January 9, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2552-3, 2526-8, 2502-4, 2458-60, 2420
Resistance: 2586-7, 2590-2, 2600-2
SPX - (3-5 Days)- Trend bullish, but looking to sell into gains today into Thursday, flattening out ahead of a reversal. 2585-2600 key
EuroSTOXX 50- Bullish- Move up to 3150 likely before this stalls out
HSCEI- Bullish with targets 10364, and max of 10540
Trading Longs: EW, AMT, CASY, BHGE, NOV, HP, DORM, USO, SQ, SAVE, MRK, CHD, FIVN
Trading Shorts: BYD, WY, CE, OSTK, BGG, FLR, XBI, XRT, MGM, WYNN, OLED, STX, LITE, LL, QRVO, AAL, LKQ, MTD
The near-term trend has grown stretched on intra-day charts after successfully recouping more than 50% of recent drawdown from early December and should be now nearing areas of importance in price and time that produce a stalling out and reversal of trend in the days ahead. Note, this has been a very positive move from late December from a breadth perspective. We've seen several very high and positive readings, (which one of our charts below reinforces) However, now we're seeing momentum begin to wane on hourly charts on this rally (note the brief but violent early selloff yesterday that was 100% recouped, but left momentum lacking) and structurally, markets are nearing the area of their former breakdown (support that was violated, which now represents serious overhead resistance to gains) For SPX, no need to have to get to 2630, but any move above 2585 puts price into this zone, while it's been 16 calendar days since the bottom on Christmas Eve.
Overall, it's important to watch for evidence of Crude oil, Treasury Yields, or Stocks reversing in the next few days. All have shown above-average positive correlation of late, particularly Crude, which fell from October and bottomed on the same day as the SPX. Near-term, Demark counts point to exhaustion in WTI in 2-3 days and near $51-52 which should be important. The next major cycle area is from 1/15 into 1/20, and my thoughts are that a "back and fill" is quite likely which should prove to be lacking in "new Lows" and negative breadth, and produce January's bottom from where a decent rally can get underway into the Spring. I'm skeptical that a major decline lie ahead of us just yet given the extent that stock have gotten depressed, while sentiment remains subdued. We're nearing a time when stocks should bottom and begin a larger counter-trend rally then we've seen thus far. However, structurally, patterns remain bearish and can produce resistance and selling pressure in the next 1-2 weeks, which I think should be buyable. For now, it's right to consider using this recent huge rally to pair down risk and buy implied volatility after VIX has been nearly cut in half.
Sell XLF between 24.40-25 in the next 1-2 days, expecting continued underperformance and a stallout in Financials that backtracks ahead of earnings
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, buying at 2.72 up to 2.75% in yield, expecting pullback in yields into mid-to-late January.
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.
S&P has risen to levels which should be important between Wednesday and Friday of this week as resistance, and one should consider 2585 up to 2630 as important to sell into. This remains a counter-trend rally as part of a downtrend as of now. While breadth on the recent rise is important and bullish to think this continues higher eventually, in the short run, it looks to have nearly run its course. Many sectors like XRT, XBI, and others are up near resistance while Semis are fading and Financials have been weakening. Bottom line, the near-term trend is positive, but extreme selectivity is needed in the days ahead, with a watch out for signs of reversal of trend.
Financials have begun to rollover, something that's interesting and negative to observe pre-earnings for this sector. XLF/SPX in ratio form has broken the minor trendline from late December and remains trending down from the last year. Until this can stabilize (which might come about in late January) it pays to avoid Financials near-term, expecting a bit more underperformance, despite earnings on deck.
A rare phenomenon has happened in recent days, as the McClellan Oscillator which measures breadth went from very extreme oversold territory to overbought levels very quickly. Such an extreme move occurred in 2009 near the lows and only a few other times in the last 50 years and on each occasion it was bullish for stocks to the tune of 15% + in the year ahead. While patterns remain poor, this is worth paying attention to, and any drawdowns in the next few weeks (which I expect) should be buyable for a more meaningful rally.