January 10, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2552-3, 2526-8, 2502-4, 2458-60, 2420
Resistance: 2586-7, 2590-2, 2600-2
SPX - (3-5 Days)- Bearish, with stops at 2597 on an hourly close, expecting that Equities, Treasury yields and Crude all have a chance at peaking out in 2-3 days and upside is limited
EuroSTOXX 50- Bearish- Peak in price likely Thursday/Friday. Area near 3150 important and trend reversal likely into next week
HSCEI- Bearish- Exiting longs, expecting max upside near-term is 10540 and pullback likely into next week
Trading Longs: TLT, LII, EW, AMT, CASY, BHGE, NOV, HP, DORM, SAVE, MRK, CHD, FIVN
Trading Shorts: (No change- most of these are compelling technically- having bounced within poor patterns) BYD, WY, CE, OSTK, BGG, FLR, XBI, XRT, MGM, WYNN, OLED, STX, LITE, LL, QRVO, AAL, LKQ, MTD
Still no meaningful evidence of any real reversal yesterday in Equities, however, Treasury yields dropped throughout the session and were 3 bps lower into the close. Crude oil, which also spiked sharply in yesterday's trading, has reached near-term targets and might also stall out and reverse in the next few days. Bottom line, a reversal in all three is increasingly likely between now and 1/15 which could give back at least half of recent gains.
Looking back, following the Fed minutes, Equities spiked, but yet gave back some of that by end of day. However, we still saw higher highs and a higher close. There needs to be some evidence of a reversal and/or down day to think stocks are reversing. While this should be clear in the next 3-5 trading days, as of now, there remains inconclusive proof. The Dollar dropped sharply and arguably this is also at an area where this can change trend, along with Treasury yields , Crude oil and Equities, so all of these should be watched carefully in the days ahead.
The one key piece of the puzzle that looks important concerns the reversal in 10year yields, which looked to occur right on schedule after yields got up to 2.745 and by end of day, had pulled back to 2.71. The start of weakness here in yields would likely be a source of stress for the Financials at a time when many have begun to question the viability of Financials heading into next week's earnings. Sector-wise, Technology looks to be close to resistance where this might peak out, while the rollover n some FInancials from my perpective, is negative at a time when yields have begun to turn down
Bottom line, I expect upside could prove limited here and a peak in stock prices looks likely in the next few days along with Crude and Treasury yields, the latter which looks to have begun Wednesday.
Sell RUSSELL 2k FUTURES current levels with stops at 1500 and targets 1250
Long Treasuries, expecting pullback under 2.60
Short VNQ, as Real Estate has turned lower in recent days, and looks to be one of the weaker parts of the Defensive trade. VNQ target is 70.50
Exiting long Crude oil trade
Exiting long precious metals- Gold, silver
Additional charts and thoughts below.
Russell 2k has now gained roughly 15% in the last 9 trading days, a pretty incredible feat. However, at current levels, it's unattractive to buy here given the presence of this strong overhead resistance, and technically speaking, it's right to consider reigning in longs with prices at a key juncture both based on former lows as well as trendline resistance. See that prices now have moved back to test the area near former lows (which should now contain this advance. Both based on the trend down in recent months and also prior lows, there is limited upside here near-term, in my view. One can consider selling Russell futures with stops at 1500 and targets down near prior lows at 1250.
Technology ETF, XLK has moved up to critical make-or-break levels right near the area of its prior breakout. This has importance given the former lows hit here in recent months from October/November that is now being tested on the upside. Structurally, this ETF shows the Elliott count to still be a counter-trend wave 4 bounce which might then lead lower starting in the next few days. While Tech has been strong in recent days, I think we're arrived at areas where this likely stalls and backtracks.
US 10-Year Treasury yields look to be reversing course, and one thing to watch carefully in the days ahead along with Crude and Equities given that all have pushed higher in the last two weeks. This area near 2.74 was important for Yields and TNX hit this and then immediately snapped back to 2.71. It's thought that the Yield curve and then Financials would weaken if Treasury yields start to pull back immediately. Overall, given the acceleration down led to stocks eventually following suit both in early December and then late December, this is a very important piece of the puzzle to monitor.