March 1, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2764-5, 2729-31
Resistance: 2808-10, 2818-20
REPLAY LINK: Thursday Feb 28 Technical Webinar
SPX - (3-5 Days)- Neutral- Until S&P breaks out above 2803, or UNDER 2764 on a close, this trend is neutral/sideways and has shown little net change in either direction over the last six days. Look to follow the breakout, in either direction.
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: TBT, GOOGL, NI, SRE, PNW, PPL, TOL, ITB, BP, COP, FANG, UNG
Trading Shorts: TTWO, CI, HUM, WCG, EXPE, UUP, OSTK, TRIP, CTSH, HAE
Indices finished out the month of February with gains of roughly 3% among the major indices. We've seen a flattening out in price which has taken a negative toll on breadth and momentum in the short run after this rally. Yet, still no signs of any pullback. Overall, it will be right to consider both outcomes in the days ahead: A push higher into March 5-6 before minor selloff into mid-March. Or a pullback which starts right away, undercutting 2764 and gives back 1/3 of the rally from December. Until we see prices give some evidence of what direction, it won't pay to guess, as both scenarios are very possible. Tech has managed to claw its way back to nearly the top slot of the month, just barely underperforming Industrials for the #2 position. Meanwhile, Utilties managed to finish 3rd place in the month of February despite a rather robust market performance while Staples finished 4th. Overall a much more defensive tone for February than we saw in January. Finally, Financials and Discretionary finished the bottom of the back, though both up 2-3%.
The key developments for Thursday centered not on equities but on Dollar/Yen breaking out further to the upside, along with Treasury yields making a pretty robust move higher. These were both mentioned as factors that gave some concern given the lack of pushing higher during the equity rally, and similar to the time in early January, it now looks like yields are starting to follow the move in stocks, not vice versa. We'll see the extent of the move to come, but based solely on Thursday's move, it looks promising to bet on further gains in both USD/JPY as well as TNX.
Long TBT with targets 37.50 and possibly 39 before stalling. Stops 34.75
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
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.
Closing out short VNQ and will revisit once this gets to 86
Additional charts and thoughts below.
S&P minor pullback still has failed to do all that much damage of late. This hourly chart shows the sideways range that's been ongoing this entire week. While some might say this should lead lower, it's still difficult to also rule out a move which takes out 2803 and challenges highs. Thus, it's important to wait for real evidence in prices before assuming this is a definite reversal. However, momentum has been slowing of late, so while prices could indeed resolve higher out of this consolidation, markets would need to show a rapid pickup in breadth to expect a rally could also last in March without any interruption. Technically I expect at least a temporary peak by 3/5-6 and then a small pullback. Yet given Technology's strength and the turn of yields back higher, while sentiment remains less than optimistic, it's difficult to see how much downside is possible just yet.
The most meaningful move in yesterday's trading didn't concern Equities, but rather the move in the Treasury market. Directly following Jobless claims & stronger than expected GDP data, Yields started to lift. As shown above, the ProShares Ultra-short20-Year Treasury ETF, (TBT) made a very good breakout in the last week and followed through sharply higher on Thursday. This move looks to gain further ground into next week, and it looks right to buy/own TBT, and avoid TLT and/or Treasuries as yields look to be turning back higher.
The breakout in XBI as a gauge for Biotech looks important and positive, and a similar move looks to be happening in Pharmaceuticals via DRG. While many of the Healthcare Services stocks have fallen on hard times (and a few of these like CI, HUM, WCG still look like technical shorts on a 3-5 day basis) the broader healthcare group looks close to trying to bottom out relatively speaking. One should favor Biotech and XBI in particular for further strength in the days/weeks ahead, with targets up near former highs just above $100. The technical breakout of former highs looks important, and counter-trend sells are premature to form. Thus, this mild 3-4 day consolidation in XBI should still lead higher.