggested risk/reward was poor-  Given FB after Wednesday's post market plunge, it's only right to take a look at this stock technically and what could have signaled any sort of pullback in the shares.   Two factors stood out which looked to be a concern:  First , the shares had risen 30% above its long-term uptrend.  This had been holding the uptrend from 2013, so the amount that FB had gotten stretched above this area made it seem like a poor risk/reward heading into earnings, as opposed to the pullback into early this year, when the stock had tested this long-term uptrend.   Second, we saw evidence of weekly and monthly momentum divergence, as this recent sharp rise in the stock was not accompanied by a similar move in momentum, which had peaked out into January of this year.  While no real short-term technical reversal pattern was present heading into earnings (making it tough to short into earnings), it was clearly a poor risk/reward given these factors, and i said as much in my interview with CNBC on Tuesday.   Bottom line, while the market looks "dicey" at this point heading into 7/27, it's right to buy stocks like FB when they correct into long-term trendline support like what's happened post close on Wednesday.  The area at 160-5 should be attractive support to buy dips.