January 4, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2420, 2407-8, 2385-7, 2363-5
Resistance: 2479, 2510-2, 2519-23, 2547-9
SPX - (3-5 Days)- Bearish with initial targets near 2420 and under leading to a retest and mild undercut of December lows
EuroSTOXX 50- Bearish- Move lower to 2800-25 possible before SX5E can bottom.
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: USO, TLT, GLD, IAU, SLV
Trading Shorts: OLED, STX, LITE, LL, QRVO, AAL, LKQ, MTD, FXI, EEM, VNQ, XLU, KMX, JCI, OSTK, WY, SGMS, MGM, RCL, LB, QRVO, CAR
Quite the rollercoaster yesterday to say the least with a 50 + point S&P decline to kick off trading down to 2439 before reversing to rally 50 points to 2489 and then a subsequent decline to take out those lows and finish at the lows of the session. Breadth was far heavier early on and in the last couple hours actually was fairly mild with not eeven a 3/2 ratio of declines to Advancing issues though volume finished more than double on the Downside, producing a TRIN reading of 1.51. Nine of 11 sectors finished down more than 1% with Utilities being the sole gainer on the day. Technology bore the brunt of the decline, falling nearly 5% and the top 10 largest underperformers were all down between 6-11% within the S&P Information Technology index. The move in most of Europe and Asia was far milder than US, though the Japanese NIKKEI has played catchup to kick off its Friday trading, and lower by more than 3%. (Interestingly enough, we saw several "Flash-crashes" in Yen related pairs throughout the day on Thursday)
Overall, it was right to keep a bullish stance up until Thursday's reversal. None of the previous five trading sessions had shown much sign of peaking until yesterday, but helped S&P rally nearly 200 points off the Christmas lows before finally rolling over. In prior reports, i had made the case for a 3-5 day bounce into early in the year into 1/2-3 before a reversal of trend (this report is on the website for those who missed) but it's right to respect the price action and think that a retest could be underway. (Movement back up above 2520 needed to cancel this thinking)
Bottom line, until Technology shows some evidence of stabilization, it's tough to try to pick the bottom in AAPL and expect a big bounce out of Technology. Most outside of the quickest of traders would do well just to wait for this pullback to play out, and await more evidence of bottoming.
There are some encouraging signs despite how negative the trend is currently
1) Sentiment is getting quite negative, which happened in the traditional sentiment polls but is now playing out all over the media, with many throwing in the towel
2) Entering Thursday's trading, there were just 6.7% of all stocks above their 50-day moving average, a very low number which historically has coincided with market bottoms
3) Financials have begun to show much better strength this past week, despite rates moving lower and this is interesting and something to keep watch of
4) Seasonality still remains very positive for this next six months, so its thought that indices could be completing the first leg of this drawdown into mid-January but should result in a larger than average bounce.
5) Breadth yesterday was far lower than might have been expected given the hugely negative news, with barely 3/2 decliners over advancers. Just one piece of the puzzle, but worth noting.
Exiting long Industrials and Financials and going short Industrials with targets back at former lows
Long Gold and Silver into next week with targets on Gold near 1315-25 and Silver 16.05-16.25 before reversal
Long Treasuries into next week with targets on TNX at 2.45-2.50 to Sell Treasuries next week
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.
Yesterday's rollover looked negative, and while breadth was fairly mild on the decline, it appears technically like a retest can occur, in absence of an immediate bottoming out in Technology which still looks early. One possible view of the Elliott wave pattern looks like a fourth wave just completed from the November highs and now a final pullback to new lows should occur, which would get investors unanimously bearish. However, in my view, this would be a time to pay close attention for a reversal. Overall, one should play defensively until 2520 can be recouped, and expect a move down to at least 2420.
The monthly AAPL chart puts this huge decline into perspective as the stock had gotten very overdone into last October compared to its larger trend, something which historically also led to peaks in price back in 2012 and 2015. This time around, prices have now declined 90 points in 90 days time to 142, an area which could have some importance. Under 142 however, one should look at 133, or the area near former highs (which now can act as support on a retest) or then 120 which lies 16% further down. This latter might be unlikely the first go-around, but does stand out as a very attractive risk/reward area to buy the stock whenever it does get down there. For now, I am looking for lows to develop soon, but we'll need to see some evidence of this trying to stabilize in the near future.
Gold and silver have still been trending higher, and should be able to push into next week without much trouble before minor stalling out occurs. This move largely has accelerated from mid-November of last year, a time when both the US Dollar and Treasury yields have been pulling back. Technically speaking an upcoming turn for both Dollar and Yields looks to be approaching by mid-month and if both turn higher in unison, this would be bearish for Gold. However, daily exhaustion counts right now are 4-5 days early for a turn, and given the stock market volatlity , one should still favor Gold for a move to 1315-25 into next week and then reevaluate.