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Healthcare breakout positive, though overall breadth/Financials underperformance a concern

September 14, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
290, 2.88.30, 286.5, 283, 281    Support
291.16-19, 292.19-.25                Resistance


LINK TO TECHNICAL WEBINAR from yesterday: https://stme.in/wR2HSRdZBa

 

SPX - (3-5 Days)-Bullish above 2900/Bearish below-  Trend has improved on move back up over 2895 (2900 for Dec Futures) While breadth is a concern and Financials have struggled, trends will be positive over 2900 and negative UNDER.   Violations of 2900 should lead to 2865, while strong overhead resistance lies near former peaks at 2917-  Watchful for signs of reversal given mid-month tendencies, particularly in the bearish month of September

SX5E- EuroSTOXX 50-Bearish- It's right to sell into STOXX50 and consider shorting here via FEZ, or VGK as structurally nothing has changed technically despite a few days of gains.  Trends remain quite negative and prices are a good risk/reward to consider fading gains.  Ongoing underperformance likely

HSCEI-  Bullish- Minor bounce likely given Dollar downturn.  Move to 10800-10950 before stalling out. 


Trading Longs: ELY, PLNT, WIX, PRAH, SM, VNOM, NBR, DATA, HD, LOW, ANSS, CCE,  SQ, SAIL, PS, D, NEP, EXC, NRG, ES, ETR

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


TECHNICAL THOUGHTS

A decent ability of S&P to get back up above 2900, which has held largely for the last three weeks, both as support and up until yesterday, resistance.  Yet now this area becomes key to hold on any retests and given the seasonally bearish part of September that lies directly ahead of us where most Mid-term Election Septembers show strength in the first half of the month and then weakness in the back-half, it's proper not to get too excited about a one-day move in S&P.

A couple reasons for concern revolve around the lack of performance from Financials which hit multi-day lows on Wednesday and have been this past week's worst performing sector (while Tech was also down for the last week heading into yesterday)  Daily momentum indicators like MACD are still negative and breadth peaked out in June (See Summation chart below)  However, the strength in US indices is impressive compared to the rest of the world and we'll need to see this start to deteriorate to really care all that much.  For now, shorts should be placed in Europe as bounces have not gotten back the damage that's been done.

China meanwhile looks set to bounce given the Dollar downturn in recent days, and Emerging markets have begun to bounce with Turkey's decision to hike rates.  This big surge yesterday in EM currencies is temporarily helpful to the recent pullback in the Emerging markets and should drive these markets higher for a bounce (which would turn into a larger rally if and when the US Dollar starts a larger decline.  For now, a bounce is likely.  
 

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.

The divergence between SPX and SX5E has grown even more pronounced, so we'll simply stick with US markets and avoid Europe until this changes.  Uptrend lines for S&P would be at least partially broken on movement back down under 2875 while 2900 is the first line in the sand.  Meanwhile, Europe's STOXX 50 has bounced up to levels that are right to sell into and short on Friday heading into next week.  One should consider fading Europe via the FEZ, or VGK and simply wait for more evidence from SPX before caring all that much.  But something should happen in this regard in the next two weeks of September and it will pay to watch carefully. 

unnamed (1).gif

Healthcare should continue to be favored, as was written in this year's ANNUAL piece back in January as one of the top sectors of the year to favor.   The breakout the other day keeps these thoughts still very much fresh and this group has been steadily gaining strength in recent months and is now above Technology on 6 month performance.  Stocks like DVA, CI, ABBV, BSX, ZBH, ABT, REGN, CELG, RMD and VAR were all up more than 2% yesterday and quite a few stocks look attractive within this group.  Technically it's right to favor healthcare over Technology in the near-term, as Tech has still been weaker than preferred for a full bullish stance and is thought to correct in the next 2 weeks.    
 

unnamed (2).gif

Breadth has continued to wane in the last couple weeks, despite stocks pushing higher, which coupled with the divergences to Europe and Asia still keeps us on high alert for a pullback into the back half of September.  While technical trends have improved slightly in S&P, it's important that the index hold its gains over 2900 and not give back anything into early next week.  Given that breadth was yet again flat on Thursday with Financials underperforming, we'll watch this carefully in the days ahead.  The graph above is a smoothed version of breadth called the Summation index, developed by McClellan.  As daily charts show, this peaked out in June, so it tells a far different story than the overall Advance/Decline right now and should be paid attention to.