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Metals, mining stocks show further strength as Dollar falls

February 20, 2019

Mark Newton CMT, Newton Advisors, LLC


SPX Cash Index

Support: 2768-9, 2758-9, 2731, 2722-4

Resistance: 2788-90, 2798-2800

My CNBC interview from Wednesday 2/13

REPLAY LINK: Thursday Feb 14 Technical Webinar

SPX - (3-5 Days)- Bullish- Trend bullish, but skeptical that S&P gets over 2800 into next week, so the next 3-4 trading days will be important. For now, little to no real signs of any deterioration, but this run-up has been lifted momentum to near overbought levels. Expect possible run to 2795-2800 and will need a close UNDER 2737 to pay attention on the bearish side. Watch for evidence of negative breadth during Wed-Friday for clues

EuroSTOXX 50- Bullish- No real peak just yet, and move to 3300-3350 cant be ruled out. Similar to S&P this shows the possibility of next 3-4 days leading to exhaustion, Demark-wise, yet for now is not quite there. 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 Shorts: UUP, EUO, AAL, TRIP, K, FRT,TLRY,HAE 

Yet another day of mild gains in what seems like a repeat of last week. Yet some real sector rotation is happening under the surface, and it's important to pay attention to what's happening within the Materials sector and particularly with Metals and Mining which is finally beginning to show some real evidence of strength. We've seen gold and silver stocks outperform handily in the last week, and many Materials subsectors such as Chemicals are on the verge of their own sub-sector breakout. China looks to be strengthening while Emerging markets have begun to stabilize and could turn higher. Overall exactly what one might suspect can happen when the Dollar and yields are both moving lower.

With regards to the S&P, one should stay long barring a close under 2729 (ES_F) 2731 SPX cash index. Breadth came in around 2/1 positive but some noticeable lagging in Tech compared to Energy and Materials. Financials were somewhat strong, yet much of the strength happened in Regional Banks, which was mentioned in this week's Weekly. Overall, markets are now nearing overbought levels, with Daily RSI at a 69.5. Yet Demark patterns argue for another 3-4 days to complete the Daily Setup counts which would produce an ideal 9-13-9 pattern to sell into. Thus, a move to 2800 still looks more probable than not. As always given the extent of our move, we'll be on the lookout for any signs of Equities turning back under last Friday's lows, as that would set off at least a minor correction. Yields certainly have not cooperated and continue headed lower, so it's important to pay attention at this point in the rally heading into late February. For now, there hasn't been any real price deterioration to make one worry about a pullback.


Long GDX- Despite the recent strength, this still seems like a sector that's emerging and should be overweighted. Gold mining stocks look attractive and GDX likely reaches 25 before any reversal

Long XLB- Materials starting to outperform- Push higher to 56.25 initially possible and then low 60s

Long FXI- China on the verge of a larger base breakout now given the downturn in the Dollar- FXI should be overweighted- Above 43.56 is a cause to add to longs

Long KRE- Given the breakout in KRE, this should outperform XLF and also SPX, and its right to be long

Short VNQ- for Short REIT exposure, though a move above 85.25 on a close should not be added to as this would allow for 86-86.25 before stalling into end of February and then turn back lower

Additional charts and thoughts below.


XAU, or the Philly Gold and Silver index, has managed to break out above the downtrend from last year's highs as of this month, with an above-average move out of the Metals stocks just as the US Dollar has begun to turn down. Additional Dollar weakness looks likely, and should drive the Metals higher. One can see the successful MONTHLY Demark buy signal that was confirmed using TD Sequential and this trendline has now been exceeded. Overall, Metals and mining stocks look to strengthen further.


The Materials sector has begun to gain ground lately given Dollar weakness, and XLB managed the same kind of breakout recently which was seen in many other sectors. Movement up to 56.50 looks possible in the near-term, and expect to see another few days of strength before this stalls out, regardless of the degree of outperformance we've already seen. Metals stocks along with Chemical names look set to continue strengthening.


China's FXI looks to be on the verge of a breakout of a bullish base that's been intact for the last eight months. We've seen a lot of churning in FXI, the Ishares China Large Cap ETF, while the Dollar rose last year. Now that we're seeing USD start to turn lower, this has been strengthening nicely in recent weeks. Prices have now begun to consolidate near the highs of this recent "neckline" and above 43.56 should drive prices to the high $40s initially Overall, it's worth overweighting FXI here, looking to add on any breakout.