February 28, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2764-5, 2729-31
Resistance: 2808-10, 2818-20
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SPX - (3-5 Days)- Neutral- No change- 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- No change- Right to consider taking profits and adopting hedges after this rally up to resistance 3300-3350, and generating counter-trend exhaustion
HSCEI- Bullish- Expect run-up to 11750-11850- China looks stretched, and HSCEI should hit resistance, stall out and reverse. Yet for now, the uptrend remains intact and still looks to have further to go before making any kind of About-face.
Trading Longs: NI, SRE, PNW, PPL, TOL, ITB, BP, COP, FANG, UNG
Trading Shorts: K, AAP, TTWO, CI, HUM, FIVE, UUP, EUO, OSTK, TRIP, CTSH, AAL, FRT, HAE, VNQ
Indices have reached the end of February with very little overall damage after one of the largest two month gains in years. With Thursday's trading wrapping up the month of February, we've seen gains of roughly 3.25% for S&P and just under +4% gains for both DJIA and NASDAQ. Technology has managed to pull back into the lead, returning nearly 7% on the month (S&P 500 Information Technology index (1/31-2/27/19) This has also raised Tech to the 2nd best performing group in the year, just behind Industrials +18.55%)
Given the largely neutral unchanged pattern over the last couple weeks (S&P up less than 1% since 2/7 close of 2777, it's tough having a lot of conviction when breadth and momentum have begun to stall. Most are unanimously convinced that a China deal will get done, and thus afraid to abandon longs. Others who have missed this move are looking to buy pullbacks, of which there have been literally none of any magnitude of late. Breadth has stalled a bit on this sideways action, yet this minor stalling out for US Equities has brought about insufficient weakness to argue for any real short bias just yet.
Transports and Small caps have both been under some pressure in recent days, while Energy looks to be turning higher for a final push up into March before stalling. Financials remain strong along with Industrials and Tech and no real weakness has occurred in these groups which would make one want to fade the move from a pure technical price standpoint. Overall the time between now and 3/6 is likely to bring about some type of change, as markets look to have stalled out and are in need of a catalyst. Yet, it remains tough to have real conviction on selling into this move given the strength we've seen of late. Both attempts thus far at picking even near-term peaks have failed. Thus, we'll stick with the trend, despite some of the minor warnings, until price gives us a more concrete reason to fade.
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
Long XLU- expect a push back up to new highs in the not-so-distant future with a move over 57.25 expected that should drive prices up to near 60.
Additional charts and thoughts below.
S&P minor stalling out does look to have taken a toll on near-term momentum while breadth has been flat to negative over the last few days. However, as has been mentioned, it's a MUST to get down under last week's lows of 2764 to signal any real damage. For now, this chart shows insufficient weakness to expect any real pullback. Above 2798 would allow for a push back to new highs. So for the bears, seeing some evidence of price turning down is necessary.
Crude's recent minor pullback failed to cause much technical damage with the current uptrend from December. Yet, momentum is slowly starting to wane on this bounce and weekly Counter-trend exhaustion looks to come together in the next 1-2 weeks with evidence of "sells" to this recent rise. Thus, on any move back up over last week's highs, it looks prudent to consider lightening up for trading purposes in WTI Crude which also likely signals a peak for many Energy stocks as well (some of which certainly have not participated in this recent rally.
Utilities should be favored given the markets stalling out of late combined with this sector starting to show real evidence of trying to turn back higher. Utilities looks more attractive than either Staples, or REITS, so with rates low, when looking for a defensive sector, Utilities still looks like the sector to own. Daily XLU charts show prices churning near prior highs. Yet many Utes like SRE, PPL, PNW, have been showing very good signs of strength and look like attractive technical longs. For those looking for a hedge to market gains, but might not want to adopt short positions, favoring the Utilities might make sense here.