January 23, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2606, 2590-2, 2574-5
Resistance: 2630-9, 2675, 2685-7, 2700
SPX - (3-5 Days)- Bullish- Thought that it's right to buy into yesterday's weakness, as there wasn't sufficient weakness to expect immediate downside and better to sell rallies at 2685-2700 into 1/26-8
EuroSTOXX 50- Bullish- Rallies up to 3200-50 look possible before this stalls
HSCEI- Mildly bullish- Rally to 10900 now possible. Stallout did not result in any meaningful weakness and could still push higher.
Trading Longs: MRK, ABT, LLY, REGN, RH, DATA, EVBG, RMD, TNDM, TWTR
Trading Shorts: MAR, H, STX, OSTK, IWM, XRT, CE, ROP, VOD, LVS, GWW, SWK, AAL
S&P's attempted pullback failed to break down under key support which needed to be violated to have any real concern on trend. Overall S&P, NASDAQ, DJIA remain in uptrends, and likely can still push up to test recent highs and get over these levels by a small amount before any real larger breakdown gets underway. However, the extent of yesterday's selling should cause momentum to begin to turn lower in the days ahead, and despite the minor recovery into the close, breadth still fell by 3/1. So it's likely that markets are starting to stall out after this big run we've experienced in the last four weeks. However, it's just difficult to think stocks go from high to low right away, and even in a topping process, things take time. A move back to highs would allow for counter-trend Sells to line up and provide a better risk/reward area to sell into as of end of week, vs thinking this happens right away. However, under 2596 on a close, it's likely that this IS beginning, and one should take defensive measures.
Overall, the initial selloff had begun in Futures far before the story about US potentially pulling out of a meeting with China. Later White House Advisor Larry Kudlow made a public comment on CNBC about no meeting having ever been on the agenda for this week, so there was no "pullout" of a meeting, as there was no meeting in the first place. However, interestingly enough, the White House obviously had been watching the early decline in markets and felt the need for Kudlow to address the public to set the record straight. This indicates that the administration does watch markets more than many believe, and that they might use future market weakness as a way to time news events which they believe the public might view favorably. This also, from a sentiment perspective, suggests that POTUS likely goes out of his way to get a deal done, even if he has to spin it in a way that suggests he "won" when China hasn't agreed to all the details.
Selling Treasuries, expecting Yields rally up to 2.81-3% for 10-Year Treasuries
Long SPY with stops 259.96, expecting possible rallies back to 268.50-270
Long Crude oil on Tuesday's weakness, with movement up to $55-56 likely in the week ahead
Additional charts and thoughts below.
S&P managed to close right near its first meaningful area of support- 2630-2. While this had been broken in trading, the late day recovery helped prices rebound, and at close, no meaningful trend damage had been done. A rally back to test last week's highs looks likely before this rally from late December rolls over, though a close under 2596 would be important and negative. For now, better risk/reward areas to sell lie up from 2685-2710, and movement to this area by end of week should be significant.
The relationship between Developed and Emerging markets remains trending lower, showing the severe breakdown last year when Stocks peaked last September/October. Thus, while many might suspect that Emerging markets should have weakened as global equities fell, we actually saw a fair amount of relative strength and it still looks right to overweight EM for outperformance. This should begin to accelerate once more meaningful weakness in the US Dollar occurs.
Treasuries showed some early strength, yet similar to Equities, did not break the uptrend on the close from early January. Thus, it's expected that further strength is likely in yields and TNX should push back up above last week's highs. Momentum remains positively sloped and given the breakout of the downtrend from last year, Yields have begun to push back higher. Overall, yesterday's Treasury strength/yield decline looks insignificant, and should represent a chance to buy TBT/Sell TLT and/or expect yields to trend higher this week.