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Rally seems on track for this week, though Transports/Financials weakness a concern heading into April

March 27, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



SPX Cash Index

Support: 2785, 2722, 2709-11

Resistance: 2860-2, 2871-2, 2885-7



Tuesday Mid-day Video discussing SPX Transports, Financials

https://stme.in/3ncWMmx84L



CNBC Fast money interview on FDX, Transports from Tuesday 3/19/19

http://bit.ly/CNBCfastmoney031919




Replay Link-Thursday 3/14/19 Technical Webinar

https://youtu.be/EgbO3PCKl9I




SPX - (3-5 Days)- Bullish, using 2785 as a stop for longs- Expecting 2860 should be challenged and exceeded this week before any top, as time remains a bit early for a top.

EuroSTOXX 50- Bullish- Upside targets for gains 3375-3425- Expect rallies into early April, but the break of the uptrend is a negative and rallies should be sold into late week. Under 3281 turns trend bearish

HSCEI- Minor bearish expecting former 11151 lows hold and allow for rally back to 11550-11600



Trading Longs: COP, HES, DVN, REGN, FB, AVGO, TSCO, LOW, HD, DRI, AAP, DHR, AGN, ALGN, XOP, USO, FLT, ISRG, DXCM, PCAR, GDDY



Trading Shorts: HUM, CI, MHK, TRIP, OSTK, WATT, BWA, CE, EXPE



Yesterday's + 0.75% gains helped S&P extend gains to the highest level in 3 days, as Energy, Financials both rallied more than 1% while Technology, Industrials Healthcare also made good ground, as did the Defensives with Utes and Staples both gaining more than 0.70%. Breadth was higher by more than 2.5/1 bullish while Crude oil extended gains over $60 intra-day, as the Dollar began to firm. Overall it's looking likely that the Dollar makes a mild move higher before peaking out again, but yet Crude should be on a path for $62-63 in the short run, and Energy might still benefit.


The negatives at this point have to do with Financials having turned down sharply lately while Transports have not followed through on the upside. This is largely the fault of the Airlines and Air Freight, but still looks to be a big deal at a time when Technology is close to or at resistance. Price wise though, indices look early to peak this week and given the end of quarter/end of month seasonality with the extent of the move in January/Feb/March thus far, one should look for further gains to end the quarter before any meaningful peak. However that being said, April could very well be a down month for stocks after three stellar months of gains and the best quarter in over a decade.

For now, its right to favor Energy, healthcare (except for Services stocks) and the defensives.. and look to take profits on Tech gains this week



ACTION PLAN- 


Long XLY with targets at 118 and stops at 111.25


XOP- Crude's advance should lead XOP higher to near 32.50 and its thought that this ETF challenges and breaks out of the consolidation since late January. Stops under 29.75


Long FAANG stocks- though with thinking that AMZN and NFLX make more near-term progress than FB and GOOGL.


Long TLT- Target 124. Stop 120.92



Additional charts and thoughts below.

below.png

S&Ps gains on Tuesday followed through even despite some meaningful backing off in Technology intra-day, but still managed to close at the highest levels in three days. While the recent dropoff in Transports and Financials is a concern at this stage of the rally, it seems premature to think markets turn down just yet. One should still expect a possible test of recent highs into end of Quarter before any real stalling out. Stops lie at 2785.

Rails vs Airlines in ratio form shows why running these kinds of Ratio charts can be so valuable. This turned sharply higher nearly two years ago, providing a mechanism where one would be long the Rail in Transportation while shorting the Airlines. This still looks to be the case though is close to nearing at least some near-term exhaustion. One should still favor Rails to outperform into the first week of April and be short Airlines.

airlines.png

Financials turned down quite sharply in recent days, which is problematic to the bull case for Equities given their exposure within SPX. Relative charts show the group pulling back to the lowest levels since 2016 and still early on weekly charts to form exhasution. While a case could be made two weeks ago for some exhaustion and rally, the extent of the pullback last week is definitely damaging to this bullish case and longs in Financials likely are still a bit premature.