March 7, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2764-5, 2729-31
Resistance: 2808-10, 2818-20
REPLAY LINK: Wednesday Technical Video:
REPLAY LINK: Thursday Feb 28 Technical Webinar
TODAY"S TECHNICAL WEBINAR : 1pm EST
Dial-In Number (United States): (701) 801-1211, Access Code: 840-955-999
SPX - (3-5 Days)- Bearish- It looks like Wednesday's drawdown likely jumpstarted at least a minor pullback into mid-March. While prices have not officially gotten under 2764, the selling in many other sectors has broken down and makes weakness a bit more likely- Bearish with 2800 as a stop and targets 2750, then 2698-2700
EuroSTOXX 50- Reversal possible Thursday/Friday-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- No change- Expect stallout in next 1-2 days. 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 Longs: HLT, DIS, UNH, BMY, XLU, NI, EIX, SRE, PNW, BP, COP, FANG, UNG
Trading Shorts: K, TTWO, MNST (2-3 days) HAE, DVA, EXPE, TRIP, CTSH
Markets look to be beginning at least a short-term pullback, and while S&P got down to near make-or-break at 2764-7 (2767 at the time of this writing) prices haven't officially broken down just yet. However, this seems like an interesting time zone for potential trend change (as written in emails a week ago) Given that price has turned down sharply to close at the lows, and much of this selling was LED by many of the leading sectors, Transports and now Semiconductor stocks, while Small-caps, and breadth peaked between 2/20-2/22, i think its likely that a short-term pullback has begun. Much of the sentiment has also turned more positive lately, with AAII widening out nearly as wide as Investors Intelligence. When both of these start to line up with 20 point differences between bulls and bears (in either direction) it typically is worth paying attention.
Wednesday brought about a fair amount of selling pressure again in Financials, while Technology sector indices like the S&P 500 Information Technology index closed at the lowest level since 2/22, it looks likely that Tech and Financials are both starting to rollover and join the recent selling pressure being seen in other sectors. GE fell 7% today, in a fairly bearish one-day pattern that bolsters the argument for further selling here after breaking its uptrend from December. (This will have a big influence on XLI) Overall, it's thought that while indices holding up while various sectors were selling off might have been a positive thing, now that SPX and other indices have pulled back to new multi-day closing lows while breadth is rolling over, markets might finally be susceptible to some selling.
Bottom line, a move to new weekly lows makes it possible to see a 25-30% pullback of this prior uptrend into mid-March. However, given the breadth expansion seen, it's likely that selling proves short-lived and should pave the way for additional gains in the back half of March. One should favor owning Utilities and Energy, and Healthcare selectively, while avoiding Financials, Industrials and/or Discretionary stocks for the next 3-5 days. IF S&P can regain 2800, this could be incorrect, and certainly over 2816 would have to be followed and shorts covered. For now, this seems like a good risk/reward to consider hedging for at least a minor correction.
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.
S&P has broken its uptrend from late January and now rests near critical make-or-break support at 2764-7, mentioned over the last few days. While S&P has not yet broken down, the weight of the evidence supports a break given the downturn in momentum and many sectors rolling over, the downside on this go-around is likely limited to 2698-2700 with first targets near 2750 on a break of 2764. Movement back up OVER 2800 is necessary to offset some of this negative deterioration.
Technology has just broken down to the lowest level in 8 days on a close. Trends have been violated, and this should be the start of at least a minor selloff in Tech. One should look at buying dips into mid-month, but until/unless Monday's highs are recaptured, it looks right to hold off on buying dips too aggressively and better to position in Utilities in the upcoming week. The near-term bearish pattern in the Philadelphia Semiconductor index itself looks to extend and something to pay attention between now and mid-month.
NYSE "All Stocks" Advance/Decline looks to have made its first meaningful peak after the runup from December. While price has just moved sideways largely until yesterday's late day decline, breadth and momentum in this case might lead to a minor selloff, while breadth trends over the last month definitely seem to have been violated. So while the intermediate-term advance from December looks to extend in the months ahead, we seem to be at a juncture where at least a minor selloff could occur and breadth and momentum typically tend to lead price.