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Biotech breakout ahead of FOMC

June 18, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



SPX Cash Index

Support: 2884-5, 2873-4, 2867, 2853-5

Resistance: 2897-9, 2911-2, 2930-1



Link to 6/17 Monday Technical Video discussing SPX and Biotech move

https://youtu.be/ZyS-yrXYmJg



Link to 6/13 Technical Webinar, discussing SPX, TNX, Crude, Gold and more

https://stme.in/rz4cpQWMpz



Real Vision Interview, 6/3/19, discussing SPX, TNX stabilizing & moving higher

https://www.realvision.com/tv/shows/trade-ideas/videos/finding-a-bottom





SPX - (3-5 Days)- Neutral- Use strength above 2910 as chance to be long for move to 2930-45, while under 2874 likely leads to 2840-5. Sideways range over last 6 days doesn't add any real conviction for Tuesday's trading



EuroSTOXX 50- Neutral- Similar to S&P, very little directional guidance and this needs to change before having any real conviction for this week. Resistance at 3411-3450, while support lies at 3341



HSCEI- Bearish- Expecting weakness down to 10067-10100. Gains over 10564 necessary before being too bullish.





Trading Longs: XBI, MRTX, IOVA, AKBA, EXEL, MCD, ETSY, SMAR, PLAN, WEC, CMS, SO, PNW, ROKU, TNDM, TNET, SWAV, NVTA, TPB, KHC, CSGP, FIS, TMO, DHR, AVLR



Trading Shorts: SPB, AWI, CROX, SIG, WLL, APA, XEC, HP, CXO, EEM, SYMC, WDC, STX, URBN, FOSL


Bottom line, very little conviction on direction heading into FOMC near-term, as prices remain largely range-bound for the last six trading days. Volume and breadth have dried up, with yesterday's SPY volume showing the lowest volume since last August 9, 2018. Breadth came in just fractionally bullish, but otherwise, no meaningful evidence of any real directional change for indices. To paraphrase from the message in this week's Weekly from yesterday morning, Above 2910 would be a bullish sign on a close, while under 2874 likely leads to 3-5 trading days of weakness. Until this happens, the path of least resistance remains the upside, though some troublesome sector rotation has begun again, which ill discuss below.



Transports, for one, have been quite weak lately, with IYT rolling over to multi-day lows after barely having recovered 50% of the drop from late April. Financials also were weaker than preferred yesterday, dropping nearly 1% as Yields fell and the Yield curve flattened.



However, a few bright spots also materialized as the Biotech sector looks to have jumpstarted its rally, thanks to the PFE acquisition yesterday. Quite a few names positioned in Gene therapy and oncology jumped in Monday's trading, and stocks like MRTX, DRNA, IOVA, AKBA, NTRA, EXEL, KURA and RARX all showed attractive near-term technical gains. The XBI itself, the SPDR Biotech ETF, jumped to the highest levels in over a month on heavy volume, which seems promising to this sector.





ACTION PLAN- 



Long XBI -Long half unit, and using any pullback to 83-84.50 to add, expecting July rally back to 94


Long IHI, with targets at 240, stops under 221

Long XLU, targeting 61.25-61.50. Buy weakness at 58

Short EEM with thoughts that prices pullback to 40.30


Preemptively closing out XLF and KRE



Additional charts and thoughts below.

below.gif

SPY volume hit the lowest levels yesterday since last August ahead of today's highly anticipated FOMC meeting. Breadth and volume have dried up after this 6% push off the lows. Near-term, it's tough having too much conviction, as one can make the case for followthrough to test highs, or for a mild pullback into 6/24-5 before equities bottom. However, the larger trend still argues for an eventual push back to new high territory. Therefore, any selloff in the next few days following FOMC would be something to buy into. For now, it makes little sense to try to guess direction given that breadth has slowed, and sectors like XLF and IYT have begun to weaken. One should look to follow breakouts in this recent consolidation, on the upside and downside, as this week likely will help to resolve some of this near-term indecision on price trends.



trends.gif

Crude oil looks similar to Treasury yields at present. Both remain in downtrends and look likely to test lows between FOMC and the OPEC meeting on 6/24-5. Thus, it's early to expect prices to turn back higher and it's right to be defensive on Energy between now and end of month. While many of these names and Crude itself have gotten washed out, momentum is not sufficiently oversold and no real counter-trend exhaustion signals are in place to suggest buying dips. I'm expecting a quick move to 48.50-49.50 that turns out to be buyable with many Energy stocks likely stabilizing.


stabilizing.gif

Biotech finally has begun to show some signs of life, and it's thought that yesterday's PFE acquisition news helped to jumpstart many within this sector. XBI jumped to the highest levels in nearly 2 months time and volume also hit multi-month highs on yesterday's gains. One should favor Biotech and use any minor weakness to buy, expecting pullbacks could provide buying opportunities just as Healthcare enters its seasonally bullish time in July. Upside targets for XBI lie near 94.50