January 3, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2452-3, 2429-30, 2407-8, 2385-7
Resistance: 2519-23, 2547-9, 2565-75, 2584-7
Happy New Year !! The Annual Review will be published on Jan 7,
SPX - (3-5 Days)- Mildly bullish but will turn negative under 2452- For now, Wednesday managed to rally back up towards 2520 which was constructive, but after-hours selling caused a retreat back to 2477. Upside target 2548, and a maximum of 2600-30 before stalling and pulling back. Look to buy any early weakness.
EuroSTOXX 50- Mildly bullish-Rally likely into 3050-3100 before stalling. Downtrend from December broken here similar to what happened with SPX and TD Sequential 13 buys were confirmed prior to the New Year.
HSCEI- Bearish given the break under 9922- Movement down to 9660-5 possible with rallies back over 10250 needed to turn trend bullish.
Trading Longs: TEAM, SQ, I, IIN, DORM, TRHC, AYX, NKTR, STOR, CIEN, PFE, MRK, LLY, VAR
Trading Shorts: FXI, EEM, VNQ, XLU, KMX, JCI, OSTK, WY, SGMS, MGM, RCL, LB, QRVO, CAR
A very uneasy market to say the least with no signs that any of last year's volatility has run its course, despite being a new year. The first trading day of the new year brought about sharp spikes in both directions, and while the move up into the close yesterday seemed constructive, AAPL's after-market announcement coincided with weakness in Futures right back down again to just above Wednesday's earlier lows. Overall, not very confidence inspiring and it's imperative to be on the lookout for a reversal back lower in the days ahead. Based on the constructive close, but yet after market weakness, this creates (yet again) a very difficult tape heading into Thursday morning. Any weakness under 2452 would warrant being on the sidelines yet again, expecting that the failure of Technology to follow through has resulted in a turn back lower for stocks to potentially test late December lows before bottoming. However, it's thought that the relatively low level of stocks currently trading above their 50-day moving average as it is (12% as per Wednesday) combined with signs of fear escalating, should result in a January bottom and rally. For now, important to be on guard for any violation into end of week. Until this happens, it certainly can't be ruled out again that weakness proves short-lived and results in yet another rally attempt.
Heading into Thursday, three key themes seem worth mentioning: 1) The US Dollar surge yesterday looked important and positive and is likely to result in pressure on commodities in the short run 2) EM /China weakness looks likely given this USD move, and HSCEI broke down under key support Wednesday 3) Defensives have moved out of favor yet again, which has less to do with interest rates and more of just early year positioning.
Long Financials- XLF with targets near-term at 24.50-.75
Long Industrials- XLI with targets at 65.50 minimum and possibly 67 before stalling
Short VNQ, as Real Estate has turned lower in recent days, and looks to be one of the weaker parts of the Defensive trade. VNQ target is 70.50
Long Crude oil, with near-term targets $48.50-$49 , expecting WTI's move yesterday likely continues. Over 50 would be quite positive for Crude
Additional charts and thoughts below.
The S&P rally back to 2520 proved short-lived before after market selling caused a pullback down to 2476 in S&P at the time of writing. Importantly, given the positive close in many sectors and indices, it's still early to abandon a bullish stance even with AAPL's post close jitters, which has taken a toll on US equity futures. However, a move down under 2452 would warrant a defensive stance, and this should be watched out for as a stop for longs, and sign that a move back down to test late December lows can occur.
HSCEI has broken down to the lowest levels since mid-2017 as per Wednesday's close, which acts as a liquid way to view China as opposed to viewing the A-share heavy Shanghai Composite. Given the Dollar strength, and EM weakness, additional selling here looks likely which could bring HSCEI down to 9600 in the short run.
REITS have begun to turn down sharply in recent days, in a move that's been strange given the pullback in yields during a time of relative market volatlity which many expected might help this sector offer some safe-haven like protection. Near-term, VNQ vs SPX as a ratio chart depicting REIT relative strength, has begun to wane sharply, and can allow for additional weakness in the days ahead. REITS should be underperformers compared to the Utility space, which despite also being weak, is a relative outperformer.