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Technology, Financials near tipping points as Equities reach 6-month point from Jan peaks

July 27, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
282.91, 282.49, 281.47, 276.28-.52, 275.62         Support
283.93, 284.53, 285                                              Resistance


LINK TO TECHNICAL WEBINAR from yesterday-  https://www.youtube.com/watch?v=YoiTNDUL7As

 

SPX - (1-2 Days)- Bearish-  Technology should be in the process of peaking and risk/reward looks poor for Equities into next week at current levels.  However, trend will need to show more damage for any sort of meaningful pullback to get underway.  Still avoiding Tech and Financials, favoring Healthcare and Energy-  UNDER 2879 would lead down near 2800.  Today should prove important for a change of trend.  The next 24-48 trading hours should shed some light as to the effectiveness of thins scenario.  

SX5E- EuroSTOXX 50Bearish-  Prices have been rallying for a full month and now just below Triangle resistance from late January.  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,  SOXS, DG, K, XOP, 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-

The Equity trend has been positive for a full month.  Just in the last couple weeks we've seen evidence of breadth non confirmation and some signs of Technology stalling out, most notably with Semis and FANG stocks turning lower (FB, NFLX taking the lead, while AMZN is UP in after-hours trading Thursday thus far) Investors have pressed their bullish bets as sentiment has grown increasingly more positive, while today lies 180 calendar days from our January peak, a cycle that can't be taken lightly given the degree of importance in the high from late January.   While DJIA has followed through higher, above June highs in the last couple days, we've seen sectors like Financials and Industrials both get up to key areas of trendline resistance.   Overall, it should be right to sell into Tech, Financials and Industrials Friday into next week, while favoring Energy to follow-through higher and also increasingly favoring commodities to work again after a dismal June and most of July.   Counter-trend Sells appeared after Wednesday's close in the S&P 500 Information Technology sector (Demark) and while this still needs to be confirmed, the upside for Tech after this recent snapback looks poor from a risk/reward basis.  

The key technical catalyst which should be watched carefully in the next 24-48 hours is whether Treasury yields start to turn down sharply, as this has occurred prior to several other market pullbacks.   Financials have reached "DO-or-DIE" resitsance, and should likely stall out and turn down as well.  While AMZN is up in post-market trading on Thursday, the stock had shown quite a few signs that gains could prove limited near-term, so keeping an eye on this for possible reversals in Technology and continued pullbacks in Discretionary also looks important.  Overall, the next 3-5 days does not seem ideal to press long bets, but longs should be still concentrated largely in Energy and Healthcare.  


Additional charts and thoughts below.

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AMZN Technicals-  Upside likely proves limited from here-  Amazon charts are showing the same warning signs that were present in Facebook prior to earnings.  (AMZN post earnings was higher in trading, but the key will be as of Friday's close)   Evidence of negative momentum divergence, counter-trend sells and extreme overbought conditions were present heading into AMZN earnings Thursday.  We have seen a distinct slowing down in the stock since mid-July, so further upside from here might prove difficult technically.   Bottom line, while the stock remains trending higher and in an uptrend (and Yes.. fighting trends is often not for the faint of heart), the risk/reward looks poor and one could consider selling with plans to buy back technically on pullbacks to 1647, with breaks of the eight-month trend leading down to 11607 or below to 1567.

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Technology reversal seems near-  Can AMZN manage to hold its post-market gains on Thursday, or should this stock reverse- Technology showing some evidence of trying to peak out-  The next 1-2 days will be important in confirming this, but it looks right to sell into many Technology stocks, with thoughts that the S&P 500 INfo Tech index pulls back to near 1250 from its current 1290.  Semis, as mentioned in yesterdays' report, should also be vulnerable, despite Thursday's lift in the group. 

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 Treasuries look like a BUY between now and mid-August-  Treasury yields have reached areas that should allow for a pullback in the days ahead.   10-YR YIELDS managed to successfully form TD SELL SETUPS, the same formation that occurred at the prior highs back in May when yields dropped precipitously, and should also be at a crossroads where further yield gains prove difficult.  This could set the stage where Financials also turn down, with XLF up against former highs at key trendline resistance.  So a reversal in both yields and Financials is what to watch for between today and early next week.  I like buying Treasuries here, expecting yield pullbacks to near 2.83 at a minimum, with preferred targets down near 2.76%.