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Small-cap underperformance along with Transport/Financial drawdown has not yet affected S&P

March 6, 2019

Mark Newton CMT, Newton Advisors, LLC


SPX Cash Index

Support: 2764-5, 2729-31

Resistance: 2808-10, 2818-20

REPLAY LINK: Tuesday Technical Video:

REPLAY LINK: Thursday Feb 28 Technical Webinar

SPX - (3-5 Days)- Neutral- No change- On a day to day basis, i still think its right to stay with a Neutral call, as S&P has not yet violated 2764. However, some definite signs of Transports, Financials and industrials starting to weaken which should eventually put some pressure on the index.

EuroSTOXX 50- Upside limited- Bearish unless 3400 exceeded- Don't expect move above 3400 and rally nearing important resistance . Right to consider taking profits and adopting hedges

HSCEI- Trend bullish but exhaustion signs present. Peak possible before this can get above 11890 11342 would be bearish. For now, a minor pullback can happen without disturbing bullish structure.


Trading Shorts: TTWO, MNST (2-3 days) HAE, DVA, EXPE, TRIP, CTSH

US equity markets remain near-term range-bound which has now lasted nearly 13 trading sessions after about nearly a full two-month rise of 15-17%. This sideways pattern could very well turn down, as many sectors , such as Financials, Transports, Industrials, and Materials have all weakened of late, pulling back to multi-day lows. Yet Technology has held firm, and this is important given the 20% weighting in SPX. Stocks like FB, GOOGL, NFLX, AMZN have all been strengthening of late, despite the sideways pattern in SPX, and to some extent, arguably, have been holding up the broader market given their percentage makeup in many sectors and indices. Outside of Technology, we've seen a resurgence in Energy and also Utilities, the latter which has broken back out to new highs.

Thus, it appears like a splintered market, not one that's bullish nor bearish in the near-term. Sector rotation has been rampant while the near-term direction in SPX has been non-existent. Overall, one of two courses is possible. Either SPX eventually tires and rolls over as the weight of Financials, and Industrials become too great to bear (Though Tech will need to weaken at some point for this to occur) Or SPX manages to weather this downturn in various sectors and remains afloat and rallies further into early April before any meaningful drawdown. One thing is for certain: Sentiment has gotten to near levels which do suggest market weakness is a possibility. So the increase in Bullish sentiment has been large enough to suggest further rallies likely prove short-lived. But as has been discussed, the presence of Demark Sell setups doesn't necessarily HAVE to lead the market lower. Sometimes this does take the form of sideways consolidation before indices work higher again. In this case, that seems possible, so the next 3-5 trading days will be key. Under 2764 is negative, but above keeps the possibility alive of a rolling consolidation.


Long TBT with targets 37.50 and possibly 39 before stalling. Stops 34.75- Monday's close might bring 1-2 days of weakness, but should be used to buy at 35.25-75

Long XLU- Upside target 58.80, with stops under 56.25

Short IYT- Expect further weakness out of the Transports which is still largely the Airlines which are losing the most ground. Avoid and/or short AAL, ALK, JBLU, UAL, DAL

Additional charts and thoughts below.


Russell 2000 vs SPX turned down back on 2/22 right when the Advance/Decline looks to have peaked. This relative underperformance in Small caps looks to continue this week and looks to be 3-5 days away from when this could bottom out, near mid-month. Demark signals on this ratio of RTY to SPX which showed sell signals right at the peak in February, will possibly line up with downside exhaustion now by mid-month. Note that the recent uptrend from December has been broken. However, the larger trend from early last year of RTY to SPX which was exceeded, is now offering a retest. Bottom line, my thinking is Small-cap weakness could persist until mid-March and then should turn back higher and outperform again.


Healthcare Equipment and Services has been one of the weaker parts of the market in the last week. However, we're finally seeing evidence of this sector getting down to levels that might be important to offer some stabilization and a bounce in the days ahead. While the Services names have been the weakest part of this index, while the Equipment names have been far stronger, we seem to be close to holdng and turning back higher. This is largely due to the presence of downside exhaustion after a Demark TD BUY SETUP, or 9 consecutive days where the close is less than the close from four days prior. This likely will be in place by Wednesday or Thursday and bodes well to buy into this decline, thinking that some of the weakest names of late, like CVS, MCK, WCG, UNH, whic have all been down 9% or greater in the past month, are all nearing areas of importance. UNH is one that looks technically sound to buy dips and is included in today's Technical Long ideas.


Media & Entertainment has been one of the stronger sectors in the last week and outperformed again on Tuesday. It's important to note however, that stocks like DISH, FOX, NWS were all down in trading, while most of the high-flying FANG names were the ones showing outperformance. Stocks like FB, TWTR, GOOGL and NFLX have been showing above-average strength in recent days despite some stalling out in the market itself. This S5MEDA index just got above the former highs from last month to reach the highest level of the year. Thus, further gains here are likely and can drive this higher to challenge the highs from last Fall.