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Breadth comes in flat, & risk/reward growing more unfavorable near-term

February 26, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



SPX Cash Index

Support: 2800-1, 2789, 2764-5, 2729-31

Resistance: 2808-10, 2818-20



My CNBC interview from Wednesday 2/13

https://www.cnbc.com/video/2019/02/13/top-technician-says-this-is-why-its-time-to-ditch-tech-and-buy-the-financials.html



REPLAY LINK: Thursday Feb 21 Technical Webinar

https://youtu.be/Br0nv9dO0Nw




SPX - (3-5 Days)- Neutral- Some minor evidence of stalling out, though will need more weakness to lean short. Breadth came in flat however, and Demark exhaustion has been completed. For those wishing to pick a spot to sell into the uptrend, we seem to be close yet again to a good risk/reward area. UNDER 2764 on a close is a short signal, and drives down initially to 2729-31



EuroSTOXX 50- Bearish- Right to consider taking profits and adopting hedges after this rally up to resistance 3300-3350, and generating counter-trend exhaustion



HSCEI- Mildly Bullish- Look to take profits on Tuesday/Wednesday 11750-11850-China looks stretched, and HSCEI should hit resistance, stall out and reverse.



Trading Longs: PNW, PPL, TOL, ITB, UNG, CLX, LB, DWDP, GDX

Trading Shorts: K, AAP, NBL, HFC, UUP, EUO, M, TTWO, ACOR, OSTK, TRIP, CTSH, AAL, SNPS, FRT, HAE, VNQ



Monday's early rally proved short-lived and indices gave up about half of earlier gains into the close after having tested resistance near December 2018 highs. Breadth came in flat, which should be looked upon somewhat suspiciously given the extent of the early gains. By the close, it proved to be still largely the Defensive sectors that shed the most, with Utilities, Staples and REITS all losing more than 0.50% while Discretionary also finished down. Materials managed to outperform all sectors but has now reached near-term resistance which might make gains more difficult to come by. (in my Action plan segment, I list selling the XLB as it has reached short-term targets expected)



Overall, we still have little to no real damage in trend in the near-term. The key warnings at this point , however, have to do with breadth flattening out while momentum on intra-day charts has been lower on the push up into Friday and yesterday. Demark exhaustion is now complete on many US indices and sectors and is also present now on many European and Asian indices. Note, this is largely on a daily basis. ( Yet, as NDX shows below this now has a weekly 8 count per its Setup)



The other factor to watch carefully is the price of WTI Crude oil, only because of the strong degree of positive correlation that we've seen between Crude and stocks in recent months. Both bottomed on the same day on Christmas Even 2018 and Crude's selloff to close at new multi-day lows is just not that encouraging for Tuesday-Wednesday of this week, and could coincide with pressure on SPX if history is any guide.



Bottom line, heading into end of month, it does look wise to consider doing some further flattening out into this move, as upside looks limited based on some of the Bollinger bands placed on weekly charts and just not as good of a near-term risk/reward. However, the extent of the positive breadth and momentum surge since late December likely makes any pullback shortlived. Overall, under 2764 would be the first signal on a close and would lead down to 2729-31. Only if this latter area is broken can a larger decline get underway. While not wanting to miss out on further gains, the risk/reward is getting increasingly worse in the short run, despite the ongoing bullish trend, so this has to be noted




ACTION PLAN- 



Selling FXI - Expect stalling out with 46 max upside and pullback which will be used to buy into

Selling XLB- Hit target at 56.25 and showing exhaustion

Long GDX- Target 25- Buying dips Tuesday Wednesday 21.880-22.50 for a move back higher.

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

Short VNQ- Expect move to 82 and under would lead to 79.95. Under last week's lows 83.78 should lead to this move




Additional charts and thoughts below.

below.gif

NASDAQ looks to have little overall upside in the short run after this week's eighth consecutive weekly close which is exceeding the close from four weeks prior. Weekly Bolllinger bands show 7345 to have importance, about 200 points higher, following the 1000+ point rally from December. TD counts could complete the Sell Setup as of next week and would not necessrily have to go higher to do so. Overall, upside can't be ruled out, yet the risk/reward is growng worse. Over the next 1-2 weeks, it pays to be on the lookout for any move down under prior week's lows which would signal the start of some consolidation after this runup.

runup.gif

General Electric (GE) rallied more than 15% at one point on Monday before coming into strong overhead resistance found near this downsloping trend from last Spring. While a 50% bounce off the lows is nothing to make light of, the larger trend at this point is arguably still down, and will need to get above $12 to suggest an intermediate-term rally is underway. Near-term, those that bought near $7 should find attractive areas to sell betweeen $11.25-$12 as this looks to be important. For those with a longer-term view, $12 will be importnat to exceed, but the stock at this point seems to be closer to stalling out and such a move might take some time.

time.gif

WTI Crude made a pretty severe rollover Monday, which just happened to occur right as counter-trend signals lined up to show exhaustion. This move to new multi-day lows looks to have a bit more on the downside, but for now is considered short-term only with support at $53.50-$54.25. If 53.50 is breached this would bring about a larger pullback in Crude. This weakness is important given the degree of positive correlation that we saw in WTI to Stocks from last year, as both WTI and S&P bottomed on 12/24 and have trended up ever since. The start of crude weakening would be important to recognize. For now this is taking the shape of near-term weakness only.