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Semiconductor decline should be nearly complete; Utilities a safe bet for this week

May 21, 2019

Mark Newton CMT, Newton Advisors, LLC


SPX Cash Index

Support: 2829-31, 2819-20, 2800-2, 2785-7

Resistance: 2852-5, 2864, 2894-6

Monday Technical Video 5/20/19

Thursday's Technical Analysis Video Webinar-5/16/19-20 min

My CNBC interview 5/8/19 discussing Technology

SPX - (3-5 Days)- Bullish- Leaning long after pullback failed to undercut key 2840 area discussed in Monday's weekly. Under 2840 on an hourly close would change to bearish for a test of 2800, while OVER 2858 can allow for a move higher to test and likely exceed 2894.

EuroSTOXX 50- Bullish - Pullback here also failed to undercut former highs from Tuesday, at 3367 and can support a bounce Tuesday. Over 3402 should point back higher to 3438 retest and then 3458, 3514.

HSCEI- Bearish- Monday's decline took out prior lows of the past week, finishing at the lowest levels since January. While momentum getting oversold and Demark signals present on 180, 240 min charts, nothing yet on Daily. Bounces are possible from 10500-70, but should prove sellable. Increasingly it looks possible that a 100% retracement and retest of January lows takes place



Yesterday's break of Friday's lows was a negative, allowing for a test of the key 2840 which looks to have held for now. One can attempt to play a Turnaround Tuesday bounce, but any move back under 2840 on an hourly close and under Monday's lows 2833, would turn trends bearish near-term for a pullback to test 2800-2.

Overall, breadth finished only around 2/1 negative, not as bad on the downside, as last Thursday's gains were good for the upside. Volume was also about 2/1 negative, but it remains a concern that less than 50% of issues are above their 50 and 200 day moving averages with indices only ~3% off all-time highs. Most of Asia and Emerging markets remain under severe pressure, and various signs of leadership changes and sector rotation are running rampant at a time of peak uncertainy regarding a trade deal.

Technology is the key culprit here which continues to weaken, with Semiconductor weakness from Spillover on Huawei Supplier disruptions causing a further turn lower in this sector which only experienced about 2 days of bounce before turning back lower.

However, despite some of the breadth and momentum concern from early May, the positives here to lean on involved the rising levels of bearish sentiment, along with the fact that sectors like Healthcare and Financials have managed to hold up better than expected in the last week (Equal-weighted Financials, not XLF) While weve seen Tech turn down yet again, and this does remain a concern at 20% of SPX, the extent of the negativity seems a bit strong given a relative lack of real decline in the broader averages and lack of structural damage in many of the other sectors. Overall, it looks right to be more optimistic on domestic indices than Emerging at present, and for S&P, the ability to hold up above 2840 is seen as a positive.


Long TBT with targets initially at 33.40 and breakout above leads to 34.47, and then 36

Long XLU ,targeting 59.85-60 into end of week before a stalling out

Long XLP with target at 58.90 and stops at 56.19

Additional charts and thoughts below.


S&P- It looks right to maintain long positions here given that insufficient damage was done Monday. Gains have now been partially given back, though breadth and volume on this pullback has been less robust than we've seen during last week's minor trend breakout. This should signify that this minor consolidation is something to buy into. If 2836 is violated, for SPX cash, that would postpone any rally, and allow for a test of 2800 and potentially a slight undercut. However, getting back above 2854-SPX Cash (2858 S&P FUTURES) would suggest this pullback has run its course and a move above last week's highs is in order. For now, this looks like the right way to position, but will depend on markets turning higher Tuesday or Wednesday. Stay tuned.


Semiconductors have extended weakness, and have given up nearly 50% of the four month rally in a mere 18 trading days' time. This looks damaging for this group on an intermediate-term basis, though looks to be nearing support which could help SOX stabilize at just fractionally lower levels. Of particular interest is the 5-wave Elliott-wave pattern in the SOX which looks to be nearing completion. This should mean that the decline is nearly done on the downside, with 1325-55 being important and under near 1250-75. However, given that this is the first real five-wave move lower in this sector, gains into the late Summer/early Fall would be something to sell into, expecting that SOX could have very well made its peak for the year this past month. For now, shorting into this group looks like a poor risk/reward, though buying into it also looks to be a few days premature, but should happen by end of month.


Utilities look like a good safety net for this week as XLU prices have broken back out to March highs. This is temporarily bullish as the defensive trade is still very much ongoing with deterioration in groups like Technology. XLU looks like a technical long for short-term only, but could get to 59.85-60 before peaking, and quite a few Utes hit the new 52-week high list today, like WEC, ED, AEP, NEE, PEG, XEL and could help this sector remain afloat a bit longer. Key risk to this trade concerns Treasury yields starting to bottom out, and a lift back over 2.50 should prove to be the death knell for the Utes, not dissimilar from what's happening in the REIT sector right now. At present, with ongoing volatility, this looks attractive for short-term traders focusing on good sectors for near-term outperformance.