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TNX turns down sharply while Credit spreads start to widen

May 29, 2019

Mark Newton CMT, Newton Advisors, LLC


SPX Cash Index

Support: 2800-2, 2762-3, 2748, 2732-4

Resistance: 2850-2, 2864-8, 2892-3, 2894-6

My CNBC interview Thursday 5/23 on S&P and key levels to watch

Thursday Technical Webinar 5/23/19- SPX, TNX, Crude, Dollar

My Bloomberg Interview on Rising US Dollar and Detrimental effects to Emerging Mkts- 5/22/19

My CNBC interview 5/8/19 discussing Technology

SPX - (3-5 Days)- Bearish- S&P has pulled back to near critical make-or-break support, but it's thought that 2800 should give way for a move down to 2762 initially and then 2732-4 being very important for support. Regaining 2869 important to negate this damaging break - Overnight strength should be sold at 2831-3

EuroSTOXX 50- Bearish- Retest of 3311 looks imminent, but a break takes prices to 3283, or 3212 before finding support. It remains premature to buy dips

HSCEI- Bearish- Expect further weakness to 10067-10100 initially with possibility of 9761.



Trends remain negative in the short run, and while S&P is nearing key make-or-break levels at 2800-2, the action in XLK, XLF and most importantly, US 10-Year yields have not signaled any kind of real stabilization that merits buying this dip in Equities. It's important to keep in mind that the breakdown late last week was a key TELL for Markets, as it represented not only trend damage in Equities, but also Technology, Financials and also Crude and TY Yields. Momentum is not oversold on daily charts, but has rolled over to negative on a weekly basis (MACD has crossed the Signal line from above) So this is a concern given that both weekly and monthly momentum are now negatively sloped. However, for now, there remains insufficient price weakness and in structure to turn bearish on anything besides just a short-term basis, where we'll stay negative. It's thought that 2800 is broken into end of month but that price weakness should prove short-lived and turn out to be a buying opportunity at levels just above the 38.2% Fibonacci retracement of the rally from December into April, right above early March lows- 2734-6

An additional negative to watch closely is the ratio between High Yield "Junk" ETF's vs Investment Grade ETF's like LQD. This has moved up just above levels seen back in December which is a troublesome sign technically. While credit was "hanging in there" quite well through most of May, we've definitely begun to see some widening out, which often times can lead stocks lower.

While defensive issues acted poorly on Tuesday, which was interesting given the extent that stocks sold off along with the Treasury rally, lower rates and a stock market selloff should drive flows into Defensive issues and this should be an area to buy dips. (AT least with regards to Utilities and REITS) Some of the Consumer Staples stocks like MO, PM, KHC remain strongly negative, making selectivity key for the Staples sector. Charts below will try to make sense of some of this volatility.


Short EEM with targets at 39, then 38.04 maximum

Short XOP with expectations of a move to 25.50 and then 23.89 to challenge

Long XLV with movement up to 90.60 likely and over would drive up to 96- Under 87.75 is stop for longs on a close

Long XLU targeting 59.85-60 - Buy Weakness from yesterday at 58.25-58.50

Stopped out of XHS long, give the close under 63.40 Tuesday

Additional charts and thoughts below.


S&P- Near-term trends remain negative for SPX and other US Benchmark indices, particularly given the widespread support violation in multiple asset classes which happened last week. Prices are now right at former lows from mid-May, yet not much exists as to why one would buy into this pullback structurally when given the ongoing Treasury rally and signs of deterioration in Technology and Financials. Violations of 2800 should bring about a quick move to 2762 and then 2748 with 2732-4 being an attractive area to cover shorts and get long. (These targets are all based on SPX cash index)


Treasury yields have cracked former lows which suggests additional Downside in the days and weeks to come. This could be detrimental for the Yield curve and in turn for Financials. This looks to show no downside exhaustion for at least another week, and potentially as many as three weeks. Thus, additional downside pressure looks likely for Yields and targets are found near 2.06% which represents a 61.8% Fibonacci retracement of the entire Yield rally from 2016 along with 2017 lows. This should be an importnat area to sell Treasuries on yield weakening which gives back another 20-30 bps


Credit spreads look to be widening again and this ratio of LQD to HYG, or the Ishares IBoxx Investment Grade Corporate bond ETF, vs the Ishares iBoxx High Yield Corporate bond ETF has broken out and climbed to the highest levels since last December, at the peak of the 2018 selloff. This ratio looks to be a better gauge of how to view credit deterioration vs looking at HYG on its own, and while just a crude gauge for Credit, has given quite a few meaningful warnings in the past. Thus, when this starts to rise, it indicates Credit spreads widening, and could be problematic unless resolved quickly. Weekly charts will likely show a close above last December highs on any further market deterioration.