January 18, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2590-2, 2574-5, 2560-2, 2552-3
SPX - (3-5 Days)- Make or Break- Despite resilience, it still looks right to adopt defensive stance between today and Monday- Movement higher past Monday and/or above 2650 would drive prices higher into 1/26-8 and 2675-2700
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
Overall, stocks are reaching the end of the first cyclical period and have not yet shown any signs of reversing course. The early week breakout has paved the way for a low volume, lackluster breadth type follow-through rally, which has resulted in breadth not following price back to new highs. Overall, there is a finite window which one can be defensive here and attempt to play for a reversal. The first period is 1/17-1/21 which ends on Monday. The second is 1/26-1/28 which lines up with the anniversary of last year's late January high. Interestingly enough both last January and this January have acted similar in many respects. We'll see if this year's 11% rally in 3 weeks ends in similar fashion. This year's technical situation is far worse than last year given the bearish momentum in weekly and monthly charts and prices are now rallying to test (and arguably break, as of Thursday) key technical resistance that had served to mark formidable lows during the Thanksgiving period.
One thing that's of minor concern for the Bears is that many investors seem to have a firm grip on where the key resistance to this bounce lies (this is rarely the case ) Thus most are arguing that this level needs to hold.. myself included. I rarely like to stand with the consensus as this often ends up to be wrong. Overall, if S&P does manage to break out above 2650, this would push out the potential peak until 1/26-8 and likely could occur near 2685-2700, which lines up with another trendline covering highs going back since last September. This would be truly the line in the sand for shorts. Near-term however, its right to be defensive until Monday is past and prices lie under 2650.
One interesting observation is that Crude oil, Treasury yields and Equities remain resilient in the short run and we've seen evidence of yields attempting to push higher in the wake of a possible lifting of tariffs. Note, at the time of this writing, there has been no agreement, yet stocks have moved up in anticipation. Any failure in this regard very well could serve as the catalyst for a decline at a time when breadth and momentum have slowed during this advance. For now, it's right to continue to be defensive until/unless S&P makes it past Monday and prices are over 2650. In this case, a rally into this latter timeframe would occur, up to 2685-2700.
RUSSELL 2k FUTURES are a short at 1460 up to 1500. Targets lie near 1250
Long Treasuries, with stop on TNX close above 2.75
Additional charts and thoughts below.
Equities seem to be at very key make-or-break after this rally in recent weeks. The 11% rise in S&P has brought prices to very important make-or-break and S&P managed to exceed 2630 on yesterday's close. Thus, there remains a small window for shorts here, between here and 2650. Any ability to get over 2650 argues for a larger lift which might hit 2685-2700 before this move stalls and reverses. 240 minute charts have begun to show negative momentum divergence on this lift, which is a negative. Yet prices need to turn down under 2596 at a minimum to have concern. While the air might seem quite "thin" at these levels given the breadth slowdown, witnessing the price reversal in the next couple days will be importnat for the short-term bearish case.
Treasury yields have begun to stabilize after their initial breakout attempt and movement above 2.75% would argue for a continued lift in yields at a time when most have given up on being short Treasuries. CFTC data shows this percentage to have been cut in half since October, so it's likely that any further drawdown in yields proves short-lived with a maximum downside to near 2.5% before starting to turn higher. Bottom line, given Treasury yields propensity to lead equities, i'd view any move above 2.75% as being bullish for the Risk-on trade, and even on minor pullbacks in Equities, it's likely this would prove buyable quickly while a chance to sell into Treasuries.
I think it's important to watch the Financials sector closely during earnings, as prices have pushed up to near levels that should be important resistance. However, if XLF gets over $26 and relative charts break out above levels that have held since last Spring, it would be right to follow this move. For now, there is evidence of this group likely finding strong resistance given short-term overbought conditions, having retraced 50% of the prior decline. But relative charts tend to make their move prior to absolute and a breakout in this group is something which would likely cause intermediate-term strength in indices until the Spring/Summer, so it's worth paying attention to.