March 8, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2729-31, 2705-10
Resistance: 2770-2, 2808-10, 2818-20
REPLAY LINK: Thursday 3/7/19 Technical Webinar
REPLAY LINK: Thursday 2/28/19 Technical Webinar
SPX - (3-5 Days)- Bearish- Pullback should have support near 2705-10, while needing to get back up above 3/4 lows at 2772 to have any immediate chance of recovery- Use early strength to sell Friday
EuroSTOXX 50- Minor bearish trend but require break of 3270 to have conviction of a larger decline to 3175. For now, a negative minor reversal and could play catchup to US markets Friday morning
HSCEI- Bearish- Expect US Dollar gains result in weakness for HSCEI & many China indices- Pullback to 11260-80 likely and max drawdown to 11000
Trading Longs: XLU, NI, EIX, SRE, PNW
Trading Shorts: EEM, FXI, K, TTWO, HAE, DVA, EXPE, TRIP, CTSH
Market selloff looks to be underway on a short-term basis as indices finally broke to join what breadth and momentum had been suggesting since 2/20. We saw a notable peak in Advance/Decline and Small-caps during that time in late February, and while S&P moved sideways, there was notable breadth erosion and a downturn in daily technical momentum indicators like MACD, not unlike what happened in September 2018.
near-term, I think pullbacks prove limited based on two factors. First, sentiment is a lot more subdued than was the case in Sept 2018. This minor pullback will put some heavy weight on sentiment, resulting in put buying and help fear elevate much more quickly than during normal peaks after a bull run. Second, breadth overall is still in very good shape since late December. Granted, the mild deterioration in breadth we've talked about in the last week IS a concern and a reason why markets are starting to turn lower. Yet the broader trend in breadth has been impressive and likely helps this dip be bought much quicker than otherwise. Overall I will be using dips to 2705-10 to cover shorts and start buying names I like technically.
In addition to equities, we saw an impressive bounce in the US Dollar Thursday that adversely affected Emerging markets, commodities, and many materials names. This looks likely to continue in the short run. Charts of FXI and EEM look quite similar in starting to break down, and I think this trade has a bit of longevity in the next 1-2 weeks before it runs its course. Some charts to put these thoughts into perspective below.
Long XLU- Upside target 58.80, with stops under 56.25
Short FXI, and EEM- Expect that the breakdown in trend since December should lead both lower at a time when USD is moving up. While a short-term trade, both look to lose 3-5% in the near-term before
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.
S&P showed the much needed follow-through to turn the trend bearish early Thursday morning, violating Monday's lows at 2772, and the violation of 2764 brought prices temporarily below 2750 before rebounding mildly into the close. The trend has turned negative, with prices managing to finish near lows of the day, and downside looks possible to near 2705-10 which represents the bottom area at the Bollinger Band on daily S&P charts, along with representing important Gann support from the recent highs. Overall, it's tough to make too much of this as anything more than a short-term correction and dips should be used to buy into early next week.
Emerging market ETF (EEM) managed to followthrough on last week's trend violation along with breaking down below earlier week lows. Given the US Dollar index rising to new multi-week highs, this might put further pressure on Emerging markets in the near-term and could see EEM fall another 3-5% before this finds support. Structurally this looks to have turned bearish on Thursday's close, so it's likely that EEM weakens further in the days ahead.
US Dollar index managed to exceed recent monthly highs which could help the near-term bounce extend a bit longer before stalling out and reversing lower. While the broader trend is arguably still top-like going back over the last year, the near-term trend is positive and the act of just exceeding a former monthly high likely does offer the chance to extend a bit more in the near-term. Until this reverses and turns back to give back what was gained this week, this is viewed as a bounce and will be detrimental to EM and commodities.