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Mild Tech-led rally has lackluster breadth while long-dated Yields break out

September 12, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
286.5, 283, 281    Support
290.45, 291.16-19         Resistance


LINK TO TECHNICAL WEBINAR from Wednesday, 9/5:  https://www.youtube.com/watch?v=WwyKpRK1hR4&feature=youtu.be

 

SPX - (3-5 Days)- Stalling out expected between now and Friday-  Above 2895 temporarily bullish, but this area very well could hold.  Turning short again under 2865--It's thought that Tech stabilizing along with Industrials and Transports extending gains are minor bullish factors for the next couple days.  Any reversal and pullback underFriday/Monday lows puts the bearish case back on the front burner for immediate pullback to 2800-7.

SX5E- EuroSTOXX 50- Bearish over next 1-2 weeks, with max upside near  3350.  Wave structure should result in additional weakness to take out lows in SX5E.  Underperformance still likely.

HSCEI- Possible to make the case for stabilization here with max weakness likely taking this to 10200 before rebounding.  Look to cover shorts under 10250 on weakness over next couple days


Trading Longs: HD, LOW, UBNT, ANSS, CCE, KSU, CSX, URI, LB, TOWR, SQ, SAIL, PS, D, NEP, EXC, NRG, ES, ETR

Trading Shorts:  VMC, FB, AAPL, TWTR, AMZN, MLM, NTES, BF/B, JD, ANTM, AMBA


TECHNICAL THOUGHTS

Yesterday's temporary stabilization in Technology helped to drive a minor rally, though breadth barely finished positive, so this wasn't any real strong showing by any means.  Tech and Energy led, while Industrials, importante, Real Estate Utilities and Staples all finished lower.  Not exactly the kind of rally markets needed to help quiet the Bears, and Futures have now pressed up to levels that will likely serve as an importnat test for the days ahead.   The area at 2895 served as support of the minor Head and Shoulders pattern that was broken last week, and prices seem to have now pushed higher to test this area.  Long-term yields showed evidence of trying to make breakouts, and the next few days will show whether this is real or not, as the last time around, yields rallied for 1-2 days, then reversed violently.  Sentiment remains quite negative, so it's thought that 3-3.05% should serve as a ceiling for yields and then produce some type of turn back lower.  Meanwhile the Dollar's gains look close to an area where they can reverse course, which should lead to a bounce in Emerging markets and precious metals.  Yet, for now, this is premature and just something to watch in the days ahead.

Overall, the near-term game plan is fairly simple given the degree that Technology has rolled over and then attempted to bounce.  Any failure in this group in the next 2-3 days likely would be important and lead lower for Tech for the next couple weeks of pullback, which this time around, might coincide with Industrials and Healthcare following suit.  It's thought that bounces in stocks like FB, AAPL, AMZN should all be used as selling opportunities for near-term trading, as technically all of these stocks have shown evidence of trying to rollover.  Meanwhile the minor breakout in Yields is interesting and certainly unusual given the degree that sentiment had turned bearish to extreme levels.  This also needs to be watched given the effects on Financials and the Yield curve heading into the FOMC meeting later this month.  For now, the first part of the selloff looks complete and has begun to bounce.  Cycle-wise the 13th-14th is a time when equities could turn back lower, and this needs to be watched carefully heading into a historically very weak time of September.  Any failure from here into end of week that results in 2865 being broken turns the trend immediately bearish and suggests a decline down to 2807-10 has begun.   Conversely, movement back OVER 2895 is needed to add some conviction to the bull case, but even here, likely would hold near 2917 given the presence of TD Combo Sells which would be finally completed on a test of highs.  Overall, while selloffs should prove muted this month, it doesn't yet seem like markets are "out of the woods" so to speak.  Extreme selectivity is still required, and it's a must to keep tight stops on longs.  

ACTION PLAN-  

Long IYT- with targets at 212
Long XRT with target at 54
Long XLU with targets at 55
Long XLP with targets 55, Stop at 53.98

 

Additional charts and thoughts below.

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S&P's rally attempt looks to be right back into an area of key upside resistance which is thought to be important heading into mid-week and mid-month when seasonality starts to turn more negative for mid-term election Septembers.  Breadth has simply not been sufficient to give much conviction to equities rallying back to new highs, and if yesterday's Semiconductor move was any guide, it's still importnat to watch these patterns carefully for any semblance of failure between now and early next week.   Overall, the area at 2895 is important, and above would be a mildly positive development that could allow for a more meaningful retest of highs.  Conversely, dropping back down to test lows would also be significant, and under 2865 turns the trend bearish quickly.   

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Technology has bottomed at the first key area of support, and now attempted to turn back higher.   Given the extent of the selling in XLK, which managed to nearly retrace the entire rally up from early August, a very strong rally back is needed (But might not occur given how weak Semis have been lately)  Any stalling out in the next 1-2 days that turns back lower would be thought of as negative for the technicals on most Tech stocks, and would result in recent lows being violated.  This in turn would violate the entire uptrend from Spring, casting doubt on the longevity of Technology even more during this seasonally weak time.   Overall, Movement up to 75-75.75 should be used to take profits and sell rallies, while any movement back under the lows from earlier this week would be a real negative technically.  But Technology looks to hold the key given its weight, and has to be scrutinized carefully for the balance of September. 

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The breakout in 10-year Treasury yields looks important to monitor given the structure of this formation since early this year.  It was thought that yields had a chance to break down to new low territory and sentiment certainly still seems quite bearish on treasuries (thinking rates have to move higher )  So while the breakout has to be respected until proven false, it's not thought that yields get meaningfully over 3% before reversing back lower.   The next 3-5 days will speak volumes as to what's happening with yields ahead of this month's end of month Fed meeting.