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Crude weakness growing more extreme as part of larger commodity meltdown

May 3, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



SPX Cash Index

Support: 2900-2, 2891-3, 2880

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



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

https://youtu.be/aMjQydjqblo



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

https://www.youtube.com/watch?reload=9&v=20YklDG_jUo



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

https://www.realvision.com/tv/videos/health-care-starting-to-bottom



Bloomberg Interview - Monday 4/29/19

https://www.bloomberg.com/news/videos/2019-04-29/oil-futures-are-headed-lower-between-now-and-september-mark-newton-says-video





SPX - (3-5 Days)- Bullish -Insignificant weakness on Thursday to call for any kind of trend reversal. Yesterday's attempted follow-through failed to break meaningful support, with breadth only proving mildly negative. Long barring a close under 2891. Above 2950 likely drives to 3040-70



EuroSTOXX 50- Bullish- Some stalling out in the last few days, but requires a move UNDER 3425 to have a chance for any sort of real weakness. Movement back over 3514 paves the way for 3600.



HSCEI- Mildly Bearish- Movement higher in USD likely drives prices under 11467 which would lead down to 11167. Some stalling out lately and trends are still somewhat negative from a couple weeks ago. Movement back over 11865 needed for bullish stance.

Trading Longs: FIS, CHD, ED, D, SBAC, DRE, NEE, SEE, TMUS, SANM, MHK, BAC, C, V, IYT, LEN, KEX, ZTS, MYL, CAR, PCTY, WIX, TSCO, MAS, TRP, FLT, PCAR



Trading Shorts: BHGE, DVN, EOG, XEC, NOV, SLB, FOSL, WATT, AOS, MAT, SIG, CTXS, OSTK, EXPE



The late day rally kept trends from turning bearish yesterday, and it remains important to stay bullish until proper signs of weakness occur. For SPX, that lies near 2891 and with prices over that level, along with no discernible breakdown yet in Technology, it's right to stay positive, expecting that trends still haven't turned down.



Energy provided another meaningful day of weakness, as Crude's breakdown to multi-day lows resulted in severe weakness within the Energy sector. As noted from my Short list, many of the short are within the Energy sector, and this pullback in the group does not seem complete. WTI Crude looks to have a possible date with 58.50, so it's right to avoid buying dips too soon, as Crude remains in a seasonally weak time, and this cycle that turned down last week looks to be early to bottom.



Outside of Energy, Healthcare looks to be one bright spot to highlight and this group's bounce is still ongoing and looks to have further to go. Meanwhile, much of the attention remains on Treasury yields (which bounced sharply on Thursday, and the US Dollar which broke out, consolidated, and now is turning higher yet again. This looks to put some above-average pressure on Emerging markets and commodities, and it looks early to buy into most commodities and commodity related stocks that have turned down sharply.





ACTION PLAN- 



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.

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S&P- Still tough to fade this market, until S&P gets under 2891 in SPX cash. Yesterday's followthrough attempt on Wednesday's pullback initially breached trendline support, but by the close had rallied back to barely show much weakness and just fractionally negative. While momentum will begin to dip noticeably on this recent slowdown and downturn unless prices rally literally right away (and very well could be the start of a pullback) it's still important to have prices move down materially enough to argue for weakness. SPX could very well undergo a mild consolidation given the strength in Financials and lack of weakness in Tech and turn higher yet again, particularly given the recent participation in Healthcare.

healthcare.gif

WTI Crude- Break to multi-week lows yesterday suggests additional weakness is likely before any bottom, and argues that Crude could be making a more meaningful decline. This represents the first material break of this trend from last December. Interestingly enough, Energy as a sector, which had not really followed Crude higher when it rose, has turned down very violently in recent days on this Crude weakness, breaking down sharply on both an absolute and relative basis. Also important to point out is that Crude and equities both bottomed on Christmas Eve on 12/24/18. Both moved up in tandem over the last few months and now Crude has broken support with Equities seemingly on the verge. For now, it's right to avoid Energy, and expect that additional weakness is likely.


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Commodities- Breakdown still looks to have further downside, and doesn't yet look complete. Given the recent breakout in the US Dollar, this meltdown in commodities over the last few weeks has been severe price-wise, breaking under the trend extending lower from prior highs as well as minor uptrends from prior lows. This puts commodities in a very weak place near-term, and given the upward near-term momentum in the US Dollar, it's likely that further weakness here occurs before any bottom. This area was thought to be a major source of strength this year, but will depend on the Dollar turning back down, which for now, looks premature.