May 23, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2829-31, 2819-20, 2800-2
Resistance: 2864, 2892-3, 2894-6
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SPX - (3-5 Days)- Neutral- No change in price for the last 5 days We'll need to see movement back over 2885 on upside, or under 2831 below to suggest price is starting to trend. Pullbacks likely would prove short-lived, but if this latter case happens, would take prices down to 2775-85 into 5/31 before bouncing.
EuroSTOXX 50- Mildly bearish for a retest of 3311. Trendstill not that negative, but the stalling out and minor pullback still hasn't shown much strength, and the bias for now is to the downside in the near-term. Above 3425 would be positive.
HSCEI- Bearish- Move down to test 10067 and then 9761 possible. Still tough to trust rallies given the degree of sharp downside momentum while US Dollar index hitting highest level in over 15 years on a trade weighted basis.
Trading Longs: OTEX, QURE, ANTM, HUM, MCK, AEP, ED, WEC, FRO, PAGS, MHK, FLS, CMG, GE, COST, TNDM, COUP
Trading Shorts: EEM, FXI, ALB, COPX, BBBY, DDD, UNG, KSS, M, SIG, LVS, EMR, DVN, NOV, AOS
Still tough to put much faith in either rallies, nor declines at this point. US Market indices have been sideways for the last 5 days. Emerging markets, specifically China, remain quite weak, while Developed markets are in much better shape. Breadth seems to have been better on "UP" days, than "DOWN" yet, we'll need to see some follow-through to pay attention. At this point, that requires a move down under 2831 for S&P, or above 2885. Looking back, Energy, Industrials, Technology and Materials all closed up more than 1% on the day and Semis in particular, managed to halt recent declines and turn higher to the tune of 2%. This was seen as constructive at a time when many are expecting the Trade war uncertainty should certainly cause market declines. For now, Equities have held where they needed to and turned up sharply yesterday yet, we''ll need to see some evidence of prices getting above key levels. For now, the bounce has stalled out, yet has not yet turned lower.
Key developments for yesterday centered on the US Dollar index when viewed in Trade weighted terms, moving back to the highest level in more than 15 years. Treasury yields also made a sharp move higher, in Europe and US, while the Yield curve flattened out. This is seen as bearish for commodities and for Emerging markets and China. While weve seen a minor bounce in these in the last 24 hours, it's unlikely to persist with Dollar strength (more on this below)
Long TBT with targets initially at 33.40 and breakout above leads to 34.47, and then 36
Short EEM with targets at 39, then 38.04 maximum
Long XLV with movement up to 90.60 likely and over would drive up to 96
Long XHS, targeting 72 then 77. Stops at 63.40
Long XLU ,targeting 59.85-60 into end of week before a stalling out
Additional charts and thoughts below.
S&P- Neutral churning still not too bearish. Overall, given the amount of negative news, one would suspect S&P could have easily dropped another 3-5 % in the last week. Technically, domestic indices have successfully held up much better than expected, and as the hourly chart shows, part of this is due to groups like Healthcare coming to the rescue as Technology falters. At present, S&P has managed to close up just 2 points above levels it closed at five trading days ago. So despite all the negative news and ongoing indecision regarding the Trade war, this really has had "Zero effect" with regards to the broader market, which has largely not been affected. Overall, its right to stick with a bullish view given a relative lack of deterioration. Under 2833 would be negative for a pullback to 2800 or slightly below. Meanwhile, over 2855 should be successful in driving prices higher back to challenge last weeks highs and over.
Healthcare looks to be breaking out of the entire downtrend in relative terms vs SPX that has been ongoing for all of 2019. This group went from best to worst very quickly this year, in an extreme case of mean reversion. Now we're seeing evidence of the entire downtrend in Healthcare vs SPX being broken, as of yesterday, something which bodes well for a period of outperformance in this group, just as seasonality starts to kick in positive for the months of June and July. This began a few weeks ago with Healthcare Services (which was featured in the daily note yesterday, but now we're seeing evidence of additional parts of healthcare starting to participate. Overall, a breakout above an intermediate-term downtrend is something that normally happens first on a relative basis before spreading to absolute charts. in this case, XLV has not yet broken out, nor has DRG index or XBI - Biotech. But I expect all of these should take place in the near future and its right to position long ahead of this event.
Insurance looks like the strongest part of the Financials group presently, and daily charts of KIE have carved out an attractive Cup and Handle pattern that should bode well for future strength. Daily charts show the pattern which looks very similar to a Reverse Head and Shoulders pattern above. The breakout consolidated over the last few weeks and now turning back higher again. Overall, quite a few stocks within this group have been pushing up to new 52-week highs, and it pays to favor Insurance and overweight.