January 31, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2670-2, 2656-8, 2622-3, 2612-3, 2606
Resistance: 2698-2700, 2710-5
No Video or afternoon report yesterday, as I did a 1 hour Technical Webinar for the CMT association, which should provide me a link to share.
There will be a Technical Webinar TODAY for clients at 1pm EST. Details below
Technical Analysis Video Webinar, 15 mins. Today 1pm EST- https://join.startmeeting.com/info69336
Dial-In (701) 801-1211, Access Code: 840-955-999
Tuesday Technical Video- SPX, TNX and Gold
REPLAY LINK: Last ThursdayTechnical Webinar- 15 min
SPX - (3-5 Days)- Bullish- Expecting this is the likely final rally of this move off Dec 24 lows, but should move a bit higher into 2710-5 before stalling and reversing course. Still long here, buying dips as targets have not been met
EuroSTOXX 50- Bullish- Rallies up to 3200-50 look possible before this stalls. Under 3094 necessary to change this trend.
HSCEI- Stallout looks likely up at 11000-11100 in next 3-5 days. Prices have moved a long way very quickly since early Jan, but this area has had significance since last July and has to be respected. For now, Trend won't be bearish unless 10550 is undercut but one should sell into 11100
Trading Longs: CRM, PG, HCA, ROKU, DATA, EVBG, CCI, VTR, WELL, PLD, FOX, NOW, TECK, ARNA, MRK, LLY, REGN, RH, TWTR
Trading Shorts: ILMN, VOD, AMGN, OLED, CE, ROP, GWW, SWK, AAL
Equities extended gains post FOMC, and the move above 2672 coinciding with Powell comments helped Equities accelerate on above-average breadth. Bonds rallied as well (more on this later) while we saw decent stabilization in both Crude and Gold as the Dollar fell sharply down to support. Technology and Consumer Discretionary both led the rally while Financials lagged performance.
Overall, yesterday's move likely kicks off a "final" push up to near 2710-5 that lines up with many technical and price/time targets for SPX off the December 24, 2018 lows. While the move on above-average breadth is certainly a good sign technically (with NASDAQ and IWM having broken out above downtrends from Fall 2018 peaks), prices are growing stretched, and are unlikely to move much further without the need to consolidate gains. Sentiment should start to turn more positive in short order now, given that Powell has all but turned "dovish" in his comments (whether this is true or not is a different story, but he seems to be realizing that accommodating the market is a positive, which in turn helps deflect the heat off him, as well as providing some cushion for the economy)
The one technical concern is that breadth did manage to flatten out over the last couple weeks on this US Equities "triangle" (likely 4th wave Elliott) from Jan 18. Thus a push higher now will likely result in negative momentum divergence, along with representing structurally the final move up in a 5-wave advance off late December lows. Additionally, bond yields have turned South sharply in recent days. Often it pays to watch when bond yields diverge from equities (as was the case in late November) and equities end up eventually following bond yields. (More recently the correlation has been quite positive and strong for yields and equities since October) This looks to particularly affect Financials in the short run (See chart below) and this group should lag. However very good price action out of Industrials, Discretionary and Tech.
In the days ahead, I am specifically looking for evidence of breadth turning less robust, signs of counter-trend indicators (Demark) lining up (will take 3-4 days) and/or any evidence of S&P reaching 2715 and reversing sharply. For now, most of this seems still a bit premature. Thus it should pay to stay the course, use dips to buy and look to sell over 2710 into early February.
Long SPY with stops 259.96, expecting possible rallies back to 268.50-270
Long Crude oil with movement up to $55-56 likely
Long VNQ for REIT exposure- near-term target $83.50, but over should drive to 90
Additional charts and thoughts below.
BULLISH BREAKOUT near-term in S&P!! S&P Triangle was broken yesterday into and after the FOMC meeting, coinciding with Powell's dovish shift which seems to have had a very bullish effect on equities, regardless if this in fact plays out. Near-term, it's likely that this move does allow for more strength up to S&P 2710-5, but should be used to pare down risk into next week. Near-term momentum should begin to wane in the days ahead and one should look for evidence of breadth stalling out.
Financials have begun to show some evidence of stalling out in recent days, with XLF up against solid resistance and relative charts of XLF/SPX hitting trendline resistance and starting to rollover. Demark sells are now present and have been confirmed for XLF/SPX, indicating that avoiding and/or underweighting Financials might make sense. Near-term, this pullback in yields should be watched carefully for its effect in eventually dragging down US indices. For now, after a strong January, I expect Financials to take a breather.
This move in the US Dollar is quite negative in recent days, and plays into my thinking about a larger decline getting underway in short order. Near-term, this area does have some significance as support as this was hit a few other times. However, with January coming to a close and prices at new three-month lows and on the verge of a larger breakdown, one should look at Emerging markets, Commodities, and/or for FX traders, owning EURUSD, and/or GBPUSD. Shorting UUP and EUO also might make sense for those who are seeking currency ETF ideas. I will continue to highlight this as this move begins to play out, but this is one of this year's key themes, that the Dollar begins a larger pullback and should materialize in a way that benefits commodities and commodity related stocks.