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Financials carrying load, but 5 sectors down coupled with breadth divergences an issue

January 17, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



SPX Cash Index

Support: 2590-2, 2574-5, 2560-2, 2552-3

Resistance: 2623-5, 2630-9



SPX - (3-5 Days)- Selling longs, adopting hedges for trading purpose, Expect Stalling out & turn down by 1/21 at latest



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: RMD, TNDM, TWTR, LLL, HRS, BGNE, ROKU, RMD, CTB, CHD



Trading Shorts: OSTK, IWM, SMH, XBI, XRT, EMR, CE, ROP,VOD, LVS, GWW, SWK, CBOE, APA, STX, AAL

Bottom line- No change in the thesis based on Wednesday's move.

Upside should now prove limited for global indices, with S&P likely to start to weaken and pullback and any strength would face strong overhead resistance between 2630-40 between today and next Monday



Markets appear to have made good progress on Wednesday from a price perspective alone, yet most of the DJIA's 141 point move was made by Goldman Sachs which accounted for over 120 points. Stripping out that gain shows a very lackluster move in stocks, where breadth yet again signaled only about a 3/2 gain, and 5 sectors out of 11 finished down on the day. Only Financials was higher by 2.2%, yet XLF is now at resistance, having recouped 50% of the prior decline and no other sector was higher by more than 0.41%, led by Materials on the day. Energy, Discretionary, Healthcare, Staples and Telecom were all lower and Technology barely escaped with a positive day at +0.05%.



Overall, the reasons for skepticism here, despite a 3 week uptrend, are as follows: Indices have moved between 10-15% in the last 15 trading days since Christmas eve, and have finally reached the 50% retracement levels (or fractionally below) from the decline from September/October. Structurally this area remains difficult as several lows were made at this area and now offer resistance on this rally. Additionally, Demark based exhaustion has just arrived on SPX, DJIA , CCMP, NDX and many sectors after this bounce, and indices lie also just below a very important area of Ichimoku resistance. As stated in recent commentary, while the breadth initially on this advance was impressive, in recent days that has faded and our minor range breakout in recent days barely has registered positive breadth readings. Cycle wise, there are a plethora of various near-term cycles that converge between now and January 28th. Therefore, my feeling remains that into end of week, we're likely to stall out.



ACTION PLAN- 



RUSSELL 2k FUTURES are a short at 1460 up to 1500. Targets lie near 1250


Short XBI with stops above 85.50


Short XRT- Short with targets down near 41.60


Long Treasuries, expecting pullback under 2.60


Additional charts and thoughts below.

below.gif

Nasdaq Comp is now right at key trendline resistance as of Wednesday's Advance. As relayed yesterday the following area important and make this a high risk area: 1) Trendline resistance of the last few months 2) Demark exhaustion completion 3) Ichimoku Cloud directly above. 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.

upside.gif

Financials have now retraced 50% of the move down from last year's peak. This area is important and likely causes a stallout in this group after a huge move on Thursday that many believe gives real reason for optimism.. Technically of course, we see that prices are now into this zone where a plethora of former lows were made for XLF. Given the tried and true technical principle that former lows now become resistance on retests, it's likely that XLF stalls here in the next 3-5 days and does not make it higher than 26 before turning back lower.

lowe.gif

The NYSE All-stocks Advance/Decline has now reached areas that have been important in causing peaks late last year, and Demark indicators are 2 days away from signaling similar exhaustion. It's thought that the next 1-2 days should bring about negative breadth even on rallies, or barely positive before markets turn lower next week.