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These 4 key factors should determine when Equity lows are here

May 30, 2019

Mark Newton CMT, Newton Advisors, LLC


SPX Cash Index

Support: 2762-3, 2748, 2732-4

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

Technical Analysis Video Webinar, 15 mins. Today 1pm EST-

Dial-In Number (United States): (701) 801-1211, Access Code: 840-955-999

My CNBC interview from Thursday 5/29 on SPX, and 3 stocks to favor

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

SPX - (3-5 Days)- Bearish- Insufficient signs of bottoming and yesterday's break of 2800 likely should move to 2734-6 or a max near 2722-5 before lows are in. Strong resistance at 2800, and above warns that lows could be in place

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.



Yesterday was important and negative in having violated the prior mid-May lows in SPX along with DJIA, NASDAQ along with European benchmark indices like SX5E the STOXX 50. While a late day bounce occurred, it failed to regain the area of the breakdown. Thus, trends remain negative near-term and a bit further weakness looks likely before lows are in place.

Specifically, these four things are important to achieve before thinking lows are near:

1) Oversold conditions- Markets are not all that oversold on daily, weekly nor monthly basis. Hourly intra-day charts only. Therefore more needs to be done

2) Capitulatory volume into Declining vs Advancing issues. Markets need to show a high TRIN (Arms index) reading before lows are in, not dissimilar from what was seen back on May 13

3) Counter-trend exhaustion per Demark indicators- At prior highs and lows, we've seen evidence of exhaustion at both highs and lows. For now, there's insufficient signs of any of these signals appearing, not just in US stocks but also in Crude oil and TNX. Given that all of these started to accelerate lower near the same time, it should pay to watch all.

4) Signs of sector stabilization. Given that Technology largely led markets lower from late April, this sector should be the key one to pay attention to when this starts to stabilize.

For now, the only real evidence we've seen is some minor signs of technology stabilization. Yet this will all take time. Until then, downside targets should take another 3-5 trading days with 2722-35 having significance for S&P. Closes back up above 2800, however, would be something to watch carefully.


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- Pullback under 2800 jumpstarted what should be another round of selling into early June before this pullback is complete. S&P along with NASDAQ, DJIA and also SX5E all violated key support and trends remain bearish and momentum and breadth have followed suit of late. Near-term targets lie near 2735-7 with breaks leading to 2722, but it's thought that this pullback should prove short-term in nature and be complete by mid-June at the latest. For now, only a move back up over 2800 would cancel the bearishness of yesterday's breakdown. Overall, additional weakness likely.

Technology has started to show some definite signs of stabilization,when viewed in Equal-weighted terms. While the peakout in late April was well documented, now we're seeing this group start to turn back higher. This is an important step in Technology starting to bottom out and should be watched carefully in the days ahead. Therefore, while stock trends remain bearish, Tech itself is starting to hold support and show slow but sure signs of relative strength in the last couple days.


Sentiment has not really turned that bearish on this drawdown just yet to argue for any meaningful turn and Investors Intelligence heading into the first few days of this week still showed a healthy level of bulls vs bears which goes against the bearish readings seen in AAII. If Thursday's readings show more bears than bulls and start to invert, than this would be the first step in the right direction towards thinking a rally is imminent. For now, it looks early as sentiment gauges are not aligned in unison in showing bearish readings.