February 15, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2732-4, 2722-4, 2700-2, 2683-5, 2662-5
Resistance: 2759-60, 2773-5
My CNBC interview from Wednesday 2/13
REPLAY LINK: Thursday Feb 14 Technical Webinar
SPX - (3-5 Days)- Mildly Bullish- S&P has stalled a bit, but insufficient evidence of turning down and can't rule out a bit more rally. A close UNDER 2737 is necessary before thinking prices are turning down
EuroSTOXX 50- Possible Peak in place after yesterday's reversal- Could be range bound between 3124 and 3250. Will need a move UNDER 3124 for confidence in the bearish case.
HSCEI- Bullish- Prices have pushed higher and still looks early now for a peak- Move up to 11450 looks possible
Trading Longs: FICO, POST, SBUX, WATT, PGR, XRAY, HIIQ, MPWR, IYT, XLF, GLW
Trading Shorts: CTL, K, FRT, XLK, TLRY, EEM, DBC, HAE
Indices appear to be tiring, yet no material price deterioration and the weakness is being seen in momentum only. Bottom line.. a break of the trendlines that have guided uptrends in SPX, DJIA, NDX and Technology, Financials will need to happen before thinking markets are pulling back. We now have counter-trend exhaustion signals in indices, and the trend in TNX has been decidedly still bearish. Yet we've seen minor breakouts in both Financials and in Transportation in the last couple days, while the Defensive sectors have been turning back lower relatively. These latter few developments aren't usually what happens during any kind of pullback. Until 2737 is breached, trends will remain positive and it will be difficult to see any kind of material weakness. Yet, the signs are slowly coming together, and it's still likely that any upside proves minimal and not a great risk/reward for longs between now and March.
Specifically for yesterday, the Transport breakout needs to be highlighted as a positive and something that still is more bullish than bearish. Yields pulling back sharply though are something which did adversely affect Financials yesterday, and is thought to be a warning sign for the longevity of this equity rally now that prices have gained over 17% in 33 trading days, or roughly 1/2% a day. The charts below will serve to shed some light as to a couple of the recent technical developments in the last 24 hours.
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
Additional charts and thoughts below.
Technology has trended higher on an absolute basis, but has recently begun to show evidence of Demark-related exhaustion. Until prices violate uptrends and confirm these signals however, with a daily close below the close of four days prior) the uptrend is intact and can't rule out a bit more strength over the next week. However, it's thought that based on charts of SOX nearing serious resistance at 1380-1400 and Equal-weight Technology right at prior peaks, than a stalling out and rotation OUT of this group should occur. For those that don't study those other relationships, the one thing to monitor is whether this uptrend remains intact.
The Dow Jones Transportation Average has just broken out above the entire trendline guiding this decline from last Fall. While not widely discussed yesterday, this does look to be a positive for this group and can drive outperformance in the days ahead. One should continue to overweight stocks like UNP, NSC and CSX, expecting further strength while the Airlines likely lag performance.
Consumer Staples and other Defensives have turned back lower in the last two days, creating more of a bullish environment for stocks. (The chart above highlights the S&P 500 Consumer Staples vs SPX relative chart) As told previously, these groups had been strengthening. Yet this seems to have proven short-lived and yesterday's price action seems to suggest Staples in particular will test former lows relatively and should be underweighted into early next week. Some evidence of the Defensives showing relative strength is a must before expecting serious market turmoil, in my view.