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Dollar bottoming might result in Emerging markets, Commodities turning down near-term; Sell Technology into Wed-Friday

August 29, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
289, 288.50, 287, 285.43,     Support
290.22, 290.67, 291.16-19    Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- https://www.youtube.com/watch?v=3gkpjm_QUZM&feature=youtu.be

 

SPX - (1-2 Days)- Mildly Bullish, but very stretched here, momentum quite overbought on intra-day basis.  Overthrow of Trend might lead briefly to 2915-8 before reversing course Wednesday-Friday- Watch for evidence of any failure given Tech near resistance, as a sharp pullback between now and next week would be one to follow.   Stops on longs at 2876- Risk/reward favors selling into gains, as Upside does appear limited

SX5E- EuroSTOXX 50- Mildly Bullish, with rallies finding strong resistance at 3500-3525.   Unlikely that late July highs are exceeded, Movement uner 3404 should lead down to 3340 initially near late June lows.    

HSCEI- Mildly bullish, but expecting no higher than 11450 before turning back down to challenge lows-  Rallies should be sold Wed-Friday


Trading Longs: EUO, RP, LOGM, MPC, ANDV, VLO, C, GS, KSU, UNP, INCY, HUBS, SAIL, ABT, HOLX, NKTR, IDXX, SWN, GRMN, MYGN, TOWR, TEAM, NEP

Trading Shorts:  OC, CQQQ, EEM, DBC, MHK, WHR, HIG, GT, HBI, BWA, LVS, CVS, AMBA, AVGO, SF, FEZ, VGK, DE, ITW



TECHNICAL THOUGHTS

A trend reversal in US Equities looks near given yesterday's stallout at very stretched levels, yet the pullback under 2876 will be necessary to have any conviction in this regard.  In the meantime, it's tough to rule out a final push to SPX-2915-9 which would set up for a better risk/reward to sell gains.  Given the plethora of Demark signals now appearing on charts of multiple asset classes, it's important to pay attention.  Implied volatility diverging positively and giving some hints as to what might in store for September with a steep back end of the curve.  Meanwhile, the USD decline looks played out for now, and a pullback in both EEM and also EURUSD looks possible in the days ahead, not to mention commodities.   Bond yields likely encounter strong resistance on any further gain, and Treasuries likely turn back higher(yields lower) into September.  

Overall, three more trading days in the month of august and we're seeing the best August performance in nearly four years, with much of this having come since August 15th.   DJIA meanwhile has gained nearly 2000 points since the end of June and has rapidly played catchup to the tune of 8%, yet YTD is still only higher by 5.5% and still has yet to make a new high.   The key thoughts for the balance of the week concern the Dollar likely trying to bottom out after hitting support while EEM might pullback again (some of the weakness has already started again in the Brazilian Real and Turkish Lira

Meanwhile for US Equities, Technology will be the key to whether Indices can continue to avoid turning lower.   XLK in particular will show evidence of Exhaustion by Wednesday and given how stretched Tech has become of late, it's right to sell into XLK and consider shorting from 75.50-76 between now and end of week.  However, on a positive note, this recent outperformance in Tech has been helpful in keeping indices afloat and Tech has improved its standing given its recent relative strength

Bond yields managed to stage a decent bounce, but yet could prove short-lived given the degree of negative sentiment, with many pressing short bets in Treasuries.  One should look to buy Treasuries with yields at 2.92-3 in the days ahead if reached, and expect that yesterday's bounce should be one to buy into, not one that leads back to new highs.

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
Looking to short XLK at 75.50-75.80
Short EURUSD with targets 1.15


 

Additional charts and thoughts below.

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The SPX showed a few signs of stalling out, yet failed to decline in any shape or form that would make it likely that a pullback had gotten underway.  Over the next 3-5 days, any reversal that undercuts Monday's lows would be sufficient to think a short-term top was in place that would take indices lower into September.  While the promise of a possible trade deal might make some think that higher prices are likely, it's worth mentioning that none of the negative rhetoric regarding trade, tariffs or political drama had any effect in taking prices lower.  Now SPX has reached levels that have been hit already quite a few times since April.   For those that utilize Demark, there are now counter-trend sells in place on S&P, as well as NASDAQ and DJIA, but require prices to move to new four-day closing lows for confirmation.  In the event that prices push higher for another three days, an additional sell would be registered, making this likely a poor risk/reward for initiating new longs.   Of course, its not proper to be short until prices have officially confirmed that this advance has run its course.  In the meantime, owning implied volatility through protective puts, might make more sense for some vs. attempting to short.  
 

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The Bloomberg Dollar index looks to be trying to bottom near a key area of two-month trendline support near former lows.  TD counts are within 1 day of showing a completed TD Buy Setup and would allow for a bounce to unfold, which might affect EM stocks, currencies and China negatively, not to mention commodities.  Overall, EURUSD looks to weaken over the next few weeks, and many Emerging market currencies have already begun to decline back towards recent lows, such as the Brazilian Real, Turkish Lira and South African Rand.  The Ruble also stands a good likelihood of weakening further in the weeks to come if the US Dollar bounces.   

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 Commodities look vulnerable in the short-run to one final flush lower in the days to come, which might coincide with the Dollar index stabilizing and trying to turn higher.  This index for commodities, the CCI, the equal-weighted Commodity index from Thomson Reuters, remains in a bearish downtrend and has not yet broken out above the trend from May highs, when this turned down sharply as the US Dollar bounced.   Demark counts for trading lows are premature, and could allow for a pullback to retest recent lows, which would negatively affect grains, softs and potentially the metals for about 1-2 weeks before these attempt to make a larger bottom.   For now, this bounce looks to have played itself out in commodity indices, so one should hold off on being too long in this space until this downtrend can be properly broken.