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SPX nearly unchanged from Monday's close, yet breadth starting to worsen

August 24, 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 yesterday, 8/23/18- https://stme.in/iJ5Ega26He

 

SPX - (1-2 Days)- Bullish OVER 2846, Bearish Under-  Prices remain within 3 ticks of levels hit on Monday's close.  While some evidence of stalling out is at hand, we still haven't seen weakness.   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- Neutral over next 3-4 days with drops under 3340 turning trend bearish.   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.   Expect weakness down to 3340 initially near late June lows.    

HSCEI- Neutral  with breaks of 11359 leading down to 9972.   Above 11176 needed to be bullish.  Overall, minor evidence of stabilization, but it's expected this likely proves short-lived before a final washout into September.   

Trading Longs: QNST, HUBS, SAIL, ABT, HOLX, NKTR, IDXX, SWN, CRC, GRMN, MYGN, HRTX,  TOWR, TEAM, NEP, SRE, AEE, ES, MDT, LYB

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



TECHNICAL THOUGHTS

Still tough to make the case that a decline is yet underway, but it's getting closer, and breadth is the guide.    Upside limited, but wait for the break before assuming shorts-   Buying Implied Volatility makes sense for September- 

Still very difficult to make much of near-term price action as prices closed 3 ticks from this past Monday's close.  Some definite evidence of stalling out, yet no real proof of a decline of any sort.  Prices remain within striking distance of all-time highs in US indices like SPX and NASDAQ, while other indices like IWM, SML, MID, TRAN have already accomplished this feat.   Breadth is starting to show evidence of withering as prices churn near the highs, while the back and forth nature of the rallies and declines intra-day is starting to bring about the feel of a very unstable market.  Yet, the closing price tells all, and in this case, there still hasn't been sufficient deterioration to think an immediate selloff is upon us.   While upside for equities is limited, it still makes sense to play from the long side from a trading perspective until/unless 2846 is broken, Wednesday's lows in Sept. S&P Futures.  

The Dollar's gains yesterday coincided with further Emerging market weakness, particularly in the currencies, with USDBRL now within striking distance of former highs, and most metals and metals stocks continue to trend lower.  Chinese Tech stocks in particular were hard hit, after just a minimal bounce in recent days, much of which occurred with the US Dollar falling.  Now that yesterday's rebound happened, we saw many (BABA, BIDU, TCEHY) stall out where they needed to technically and turn back to multi-day lows.  Meanwhile, Treasury yields have been remarkably quiet lately after the pullback to retests multi-month lows, and while an eventual breakdown in yields is expected in September, this hasn't yet occurred.    Overall, with Financials turning lower in Yield curve flattening and signs of ongoing underperformance in Technology, it makes sense to steer towards Healthcare and also the Defensive sectors, which look likely to outperform during the coming month.   Heading into end of week, as has been discussed over the last few days, selectivity is key at these levels, and it pays not to get too complacent in this seasonally weak time.  Pullbacks to new weekly lows would be taken seriously, and likely will lead to further downside, while bounces into next week should be used to sell. 


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 SPX has shown increasing evidence of stalling out in the last week, with prices just a few ticks from levels hit this past Monday.  Yet we'll need to see a decline under 2846, to think prices are set to begin pulling back to test the key 2800 level.   Near-term, while prices seem toppish, and breadth is turning more negative, S&P is still within striking distance of all-time highs, coming within 5 ticks earlier on Thursday.   Given the lack of confluence in Demark counts between Futures and SPX cash, a slight rally into early next week would make perfect sense before markets peak for a seasonal correction.   Near-term, one needs to see this decline under 2846 to take action, or a push above 2874 which would lead to a likely "low participation" move to 2885-95 which would be used to sell (and short for aggressive speculators.  

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The Invesco China Technology ETF looks to be rolling over again in the short run, following dismal performance and reversals out of stocks like BABA, TCEHY and BIDU on Thursday, and makes a test of recent lows made in early August likely.   Interestingly enough, this started to turn down sharply when the US Dollar bottomed and rose starting out this past Spring, and only recently has shown some evidence of trying to stabilize.   The daily pattern since 2015 maintains an uptrend, but the recent lows are important in this regard, and if broken, would allow for even further weakness into September.   Given that the US Dollar sentiment has gotten excessively bullish and should start to turn down, some Emerging market strength between now and end of year seems likely and Chinese Tech stocks likely will benefit.  However, in the next 3-5 weeks, there remains a window where many of these can still weaken, so it's best to implement Technicals when trying to get involved in these names.  Despite the rosy, optimistic fundamental stories, the stocks have been difficult to embrace, and the trend remains bearish from June in this ETF, and will take some time to bottom out.  

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 The S&P Financials index looks to be struggling with an area of resistance that marked the highs since the middle part of May.   The drop to new multi-day lows yesterday directly coincided with the Yield curve snapping former support and flattening out, and until this index can get above 475, it's thought that pullbacks are likely into and throughout the month of September.   Given that Financials tend to be very sensitive towards Yields, the fact that CFTC data shows record shorts in Treasuries while the 10year is hovering at key support near 2.80% in TNX doesn't give much confidence that this group is about to embark on any sort of larger rally in the near future.  Pullbacks to test August lows is likely, and could get under this level down to 450 before this bottoms and turns back higher.  This group along with Technology continue to be very important to monitor for evidence of these groups "kicking into gear" which has largely been absent in the last couple months.