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Rally reverses into close- & follows through lower- 2835 key to hold for Bulls

August 22, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
283.37-59, 281.62, 280.16, 276.40-50          Support
286.62, 287.01, 287.40                                 Resistance


LINK TO TECHNICAL WEBINAR from last Thursday, 8/16/18- https://stme.in/L3MxzJPlkq

 

SPX - (1-2 Days)- Bearish, but under 2835 is needed for true acceleration down to challenge 2800, so while Tuesday's late selling was negative (and after market selling )  we'll need to see if prices break 2835.  Failure to do so allows for challenge which should fail into 8/27-8.   Under 2835 w 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- Minor bounces into mid-week should be used to sell as Europe remains far weaker than US.    3457 key for rally to stall-   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 - Key level 11176- Above bullish, while below, neutral for now.  Evidence of stabilization, but it's expected this likely proves short-lived before a final washout into September.   

Trading Longs: GBTC, GRMN, ABT, MYGN, HRTX,  MTUM, PLD, I, TOWR, TEAM, NEP, SRE, AEE, ES, MDT, LYB

Trading Shorts:  LVS, CVS, AMBA, AVGO, WHR, MHK, SF, MAR, WYND, FEZ, VGK, DE, ITW




TECHNICAL THOUGHTS

Key technical developments:  The trend from last Wednesday looks to have been broken on the close yesterday,  and the news of Cohen's plea deal and Manafort guilty plea could coincide with a rise in uncertainty at a time when markets are vulnerable to decline.    Trend initially negative Wednesday given late day reversal but under 2835 is necessary for the pullback to last week's 2820 and lower. 

As has been mentioned, while the Advance/Decline hitting new highs was certainly bullish for markets on an intermediate-term basis or at least into December, the near-term had been growing stretched after rallying nearly 70 S&P points in 4 trading sessions.   The NYSE New highs was but a fraction of levels seen in June and January while the McClellan's Summation index, or a smoothed breadth gauge peaked out in June and has trended lower.  Meanwhile, slow but sure signs of Technology fading have been a concern given Tech's weighting in S&P.   And the ongoing divergences to Europe and Asia look to be a big deal.  So while the Cohen plea deal and Manafort conviction will get all the news and be thought to coincide with "why" stocks can selloff, as we've noted, there were plenty of reasons lining up into this week, not the least being a key one-year anniversary to last year's August lows, which looked important.
 

Overall, the fact that MID, SML, TRAN, IWM all moved back to new all-time highs is seen as a technical positive between now and December and likely means that any decline into September proves brief.  Additionally, sentiment is due to turn negative far more quickly given the uncertainty brought about by possible tariffs combined with political uncertainty.   For now, while the breakouts are bullish, the projection for stocks over the next 4-6 weeks and even for the rest of the week looks a bit more unsettling.   But violating 2835 will be key for S&P Futures, so that's the initial level to watch now that 2860 has been broken.  


ACTION PLAN-  

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.

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Trends look to be giving way as of late Tuesday's close and after market followthrough-  As mentioned, 2835 is the first real area of support near 8/17 lows and a break of this leads to 2800 , the more important line in the sand.  Any rally at this point into later in the week should be ripe for failure as key cycles suggest stock indices should turn down into September.  While selling could prove less robust than many bears would like, it remains a time for defensiveness.   Utilities, REITS, Telecom and Staples are the sectors to favor, avoiding Technology and Financials.  

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Technology showing increasing signs of weakness and as relative charts of Tech v SPX show, this sector has been largely range-bound over the last three months and has been lower since June when this peaked out, relatively speaking.  While the longer-term uptrend remains intact on Technology, any break in this would help to add conviction for the Bears of a September Selloff- For now, intermediate-term trend remains intact, but some definite waning in momentum, which is a concern given Tech's influence within the SPX. 
 

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 MID-  S&P Mid-cap 400 Index-  This broke out to new highs yesterday, not unlike what happened to the IWM, SML, and TRAN, which happened all on Tuesday.  While a bullish development structurally, this is near-term overbought and showing Demark sells that might suggest some near-term consolidation before this can make much further progress.   But breaking out among its peers with all pushing to new all-time highs historically is viewed as a positive development for intermediate-term structure.  So while various near-term issues remain with US stocks and the current trend, pullbacks in the weeks ahead likely should still prove to be buying opportunities for a move higher between October and December.