January 11, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2569-70, 2552-3, 2545-6, 2526-8
Resistance: 2600-2, 2608-10, 2623-5, 2630-9
SPX - (3-5 Days)- Bullish into next Tuesday- Yesterday's close postpones immediate drop- Upside limited, but expect 2630-40 is possible before peak
EuroSTOXX 50- Mildly bullish for 1-2 days for a final push above 3100- Area near 3150 important and trend reversal likely into next week
HSCEI- Mildly bullish- Close to a turn, but a bit more upside possible over 1-2 days- 10540 -10600 important
Trading Longs: RMD, CTB, CHD, CNP, EVTC, FE, TLK, YUM, LII, EW, AMT, CASY, DORM, FIVN
Trading Shorts: EMR, WY, ETN, MTW, RTN, BYD, WY, CE, FLR, XBI, XRT, MGM, WYNN,, STX, QRVO, AAL
US Benchmark indices made a respectable close yesterday with no meaningful reversal just yet. Closing up towards the highs of the prior day's range, with higher close than open and Demark counts premature by 3 days, it appears like a bit more strength can happen. Most are eyeing 2600 as important, but technically the November lows have more significance which are found near 2631 in SPX cash and 2639 Futures. So there could be some short covering by those who have stops set at 2600, as this isn't all that meaningful as the actual lows hit near Thanksgiving (now possible resistance HIGHS)
Breadth was lackluster in trading yesterday, roughly 3/2 positive and we saw both Crude and TY Yields stall out , not dissimilar from Equities. Financials still lagged performance, barely finishing positive, while Discretionary and REITS were negative on the session. Industirals and Utilities both got a boost, the latter which looks attractive for a 3-5 day long bet, and should be overweighted heading into 1/21.
Sector-wise, Retailing and Airlines took a breather, and both of these groups could stand to weaken further in the next 1-2 weeks after the recent upside they've seen. Industrials managed to turn in a positive session, yet much of this was the Aerospace/Defense names along with GE which is leading the entire Industrials group YTD. Industrials do look likely to extend gains another few days, but rapidly nearing resistance on this rise and structurally remain in poor shape.
Long XLU with targets 55-56 into next week
RUSSELL 2k FUTURES are a short at 1475 up to 1500, but this area could be tested into next Monday/Tuesday before reversing. Any shorts from yesterday have to be given leeway up to 1500. Targets lie near 1250
Short XLF- Maximum upside for XLF should be near 25
Short XBI with stops above 85.50
Short XRT- Early break yesterday which rallied back- Short movement over 44 to 44.75 with targets down near 41.60
Long Treasuries, expecting pullback under 2.60
Additional charts and thoughts below.
S&P managed to close up near the highs of the prior days range. Thus, no evidence of any reversal, and exhaustion counts remain premature until next week. Thus, dips likely are still buying opportunities for those that focus on very near-term trading patterns, and should lead to even further strength into early next week. Note, yesterday's strength doesn't cancel the likelihood of a selloff, which looks likely in the near future. Though some evidence of either counter-trend exhaustion, or actual price weakness is necessary before thinking that a pullback is imminent. For now, while prices seem close, this might be delayed for a few days more.
Utilities showed decent outperformance yesterday, and when eyeing relative charts of the Utes vs SPX, this group has pulled back to levels that make sense to consider buying dips. Strength in the defensives during a stock rally typically can serve as a warning sign of an impending turn. Yesterday's sector performance seemed to be doing just that and relative charts of the Utes still look attractive after their recent breakout and pullback. On an absolute basis, movement over 54 is necessary to regain its seven-month uptrend, but this looks possible in the days ahead.
Pharmaceuticals vs Biotech, when looking at ratios of this sector spread, has now fallen to levels which makes sense to switch back to Pharma, which largely coincides with a more defensive stance. The break of the uptrend back in early January was something highlighted here early on, and has led to a decent bounce in the Biotech space. Now Biotech , based on XBI, is stretched and up near resistance, while Pharma has been weak for several days. Relatively speaking, the reason to switch back to Pharmaceutical names has to do with a combination of exhaustion signals on the relative charts, combined with the ratio hitting the lows of this Daily Bollinger. I expect Biotech to begin to pullback, and stocks like ISRG, REGN are up to good resistance near-term.