January 16, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2590-2, 2574-5, 2560-2, 2552-3
Resistance: 2623-5, 2630-9
SPX - (3-5 Days)- Mildly bullish up to 2630-40- Expecting Reversal Wed-Friday- Use early strength Wednesday to sell/flatten out and adopt hedges
EuroSTOXX 50- Bearish- Expecting rallies brief and do not exceed 3150- Turn back under 3000 should lead to retest and/or possible break to new lows
HSCEI- Mildly bullish- Rally to 10600 possible but upside limited this week
Trading Longs: TWTR, XRX, AVGO, LLL, HRS, BGNE, XXTM, ROKU, RMD, CTB, CHD
Trading Shorts: IWM, SMH, XBI, XRT, EMR, CE, ROP, OSTK, VOD, LVS, GWW, SWK, CBOE, APA, STX, AAL
Bottom line- Upside should now prove limited for global indices, with S&P likely to face strong overhead resistance between 2630-40 between Wednesday-Friday of this week. Reversals of trend look likely technically, and one should consider using strength Wednesday to flatten out and/or adopt hedges for an above-average chance of a drawdown into next week.
While markets had gotten near the vicinity of this resistance from a price standpoint, time had not yet lined up, but this seems increasingly likely given the presence of Demark -based exhaustion on daily and intra-day charts of various duration, while Global indices are approaching the one-year anniversary of last year's major peak. NASDAQ, Technology and Financials are all near key levels and this helps to add conviction to this idea of a stallout. Moreover, Crude oil, Treasury yields and SPX have all moved in unison in recent weeks and now all three have been showing some evidence of stalling, with Treasuries starting to show the greatest amount of strength. My Weekly Technical Perspective highlighted 10 stocks to consider as Technical shorts and the last couple days likely have allowed for an even better risk/reward entry.
Additional reasons for concern include the degree to which breadth and momentum have been to slow after an initial sharply positive Surge off the lows in late December. This last few days showed hardly any net change and breadth was flat. While this could be expected after such a big move like we'd seen, in excess of 10%, yesterday's minor range breakout occurring on such light breadth while momentum was lower was a potential near-term "nail in the coffin" for US indices. It's thought that Treasury strength occurs which in turn will lead indices back lower for a potential retest and minor break of lows (which then should be bought, technically) The reason to think indices retest has more to do with Structural concerns and wave pattern from November/December which would present an ideal buying opportunity on any break to new lows. While the improvement in Technology and positive breadth from December are reasons to expect pullbacks are buyable, at current levels markets look like poor risk/rewards for longs in the short run.
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 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 minor range breakout was certainly constructive, but breadth nor momentum managed to follow price to new weekly highs, which might have been expected after the four-day stallout. Yet now we see prices up into this key range to sell, over 2600 and just under the area at Thanksgiving 2018 lows near 2630-1. For those proficient in Demark, Wednesday likely brings about the first TD SELL SETUP (9 consecutive days where the close is higher than the close from four prior) while being UNDER TDST. In plain English, this kind of setup often arrives at turning points and should allow for at least a minor stalling out. Given that we've seen a few volume and breadth warnings in recent days, this looks to be an attractive risk/reward technically to sell into on Wednesday on any strength, particularly up to 2630-40.
NASDAQ Composite shows with a bit more clarity why this area is very important in the days ahead, and this first move off the lows likely runs into strong resistance. We're seeing a combination of three important factors: 1) Trendline resistance of the last few months 2) Demark exhaustion completion 3) Ichimoku Cloud directly above. Thus, its thought that this rally stalls out this week, potentially as early as Wednesday, and turns down. Under 6877 on a close is a negative, and one should look to sell into 7085 up to 7150 as this area looks very strong on the upside.
Healthcare is one group that looks attractive to own after its recent weakness, though favoring the Pharmaceutical stocks vs buying Biotech, which might weaken a bit more in the next two weeks. Relative charts of XLV to SPX have pulled back to what's considered to be good support to buy dips for a bounce in this group which should help the sector continue its intermediate-term outperformance.