June 27, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2905-7, 2878, 2850-2
Resistance: 2952-4, 2960-1
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SPX - (3-5 Days)- Bearish, but looking to cover shorts on further weakness to 2900-5 into next week- This pullback should prove short-lived into G-20 and insufficient damage has been done to expect a larger correction. Buy dips at 2905 and then 2878
EuroSTOXX 50- Bearish but looking to cover shorts in 1-2 trading daysMinor pullback to 3400-3415 should find support Thursday into next Monday and turn higher for a rally to test 3511 area.
HSCEI- Bearish- No change-Pullback likely to reach 10541 and under that near 10288 before turning higher. It's thought that US Dollar finding support should result in a bounce and underperformance out of HSCEI in the weeks to come.
Trading Longs: BOOT, FISV, SEAS, OMC, UCBI, NOW, IPHI, IHI, TWTR, IOVA, AKBA, MCD, SWAV, KHC, CSGP, FIS,AVLR
Trading Shorts: VNO, PLD, SPG, KIM, SLG, HST, SPB, PKG, GPS, UPS, FDX, JBHT, WBA, COTY, APA, SYMC, WDC, URBN
2 days left in the month and quarter....and to reiterate the recent message, it's still likely that this minor drawdown proves to be buyable soon, potentially by Friday. Minimal damage has been done technically, momentum remains positive and signs of Technology reemerging are present. Looking back, markets failed to extend early gains and by end of day, prices had closed at a small loss for S&P. However, Technology and specifically, Semiconductor stocks managed to lead yet another bout of outperformance for Tech stocks in a bounce that's been ongoing and considered bullish for risk assets. Meanwhile, Defensive sectors like Staples and Utilities experienced broad losses which is also thought to be constructive also for risk assets. Overall, downside for S&P should be limited to 2850 at a maximum, but is thought that this pullback bottoms out near 2900 and turns back higher to rally in July to 3040-75 into August.
Outside of equities, a bounce is ongoing in the Dollar after weakness the past few weeks and the bigger technical development happening right now concerns the reversal in Treasury yields. Over the last 24 hours, we've seen TNX turn up sharply right on schedule. As mentioned in recent days, this is something which was expected technically based on oversold conditions, counter-trend exhaustion and positive momentum divergence. This likely causes Financials to start to act better, but likely also results in technical deterioration in the some of the yield-sensitive assets. Bottom line, it's likely that risk assets start to turn higher soon for 3 important reasons" Sentiment remains way too bearish given how close to all-time highs indices are trading.. Second, sectors are showing evidence of turning back higher: Healthcare, Financials, Technology, Discretionary. Third, Defensive sectors are turning down sharply.
Long TBT with targets at 32
Long XBI with targets back to 94
Long IHI, with targets at 240, stops under 221
Long SMH, looking to buy weakness, with targets at 112
Short VNQ with targets initially near 87
Additional charts and thoughts below.
SPX pulled back to near unchanged on Wednesday after early gains and it's not certain that prices have bottomed just yet. Despite Technology strength yesterday, we'll need to see more evidence of prices turning back higher and at least regaining 2940. For now, downside support lies at 2900-5 and then 2878 and either of these could be a possibility into G-20 and directly after before rallies get underway. However, it looks right to buy into weakness and not expect a lengthy selloff, for now.
TBT looks to be bottoming near-term given signs of US Treasury yields turning back higher after recent weakness. Evidence of counter-trend exhaustion is now present on TBT, and rallies are likely to near 31.50-32. One should consider selling Treasuries and taking profits in TLT and betting on a bounce in Yields in the weeks to come.
XLU looks to be peaking, and defensive groups like Consumer Staples and REITS have also shown signs of deterioration in recent days which makes further weakness likely during a time when yields are bottoming and Equity indices are within striking distance of all-time high territory. As weekly charts of XLU show, prices are right up against very prominent resistance that has held many times over the years and now are stalling out. IT's thought that rising yields over the next 4-6 weeks coupled with Equities pushing back to new high territory should be a source of weakness for Defensive groups and particularly for the Utilities. Pullbacks to the low 50s are expected for XLU.