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Upside limited, but wait for break before assuming Shorts: Energy turning up

August 23, 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)- Bullish OVER 2846, Bearish Under-  Prices managed to hold where they needed to and closed up above Tuesday's highs.   It's tough to be bearish unless we see prices close at least under prior days lows.   While the stalling out in indices over the last couple weeks looks important, it still hasn't led down.  Thus, it's tough to rule out another 3-4 days which would bring Demark counts to completion on S&P Futures, NASDAQ and also VIX.  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- Max upside to near 3462 into end of week-  Sell Rallies-  Minor bounces should be used to sell as Europe remains far weaker than US.  3457-62 important area for resistance.   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: ABT, HOLX, NKTR, IDXX, SWN, CRC, GRMN, MYGN, HRTX,  MTUM, PLD, I, TOWR, TEAM, NEP, SRE, AEE, ES, MDT, LYB

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



TECHNICAL THOUGHTS

Upside limited, but wait for the break before assuming shorts-   Buying Implied Volatlity makes sense for September-  S&P failed to follow-through on early morning weakness, so yet again, markets are left treading water near the highs, while continued evidence of a tech slowdown has begun which is serving to slow this rally at a time when some real breadth thrust is needed.    Another 2-3 days of sideways and slightly higher prices would allow for S&P futures and VIX to record the same contrarian signs of exhaustion that have been seen in many other indices such as SPX, DJIA, and could allow for a minor new high for NASDAQ before this fails.   While this process is frustrating for both Bears and bulls, it's necessary to comment on the lack of upside momentum at this stage of the rally where rallies are being accompanied by flat breadth, not 2/1-3/1 positive.   Technology has clearly slowed down, while Financials have been unable to muster much strength given the yield compression on the long end. 

The one interesting development in recent days concerns the extent to which the Dollar has sold off while commodities have attempted to rebound.  Both the Metals and Energy have rebounded.  Bond yields meanwhile have straddled the important 2.81-2% area near meaningful trendline support for Yields, and the bearish sentiment argues for a yield breakdown, which should be detrimental to Financials.  But as charts show below..  Energy could be on the verge of a bit more strength, as WTI Crude getting over 67.70 is thought to be a real technical positive.  While OIH and XLE charts require more progress to embrace, the E&P group should be favored for more upside given the rally in Crude yesterday, and this group stands out as one to own.



ACTION PLAN-  

Long XOP with targets at 45.50
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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The early pullback attempt for S&P failed, and at this point it's looking increasingly likely that S&P futures will hold off on declining until counter-trend Sells are apparent in the September contract to match what's being seen in the SPX cash.     From a strictly technical perspective, a decline down under 2746 is essential to thinking trends are turning down.  Between now and late this week/early next, S&P has the potential of trying to make a minor push higher which should fail before prices get over 2900 and turn back lower.   Near-term, its right to favor Energy and the Defensives (  Utilities, Staples, REITS) while selectively buying Healthcare.  Meanwhile, most Technology should be avoided for the next 3-5 weeks.  

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The NASDAQ pattern remains somewhat constructive from a pure pattern analysis standpoint, as the charts show the formation of an ascending Triangle pattern that should give way to a final push higher.   This in turn is not likely to get over 8000, but could experience 2-3 days of gains and make brief progress.   Any downturn back underTuesday/Wednesday lows would be a warning, while undercutting the larger uptrend is truly what's needed for concern.  Despite the plethora of issues weighing on the market these days, the trend won't turn bearish until prices get back under this "RED" uptrend.  And potentially one push higher is possible-    Overall, concentrating on some of the better longs and shorts technically remains the right play until this pattern resolves itself, and more important to be on the right side of the many stocks hitting new highs and lows than worry too much about how this will be resolved.   But in the bigger scheme of things, a near-term peak appears near and would happen on any move back up through the highs.  
 

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 Crude's ability to close up over the one-month downtrend is seen as technically bullish, with the Drawdown data more than making up for the bearish build which was shown the prior week.  Prices jumped up over 67.75 and should be on course for the low $70s in the weeks ahead before any type of Fall peak.   Stock-wise, it still looks a bit early for Oil Service stocks and XLE to make much of a move.  Yet, XOP the Exploration and Production ETF, looks much more promising near-term, and this should be favored for strength in the weeks ahead.  Energy has required selectivity when buying all year and the last few days haven't changed that in the least.   Overall, it looks right to be bullish on Energy, but favor E&Ps in the near-term.