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Equities hold where they need to, now a strong rally is needed to avoid pullback

May 7, 2019

Mark Newton CMT, Newton Advisors, LLC


SPX Cash Index

Support: 2900-2, 2891-3, 2880

Resistance: 2944-5, 2953-5, 2970-5

Monday Technical Video, 5/6/19, discussing early Selloff yesterday

Thursday Technical Webinar link- 20-min overview of risk assets

CNBC interview, Wednesday, 5/1/19- Is Healthcare Bottoming?

Real Vision Interview: Healthcare- Monday 4/29/19

Bloomberg Interview - Monday 4/29/19

SPX - (3-5 Days)- Bullish over 2901, thinking yesterday's weakness successfully held where it needed to on a close to help the trend avoid turning bearish. Daily closes under 2883 are needed to expect immediate downside. Until then, early morning weakness Tuesday very well could be buyable again and being over 2901 is a positive overall.

EuroSTOXX 50- Bullish over 3425, hedged under- Yesterday's decline looked bearish, yet the extent of the rally into the close failed to show much conviction for the bears. Movement back over 3514 paves the way for 3600.

HSCEI- Mildly Bullish- Expect selloff has reached good support to put in a trading low within 2-3 days. HSCEI managed to hold March/April lows and its right to use recent weakness to consider covering shorts. Above 11429 creates a more bullish short-term view.



Equity markets in US and Europe have failed to decline enough to turn the trend bearish and despite the post market decline on Monday, again on tariff fears, prices have not gotten under the key 2901 area from last Thursday's lows to suggest selling is imminent.

The early selloff proved to be the lows of the day, right near the opening print and we saw very negative early breadth of near 10/1 improve steadily to near unchanged, just fractionally negative by the close. Sectors like Healthcare continued to make progress, while only the Materials sector lost more than 1% on the day. Energy managed to snapback but Technology showed losses of over -0.80%, so this sector continues to lag in the short run, and doesn't inspire confidence for Bulls.

Emerging markets bore the brunt of the selling in trading Monday, and many Chinese equity indices lost 5-8% in trading. While the Dollar has not made material progress in recent days, commodity related sectors have been hard hit lately. Meanwhile most of the "risk-off" type trades lost ground all day after gapping higher with USDJPY recovering along with Crude oil, while USDCNH gave up some of early gains. While markets could certainly face weakness if Monday's lows are breached, it's right to use early Tuesday weakness to buy until support is broken, in this case, 2901 initially for S&P on a close

Sectors like Financials, Industrials and also the Small-cap group remain in very good shape near-term, casting some doubt of the possible duration of any selloff. Yet many world indices seem to be at resistance and stalling out/reversing, so it will be worthwhile to pay close attention in the event prices get back to Monday's lows and breach these levels.


Long XLU with target at 61.50 and stops at 57.50 on a close

Long XLP with target at 58.90 and stops at 56.50

Long XLF with targets at 28-28.50- Stops on daily closes under 26.90

Long IWM with targets at 162.50

Additional charts and thoughts below.


S&P- Decline rose back up above last Thursday's lows, recapturning uptrend. Thus, it remains difficult to fade this market just yet, and even with after market weakness (S&P down 0.55% to 2916) markets have not broken down sufficiently to multi-week lows which might warn of further trend damage. Without any news whatsoever, prices rallied back Monday, and failed to show hardly any real deterioratoin by the close. Yet, the inability at this point to regain highs quickly will start to have a real downward tug on momentum, and could bring about a May decline. Even in this case, however, given the bullish price action in the Financials, Transport stocks, Healthcare and lack of any meaningful Tech weakness, selloffs likely prove short-lived.


China nearing support at 50% retracement area- The pullback in China looks nearly complete as this has retraced nearly 50% of the whole rally from December over the last two weeks. While trade tension seems to be a factor that's affecting many markets, China bore the brunt of this in Monday's trading. Yet, most agree that a deal likely still has a higher probability than not, and tariff threats might still be a negotiation ploy. Technically the arae near 2900 should offer some support to recent weakness and this area also coincides with a likely TD Buy setup within the next 2-3 days. This strengthens the argument for a possible near-term bottom.


Healthcare Services- XHS- This group remains one of the better risk/rewards within Healthcare and its mean reversion snapback is continuing to make progress. The Weekly Technical Perspective from mid-April had highlighted this group as a way to potentially participate in the mean reversion, and that looks to be really starting to shape up given recent strength and the breakout above this downtrend from February. Yesterday's strength occurred within a very weak overall market, and while Healthcare as a sector is starting to reach near-term resistance in XLV, the Healthcare Services group should be one to continue to overweight, expecting further strength. Look to be long and use minor weakness to buy for a move back to test prior highs.