January 8, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2526-8, 2502-4, 2458-60, 2420
Resistance: 2570-2, 2575, 2590, 2600-2
SPX - (3-5 Days)- Bullish, but nearing targets between Wed-Friday from 2585-2600- Look to sell into further gains into end of week, paring down risk and adding implied volatility, expecting reversal of trend
EuroSTOXX 50- Bullish- Move up to 3150 likely before this stalls out
HSCEI- Bullish with targets 10364, and max of 10540
Trading Longs: BHGE, NOV, HP, CRC, DORM, USO, SQ, SAVE, MRK, CHD, FIVN
Trading Shorts: XBI, XRT, MGM, WYNN, OLED, STX, LITE, LL, QRVO, AAL, LKQ, MTD
The near-term trend remains bullish, but nearing areas of resistance that should be right to sell into this within the next 1-2 days. Overall, quite the bounce in recent days, and breadth has been there to back it up. In the last days, the NASDAQ 100 has been up 500 points while SPX has risen by more than 200. Energy has been the top performing sector of the year thus far, with Crude having broken out and Discretionary and communication services just fractionally behind. Only Utilities is down on a 5-day basis. Technology, however, has lagged and something to point out for those expecting that markets can continue up uninterrupted. AAPL, AVGO, SWKS, ADI have all fallen by more than 2% in the last week, with AAPL down more than 5%.
Bottom line, this remains a counter-trend bounce, and one that appears like a fourth-wave rally which likely ends in the next few days and gives way to a larger than average reversal. After all, momentum remains solidly bearish on most time frames and nearing overbought levels on an intra-day basis while Technology has not solidly participated, while bearish on weekly and monthly time frames while solidly within a downtrend. While hopes of a China deal or an end to the Government shutdown standoff are very much present and could materialize in the days ahead, it looks more likely that market stall, pullback into January 15-20th to form a low before a larger bounce. Given the breadth in recent days, the selloff should be studied for evidence of lower breadth and "less bad" participation, and will be a buying opportunity likely into mid-month.
One thing to note. the Dollar weakness very well might conclude by end of week and allow for a larger than normal bounce into mid-to-late January. This might coincide with Gold weakening along with China and EM for a final pullback to new lows before a bounce into Spring. The trend meanwhile in Treasury yields continues to suggest lower rates, near-term, so it's right to utilize strength to 2.70-5% to buy Treasuries, expecting weakness in yields into mid-month.
Sell XBI at 80.50-82 in the next 1-2 days, expecting a stalling out in Biotech and pullback
Sell XRT at 44 or higher, thinking a stallout and pullback happens over the next 1-2 weeks
Long Gold and Silver into Wed-Friday 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 raised to 51.50-52, expecting WTI's move yesterday likely continues.
Additional charts and thoughts below.
Interestingly enough, despite the negative market trend, NASDAQ has slowly but surely begun to strengthen in the last couple weeks. This has largely gone unnoticed, but something on relative charts which is considered a positive and likely means markets are preparing for a larger rally. On pullbacks in the next few weeks, one should watch this ratio for any evidence of this moving back to new lows, or holding firm.
XBI shows Biotech having moved up to very important near-term resistance. This area likely should put a near-term peak in Biotech with XBI up at 80.50-82 in the next 1-2 days. One should consider selling into this move and favoring Pharmaceuticals within Healthcare on a 2-3 week basis. However, given the extent of the move off the lows, dips are likely to be buyable for Biotech.
Retailing has been lauded by the Media as having made a big comeback in recent days. Potentially. Yet daily charts still show the XRT to be under a ton of pressure here and unlikely to get over 45 anytime soon. Not dissimilar from the biotech space, many Retailing stocks have rallied sharply, but right into key resistance near the larger downtrend. One should look to sell into this move, with thoughts of buying weakness over the next few weeks for a continued advance in the months head with targets up near 46.50-47.