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Gold Miners, Healthcare, and Treasuries look attractive w/ Tariffs On-Deck

July 6, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
269.88, 268.30-.50, 266.20-60, 263     Support
274, 274.49, 275.20-50                        Resistance


LINK TO TECHNICAL WEBINAR from yesterday- https://stme.in/ZcAsX0tbnS

 

SPX - (1-2 Days)- Neutral, looking to sell strength into next week and turning bearish under 2698.  Despite Thursday's rally, prices remain largely unchanged from the last week as part of the downtrend from mid-June.  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.  Breaks of lows on tariff concerns likely will accelerate.

SX5E- EuroSTOXX 50Mildly Bullish- Small rally to upside target at 3475-3505, so it's right to expect a bit more on the upside between today and early next week.  One should look to sell into gains into next week in SX5E.

HSCEI- Prices still at Make-or-Break near make-or-break- Prices closed up off early lowsHolding longs 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, TZOO, 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 GDX with target 25.70 initially then 27
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) 

No change to core thesis given Thursday's gains, as prices largely still remain largely range-bound with no directional bias since 6/26 as part of the downtrend from mid-June.  Momentum remains negatively sloped on daily and weekly charts, and it's thought that indices moving sideways ahead of Tariffs should allow for some resolution in the next 24-72 hours that will help to clarify recent congestion in many index and sector charts.   Financials and Technology remain in downtrends from mid-June, and over the last month we've seen these two groups along with Industrials and Materials show negative performance of greater than 2.5%.  So these four sectors account for greater than 50% of the market, and paint a bit of a different picture than that brought about by simply an unchanged market for the last few months.  It's thought that the ongoing resilience in Treasuries likely remains problematic for Financials to rally through and with the 2/10s Yield curve dropping down to 27.6 basis points, there remains little room before the yield curve goes negative, which peaked out shortly after the US election at 136 bps and more recently at ~78 basis points five months ago in early February.  The pace of acceleration seems to have quickened in the last week, so this remains something which many will be watching carefully.  Given the ongoing disparity between US stocks and what's been happening globally in many indices in developed and emerging markets, some evidence of stabilization and upturn in some of the key sectors that make up SPX with good volume and breadth will be imperative to having real faith in the markets being able to rally in the weeks and months ahead.  The official outbreak of Tariffs without a last minute backing off by POTUS likely would result in prices breaking down below the lows of the recent consolidation, and that remains something which should not be immediately bought into given the deterioration in momentum.   For now, prices remain range-bound and it remains correct to sell rallies.  

Outside of Tech and Financials, we've seen the start of some real outperformance from Gold stocks, and this area looks attractive for long positioning for those that are looking for alternatives and/or seeking to join in on the recent sector rotation.   Heading into mid-July, it looks right to favor precious metals, Treasuries, healthcare, and Commodities given the Dollar's downturn of late, while keeping a very tactical short-term leash on Equities in general in July.   Despite the minor pullback in implied volatlity in recent days, the VIX has gradually been firming in recent weeks, and this looks appealing going into what appears to be a very uncertain time with poor breadth, and lack of momentum at a time when multiple sectors have begun to fall by the wayside.  


Additional charts and thoughts below.


As daily New York Composite charts show, prices have closed each of the last 5th days of the month within 100 points going back since February of this year, a far more neutral, range-bound situation in benchmarks that are more representative of "the market" than the SPX, or NASDAQ.   The daily chart of NYA shows the uptrend from early April having been broken and now being retested, but for now the consolidation here requires waiting for more clues as to direction before making big upside bets.  Momentum remains negatively sloped and a pullback under last week's lows would likely jumpstart a period of downside acceleration that would necessitate a more defensive stance.  

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GDX, the Gold Miners ETF, broke out of a three-month minor downtrend yesterday, signaling the start of some likely outperformance in Gold miners at a time when Gold itself has reached key support near December 2017 lows near 1240 and shown some evidence of bottoming.  While XAU has not yet made the breakout that GDX has shown, it's right to follow this rally in the miners technically in thinking Gold stocks can outperform in the weeks ahead and a more serious downturn in the US Dollar while rates are falling should support the seasonal upturn in precious metals.  

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 Healthcare continues to strengthen, and the ratio chart of XLV vs SPX which we've seen a few times prior, broke out, consolidated and now looks to be turning up again.  Given the poor seasonal tendencies of Q3 in mid-term election years, Pharmaceuticals looks to be a sub-sector to favor in this environment.   At current levels, one should consider Healthcare as a much more attractive overweight than Technology in the weeks ahead given the risk/reward and recent evidence of this sector emerging.