February 8, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2683-5, 2662-5,
Resistance: 2744-7, 2752-5
REPLAY LINK: Thursday Feb 7 Technical Video
SPX - (3-5 Days)- Bearish -Looks like at least a minor pullback has gotten underway a few days early. While a few warnings signs were in place it was necessary to wait for the price break, which we got, and held by end of day. Two areas are important. Thursday's lows- 2685 and under this sends prices down to 2662-5. On upside, regaining 2705 would be constructive for a move to 2727
EuroSTOXX 50- Mildly bearish- This decline will take time and initially, 3096 should hold and produce a bounce which should be sold. Demark counts are not complete
HSCEI- Stallout likely after test of last Sept highs. Trend won't be bearish unless 10770 is undercut.
Trading Longs: PAYC, DE, CMI, FL, SNN, MSFT, PLNT
Trading Shorts: EEM, MATX, MEOH, FLR, MAC, CVS, K, MHK, HRB, GPS, ILMN, CBOE, CI, MKC, VOD, AMGN, CE, SWK
Well, all the pieces were in place to suggest an upcoming reversal, except for the price action itself. We seem to have gotten that yesterday with the pullback down to multi-day lows. Breadth, which had been flat for the last few days, expanded to 3/1 negative on the decline, and at one point there were 8 sectors out of 11 down on the day.
The reasons cited mentioned cycles based on 90 day and 360 days, along with breadth deterioration in the near-term. Additionally, Demark exhaustion was close to being completed while Financials had not been working well as Treasury yields have been trending lower with both stocks and bonds rallying in unison. All these are far more importnat technically than the oft-cited reasons about China trade, which has been an ongoing concern and just now being discussed as a reason for "why" equities pulled back.
Key developments for Thursday centered on Emerging markets and Commodities both breaking down in the short run, with both EEM and CCI index violating key support and declining on US Dollar strength. (Precious metals however were more stable given that yields have been pulling back.)
Overall, I think yesterday's decline does pave the way for additional selling on a 2-3 day basis. However, it's tough making the call for a pullback down to prior lows in any sort of retest, as stocks have been up nearly 15% in 5 weeks and will need far more than 1 day of selling to argue that the trend is vulnerable to a retest. For now, a pullback to 2662-5 is possible and violating yesterday's lows is the first step to this, (2685) so this area is key.
Short EEM- Expect pullback in Emerging markets
Short DBC- Expect pullback in Commodities in the weeks ahead
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 -Never quite got to target and now lower
Long Crude oil with movement up to $55-56 likely
Looking to short VNQ at 85 as its doubtful this is breaking out
Additional charts and thoughts below.
S&P broke its own uptrend from late December yesterday, coinciding with Counter-trend indicators like TD Combo confirming (13) Countdown sells. While Sequential is premature by a few days, this breakdown looks to lead to a bit more weakness in the short run and then might revisit highs. Overall, a larger breakdown to this uptrend looks to have started with Thursday's decline. While this might take some time, and still difficult to say this leads to a larger setback, it is a negative compared to how S&P has traded in recent weeks and has to be respected. Pullbacks to 2662-5 looks possible and this should be the first area to consider buying. Only on a break under 2622 would the larger trend start to give way to more meaningful weakness. For now this is very much premature.
EEM, the Ishares MSCI Emerging mkt ETF, violated its one-month uptrend from early January yesterday, something which likely puts EM under pressure for the month of February. While this might not prove to be a straight line lower, this breakdown and weakness has to be recognized and is a definite negative
Commodities moving lower. While 2019 looks to be the year that this area starts to make some headway, February doesn't look to be the month which this gets underway. Yesterday's break was certainly much more bearish than bullish, and finishing at multi-day lows as the US Dollar has climbed for six straight days looks to lead commodities lower in the days ahead. Overall, one could consider DBC as an ETF to short to take advantage of near-term weakness in this group and with USD still technically trending higher in the short run, commodities likely underperform.