February 13, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2683-5, 2662-5,
Resistance: 2744-7, 2752-5, 2759-60
Tuesday Mid-day Technical Video
REPLAY LINK: Thursday Feb 7 Technical Webinar
SPX - (3-5 Days)- Mildly Bullish- Another 1-2 days of gains look possible this week, but S&P is now at bottom part of resistance zone and should hold UNDER 2760- Use early strength to sell
EuroSTOXX 50- Mildly Bullish- Closing on target and should stall out by Thursday
HSCEI- no change- Stallout likely after test of last Sept highs. Trend won't be bearish unless 10770 is undercut.
Trading Longs: KRE, XLF, JPM, BAC, GLW, ADBE, WMGI, NSC, CRM, INSP, CSCO
Trading Shorts: XLK, TLRY, EEM, DBC, HAE,
Overall, the market's 1.5% surge has helped prices reach the bottom of the upside resistance zone at 2745-60 that I feel will be important. We've seen roughly a 400 point S&P rally in about 32 trading days, or 17% from trough to peak. This is roughly 1/2 % a day and a pace that likely is NOT sustainable.
While seeing Financials start to bottom out and turn higher is a very good development for the market on an intermediate-term basis, along with seeing Technology and Industrials continue to show good strength, it's importnat to separate out the near-term, from the intermediate-term as a few factors bear discussing.
Specifically, the following 4 factors I view as important and negative from a technical perspective that likely limit this rally from continuing higher throughout the balance of February.
1) The market has shown a more defensive bias recently. While yesterday was bullish in most "risk-on" sectors, we've seen Utilities and Staples lead the market over the past 5 trading days.
2) Momentum has begun to slowly wane as a result of last week's 2-day decline. While yesterday's breadth was impressive and positive +3/1.. it is highly likely that we see some type of stalling out in both breadth and momentum throughout the balance of this week, not continued surges like yesterday
3) Demark exhaustion is now present in some indices and will be complete I others over the next few trading days. These are the first instances of these appearing since late December, and often are important from a counter-trend perspective in suggesting a stalling-out
4) TNX and USDJPY have largely not joined the rally in equities to the same extent and stocks and bonds have largely moved in unison of late. This often needs to be heeded as bond yields have had an uncanny track record in recent months of having pointed out the right direction and stocks have followed.
For now, these four reasons are important enough, now that equities have rallied 17% in about 32 trading days, to suggest an upcoming Pause can happen, not dissimilar to last week's pullback, but larger in scope. However, given the extent of the negativity still present and huge inflows into Cash, as per the recent BaML polls, it looks right to think dips should prove short-lived and are buying opportunities.
Long XLF- Expect Financials start to outperform and we see another 2-3 days of absolute rally in the group
Short EEM- Expect pullback in Emerging markets
Short DBC- Expect pullback in Commodities in the weeks ahead
Short VNQ- for Short REIT exposure
Closing out Long QQQ and also long XLK at the open Wednesday
Additional charts and thoughts below.
A bullish move in S&P back to new highs for the year. Yet, note that momentum did not follow suit on the price gains yesterday. Demark counter-trend exhaustion should be complete this week. Overall, it looks right to sell into this recent push higher, with 2760 being the likely peak ceiling to this resistance band.
DJIA not showing nearly the same effectiveness with prices finding any sort of resistance at the 200-day. With countless media mentioning 200-day moving averages as being important, its worthwhile to point out that these are simply points of reference only and shouldn't be thought of as true resistance. The DJIA for example has had a very spotty record when approaching its 200-day as shown. So most will simply ignore the DJIA 200-day as it has not worked and prefer to discuss selling the SPX heading into its own 200-day. Unfortunately one should either make use of it, or not, and cannot simply ignore for convenience purposes. DJIA does look close to near-term targets and is unlikely to move above early December highs.
Financials are showing the first real signs of turning the corner, which is an important development and constructive for US markets this year. While this is just the start of this stabilization, seeing XLF breakout vs SPX on relative charts is a very good sign and should be respected. Thus, with Tech nearing targets, it's easy to recommend this sector as something to overweight vs Tech, exiting XLK to put money into XLF and/or KRE (the latter which looks to be turning up vs KBE and BETTER than most banks)