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Energy strength can continue as CRUDE gets over 71 while Financials might weaken further

September 13, 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)- Trend bearish unless 2895 exceeded on an hourly and more importantly, daily close.   2895 is key-  Over would necessitate a minor bullish stance, but UNDER 2895 keeps the near-term trend negative.   Initial support 2879 and under drives prices down to 2865 which is very important.  Any violation of 2865 should have no real support until 2817 with the potential for 2800 before prices stabilize.

SX5E- EuroSTOXX 50- Quite a bit weaker and still right to concentrate shorts in Europe-  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: WIX, PRAH, SM, VNOM, NBR, DATA, 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

The last week has, if anything, begun to show the degree that markets have began to move in many different directions, which for most of this year, has concentrated on the degree that US has outperformed Europe and Asia.  This time around, we're talking sub-sector divergence, and the start of weakness in two of SPX most important sectors:  Technology and Financials.  While Industrials has been able to avoid weakening as Transports have pushed back to new high territory, FANG stocks, Semiconductors have been weakening steadily which have caused a real dropoff in Tech.  Most were eagerly awaiting AAPL's product launch, yet the stock has been showing more weakness than strength lately and yesterday wasn't any different.  The stock has been lower by nearly 3.5% in the last 7 trading days and many stocks like this have gotten overbought and are now beginning to turn lower.  Financials might be the next example, as this sector pulled back to multi-day lows yesterday, undercutting the last five trading days.  So while only three sectors were officially "down" on the day, and most were higher, breadth was flat and over 40% of the market (Tech and Financials, traded lower.  

Yesterday showed Financials moving down to the lowest close in over 16 days while both the Dollar and Yields turned lower.   This looks important for commodities and Emerging markets to bounce, but we'll need to see sustainable Dollar weakness to have any sort of conviction that the EM rally can continue.  Precious metals are similar in that we've seen quite a few failed rally attempts and it's a MUST to see something more sustainable before thinking any kind of larger rally is underway.   Yields, for one, need to start pulling back a bit more meaningfully and coincide with USD weakness back to new monthly lows.  Then a more convincing Emerging market bounce can be trusted. 
 

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 still looks to be near an important near-term crossroads and has been unable to make progress back over 2895 after failed attempts yesterday as well as Tuesday.  Many might view this pattern from an Elliott perspective as having completed three waves lower while having embarked on a three-wave corrective bounce into Wednesday.  We'll see if this is correct , or not, but the key level to keep an eye on is 2879 initially, the level nearWednesday's lows and then 2865-7 area also important areas of support that can't be broken without jumpstarting a move down to 2817.  Overall the next 2-3 days should shed some real light on this pattern and what might be in store.  Over 2895, particularly on a close, would suggest this breakdown is false for now, and should be worth following higher for a test of 2917.  While Tech and Financials have rolled over, its imperative to see the rest of the market follow suit and see actual index weakness, which has been tough to come by lately. 
 

unnamed (48).gif

WTI Crude oil's sure has defied expectations when many expected the seasonal weakness that typically hurts Energy during this time of the year.    Near-term, this pattern still looks quite constructive, and the quickness with which this has moved back to trendline resistance could allow for a push back to new high territory which would cause a quick move to the mid-70s, helping Energy show some further signs of strength.   Most of Energy has been quite weak lately, with OIH having a very difficult time moving higher, necessitating real selectivity in this group.  XOP is the standout amoung the major Oil ETFs and one to consider owning, but plenty of stocks still look attractive, yet aren't the major ones most investors think of (not XOM, CVX, HAL, SLB !!)   For Outperformance in this sector, one should consider SM, HLX, DNR, MCF, just to name a few. 
 

unnamed (49).gif

This daily XLF chart shows that 11 days after Financials pushed up to exceed early August highs, the group has largely gone lower, with yesterdays weakness taking XLF down to the lowest trading levels in 16 days.  Pullbacks to near 27.75 look likely for XLF in the short run, which mark the bottom of this minor range shown in the chart above.  While this sector hasn't been too dramatically weak of late, it certainly hasn't been a market leader and yet again looks to have failed in its breakout attempts.  XLF has failed to follow the recent push higher in yields, and now that yields are starting to turn back down in the last couple days, this sector has pulled back in lockstep.  Overall, XLF looks weak for the balance of September and longs might do well to hold off on buying dips just yet, expecting a bit more weakness before this bottoms out.