February 7, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2728-9, 2717, 2707-8, 2700-2, 2689-91
Resistance: 2744-7, 2752-5
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SPX - (3-5 Days)- Mildly Bullish- Expect that fractional upside still likely in the short run, with targets up at 2745-60 before a stalling out next week
EuroSTOXX 50- Mildly Bullish- Rallies up to 3250 look possible before this stalls. Under 3094 necessary to change this trend.
HSCEI- Stallout likely after test of last Sept highs. Trend won't be bearish unless 10770 is undercut.
Trading Longs: PAYC GLW, DIS, PLNT, TWTR, BIIB, WYNN, MGM, LVS, ITB, FAST, ZS, IGV, MEDP, TEAM, SBUX, CRM, PG, HCA, EVBG, CCI, VTR, WELL, TECK, ARNA, MRK, LLY, REGN
Trading Shorts: MHK, HRB, GPS, ILMN, CBOE, CI, MKC, VOD, AMGN, CE, SWK
Yesterday was the first real evidence of at least a minor stalling out in the market. We saw a small downdraft which was nearly completely recovered, yet breadth still showed more declining than advancing issues to the tune of 3/2 negative. Admittedly, little to no damage was done by the close of trading and Wednesday finished with a very narrow range overall. In the short run, the following seem to be important factors which would suggest this rally is coming to an end:
1) Cyclical importance of reaching last years major lows made on Feb 8/9 and now we're approaching a significant one-year anniversary along with a 90 day interval from our early November 2018 highs. This can have importance in causing a turn
2) Breadth stalling out- We've seen a very good move in the last 5 weeks, but prices are getting up near important resistance from a price perspective and now time is coming together as well just as we've begun to see more Declining than Advancing issues. While uptrends are intact, seeing 2-3 days of negative breadth would constitute a definite warning on this rally stalling out
3) Demark exhaustion should be in place by Friday 2/8 into early next week 2/11-2/12. These indicators have been powerful in recent past in signaling the start of at least a minor slowdown in stocks
4) Financials not acting well- This group turned down last week and has not followed Technology's lead. 10-Year Treasury yields are also turning lower.
Overall, Wednesday's price action is not sufficient to sell into this move as little to no weakness occurred. However, movement up to 2745-60 in the next 3 days would be an interesting area to consider buying implied volatility.
Long QQQ -Targets 175 but would look for evidence of near-term overbought conditions once 173 is hit. Stops under 167.3
Long XLK with target 69, stops under 64.25
Long XLI with target 74.25, stops under 69.68
Long Crude oil with movement up to $55-56 likely
Looking to short Gold at 1330-40 in next 2-3 days of rally
Exiting VNQ for REITS.. thinking REITS are close to peaking out
Additional charts and thoughts below.
S&P still showing little signs of any real damage, and yesterday's range was one of the smallest seen in recent weeks. A final push higher into Friday/next Monday looks likely before any downturn, but upon reaching 2745-60, there will be evidence of counter-trend exhaustion just as SPX reaches its one-year anniversary of last year's first major low on February 8/9. This area could have importance, as it also lines up with a key 90 degree cycle from early November peaks as well. Bottom line, further signs of breadth deterioration should be important in starting to suggest that upside is limited, and rallies in indices while more stocks are "down" than "up". For now, there still hasn't been evidence of any pullback to multi-day lows, and the trend remains near-term bullish, though with thoughts that upside is limited. Under 2717 would be the first signal that a pullback is underway.
SOX, the Philadelphia Stock Exchange Semiconductor Index, made a very sharp advance yesterday, helping to keep Technology positive and pushing higher. The SOX looks to be nearing its first real area of importance, and this lies up near 1375-80. It's thought that rallies here would constitute good opportunities for profit-taking technically as this intersects the larger trend from last year as resistance.
VXXB, the VXX replacement or Ipath S&P 50 Short-term Futures ETF which tracks implied volatility, looks to be getting close to area that should allow for a bottoming out and reversal in VOL heading into next week. The area at $32-$33 would line up in the next 3-4 days with the exact same (but opposite) counter-trend signals as the indices are close to forming. Thus, while the intermediate-term trend for Implied volatility has gotten worse, the near-term should be near a level where reversals of trend should occur between 2/8-2/19, with a preference for 2/8,2/11 or 2/18-20. We'll monitor this trend as it's thought that a rally throughout the month of February in US indices is highly unlikely, and could allow for at least a minor pullback in stocks and rally in Implied Vol.