August 21, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: firstname.lastname@example.org
S&P 500 ETF Trust SPDR (SPY)-
283.59, 281.62, 280.16 Support
286.30, 286.62, 287.01, 287.40 Resistance
LINK TO TECHNICAL WEBINAR from yesterday, 8/16/18- https://stme.in/L3MxzJPlkq
SPX - (1-2 Days)- Mildly Bullish into Tuesday w/ targets from 2862-3 and over to a max of 2875, looking to trim longs into Tuesday/Wednesday- For now, trend will be bullish until prices get under 2835 which likely leads to a retest and break of 2800 and pullback to 2755- Similarly, breaks of 7600 and 7100 for NASDAQ comp and NDX would be important
SX5E- EuroSTOXX 50- Bearish- Minor bounces into mid-week should be used to sell as Europe remains far weaker than US. Last week's support violation in Spain's IBEX and German DAX looks important. SX5E has now given up more than 50% of the entire rally from late June. Expect weakness down to 3340 initially near late June lows.
HSCEI- Neutral -Some evidence of EM space starting to stabilize could help HSCEI try to rally, but it's expected this likely proves short-lived before a final washout into September.
Trading Longs: NEP, SRE, AEE, ES, SQ, MNST, MDT, LH, WELL, VTR, VER, LYB, CVNA, HRTX, UNH
Trading Shorts: WHR, MHK, SF, MAR, WYND, FEZ, VGK, AVGO, DE, ITW
Key technical developments heading into Tuesday concentrate on the ever slowing Technology space, which saw AAPL, AMZN, FB, TSLA, TWTR all lose ground yesterday, and yet again the positive gains helped to mask some of the underlying deterioration elsewhere. It looks important that Treasury yields have taken out 2.82% (TNX) while the Dollar has begun to turn lower and has fallen for four straight days at a time when many least expect it. Given that SPX is up against former highs from early August while momentum has failed to follow suit, prices do look to be up against interesting levels which should prevent too much more progress the rest of this week, and result in selling opportunities if the SPX can get above 2863 which would present an attractive risk/reward to sell at 2870-5. Time-wise, this looks like an important time in the week given that SPX has rallied into a 1-year anniversary of last year's prominent August lows, and it often pays to watch anniversaries of this sort for any signs of stalling out.
Attractive areas to consider in a market like this center on the Utilities and the REITS, which both look likely to make better absolute and relative progress over Technology in the coming 4-6 weeks. Meanwhile, any break of 2.80% in yields would likely had dire consequences for Financials, which have struggled of late with yields dropping. Additionally the metals stocks are likely to start to show some outperformance with USD starting to drop, and Emerging markets and Materials could outperform in the weeks ahead. At present, keeping a defensive stance heading into the latter part of August with a keen eye on the exits and keen selectivity among longs makes perfect sense.
Long XLU with targets at 55
Long VNQ with targets at 85.50
Long XLP with targets 54.60-55, Stop at 52.95
Additional charts and thoughts below.
Trends remain choppy since mid-July as part of the uptrend from early July. Prices are now within striking distance of early August highs and after three straight "up" days, are within a few ticks of early August highs. While the pattern from late March and late June remains positive, the move over the last few weeks is anything but. For now its important to know that this churning has had a detrimental effect on momentum, and we've seen some evidence of Technology turning lower while Defensive sectors have stepped up. Specifically heading into Tuesday, for the first time since the rally began from late March, SPX has now recorded TD Sequential 13 sells, an exhaustion signal that historically has resulted in trend reversal. Another could appear if SPX makes a bit more headway, but prices should be limited to 2874, which should show SPX up above its upper Bollinger band and near the upside of this trend channel, which given the negative seasonality, poor momentum and waning breadth, should cause at least a minor reversal. Overall, under 2835 would be important and negative.
The US Dollar index has now dropped for the last four days after reaching the highs of this trend channel while sentiment toward the Dollar has hit the highest levels seen in recent years. Additional downside looks likely which should at least reach 95.40, with movement under this allowing for a complete retracement of the entire rally since early July, putting prices down near 94.70-95. Given that yields have weakened further with 10-year down under 2.82%, any break of 2.805 in yields that coincides with the Dollar undercutting 94.40 would likely help to seriously jump start the metals rally which has had several failures in recent weeks. Additionally, this Dollar pullback should help Emerging markets to stabilize a bit, allowing for a minor bounce in both the equities and currencies.
EEM could begin to rally in the near-term given this Dollar decline but still needs a bit more progress before making much of this in thinking its anything more than just a minor bounce. Overall, the act of getting back above former lows from June should help EEM to reach 43.50 where it should reach its first true "line in the sand" on the upside. The act of getting up above this level and above the downtrend from early this year, would allow for a much greater rally to unfold which for now, remains premature.