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Equities stable for now, but Financials, Tech breaking down a concern


July 5, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
268.30-.50, 266.20-60, 263          Support
273-273.60, 274.49, 275.20-50    Resistance

LINK TO TECHNICAL WEBINAR from last Thursday-  https://stme.in/x0uJXaiYRd
 

SPX - (1-2 Days)- Neutral, looking to sell strength into next week and turning bearish under 2693.  Prices remain within 3 ticks of closing levels from June 25th, seven trading days ago. Given the downturn in Financials and Tech, it's doubtful that S&P breaks out of this recent range to the upside and gains should be selling opportunities into 7/10-12.  Overall, trends remain negative since mid-June, and this recent churning is thought to be purely a short-term period of stabilization.

SX5E- EuroSTOXX 50- Mildly Bullish- Small rally to upside target at 3450-75, so it's right to expect a bit more on the upside between today and early next week.

HSCEI- Mildly bullish but prices near make-or-break- Holding longs though with stops on close under 10536-  If bounce is going to happen, it should get underway over the next 2-3 trading days but cannot violate 10536 without thinking a lengthier decline is in the cards.  For now this looks like a good area to take a stand.


Trading Longs:  ACN, ENR, MRK, BSX, TEVA, REGN, WEX, GBTC, IYT, XLI, GLD, IAU, GDX, CSX, KEX, UNP, XOP, TLT

Trading Shorts:  SMH, LRCX, KBE, KRE, EWJ, LB, TSCO, CROX, IVZ, TBT, ZION, FITB, 

TECHNICAL THOUGHTS
 

ACTION PLAN-  

Short KBE with targets 46.29 initially, then 45.80
Short SMH with targets at 96.10
Short HG_F- Copper with targets at 263
Short EWJ, targeting 54.10
Long IYT, with targets at 192, stop 183.41
Long EEM with targets at 45, stops 42
Long XLV with targets 86.85
Long XOP with targets at 46.50
Long GLD with upside targets initially at 122, then 127.50


Sell any gains if given the chance into next week, thinking that rallies fail and turn back lower into late July.  Key date for trend change should arrive near 7/11-12 and then at end of month(which is thought at this time to be a low) 
S&P has been able to weather the recent weakness in Financials and Technology, but the rally attempt after the pullback from mid-June has proven elusive with very light breadth on rallies while most of Asia has experienced much stronger selling pressure.   S&P now lies just a few ticks from levels seen in late June, seven trading days ago, so it will be importnat to keep an eye on this recent range, selling movement to the highs and buying dips, while recognizing that a break of lows should be used to adopt more defensive posture.   Given the stabilization in volatlity indices like VIX and ongoing decline in Treasury yields, these make it difficult to think rallies last any length of time before turning back negative given the downward bias of late with Tech and Financials.  So a couple cycles pinpoint 7/10-12 timeframe, but rallies into this area likely would occur on very light positive/or negative breadth, and should be a chance to sell gains.

It's important to recognize the extent to which most of the world has not followed suit to the gains in many FANG stocks of late, and Europe and particularly Asia have turned down pretty sharply.  Bonds look to have resumed the recent rallies and Credit spreads have shown some evidence of widening meaningfully for the first time all year.   Meanwhile, Copper, thought to be a key commodity to watch for economic forecasting, has broken down under recent monthly lows, violating a nine-month Head and Shoulders pattern.  The Base metals index itself has broken down under key support, while precious metals and cryptocurrencies have started to stabilize and move higher.  Overall, a defensive stance is preferred in what's thought to be one of the more potentially volatile months of the Summer. 

Additional charts and thoughts below.

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The hourly S&P chart shows a much more choppy pattern given Tuesday's pullback, which is increasingly resembling a consolidation pattern that could give way to further selling, rather than a Reverse head and shoulders pattern which initially was thought to be possible earlier in the week.  The area at 2747 will continue to be important over the balance of the next couple days into next week, with movement above likely occurring on very light volume and reaching a max of near 2760-70 before turning lower.  Conversely, under 2693 looks likely into end of July and should result in downward acceleration given the loss of momentum lately coupled with multiple sectors starting to breakdown.  

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Technology has shown increasing signs of following through on the peakout that was mentioned last month, and after two successive down weeks, the S&P 500 Information Technology index is likely to pullback to near its intermediate-term trendline near 1150.  As weekly charts show, Tech exhibited negative momentum divergence when it rose to its mid-June peak and then the break of this uptrend has given way to weakness which doesn't yet look complete.  Tech should be an underweight for the month of July, and lower prices are expected.  

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Bloomberg's Base Metals index has broken an uptrend going back since 2016 given the weakness in Copper, Zinc, and Aluminum of late.   Given the close at the lowest levels since 2017, this should pullback further in the days and weeks ahead.  Copper extended declines on July 4, trading down nearly 2%.  For metals exposure, it's thought that precious metals are a more preferred area right now than Base Metals