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CSX woes might provide buying opportunity for Transports given recent technical improvement

July 17, 2019

Mark Newton CMT, Newton Advisors, LLC


SPX Cash Index

Support: 2997-8, 2992-3, 2968-71, 2952-5

Resistance: 3021-3, 3040-2

7/16/19 Tuesday Technical Video, discussing SPX, Transports, Oil

7/11 Technical Webinar Link, discussing SPX, TNX, DXY, Crude, Gold

My Real Vision Interview filmed on 7/2/19

CNBC Fast Money- 6/26/19- 3 Laggard DJIA stocks that should play catchup in Q3

SPX - (3-5 Days)- Bullish- Tuesday minor selloff failed to undercut uptrends, and rallied up off its lows into end of day. Uptrend intact and should allow for 3020, 3040

EuroSTOXX 50- Bullish- Close at multi-day highs is bullish, opening the door for push to 3600-25

HSCEI- Neutral- No real change over last few weeks and while this has lagged, we'll need to see move over 11042 for bullish and under 10632 for bearish.



Yesterday's' opening line seems to be something to start with yet again.. "Signs of fatigue are evident given the lackadaisical push back to new highs on negative breadth, but Tech and Industrials should be able to buoy stock indices in the short run." Well, yesterday showed the first evidence of a daily close occurring under a prior day's lows, something that hasn't happened in the entire month of July. Volume picked up from the abnormally low Monday reading, which saw SPY volume hit the lowest levels since 2017, but still only turned in 40.5mm shares, with every day since 7/2 finishing under 60mm, remarkably low and below average. Advance/Decline finished just fractionally negative, but yet again the market seemed to be struggling to find sectors which could lead.

Sector-wise, only three sectors finished positive on the session, with Industrials being the sole group up more than +0.50% with Transports helping to lead the way. (After hours, CSX guidedown resulted in weakness that likely causes some "back and filling" to this rally during Wednesday's trading, yet should provide a buying opportunity. On the downside though, Energy was a notable laggard, the worst performing group, down more than 1%, while Technology also shed nearly 1%, with Utilities underperforming as Yields rose, dropping -0.57%.

The other key technical development outside of Transports gaining ground concerned the US Dollar, which made sharp gains vs Euro and Pound Sterling as investor confidence slipped and no-deal BREXIT risk took center stage yet again. GBPUSD sold off to the lowest levels since early 2017, while Euro gave back most of last week's gains, and at 1.1222, still lies higher than the trough seen in April. Dollar gains resulted in commodities losing ground, yet, European equity indices still managed to turn in much stronger performance than seen in US.


Long USO with targets at 14.50 - Stops under 11.60

Long FANG basket, with AMZN, FB, NFLX being key stocks of focus

Long TBT with targets at 32

Long USDJPY with targets at 111

Long XBI with targets back to 94; Stops on weekly close under 82.87

Long XLV with targets at 95.50, then 100

Long SMH, raising targets to 120

Additional charts and thoughts below.

Image 7-17-19 at 1.47 PM.jpg

SPX breached Monday's lows, though remains above key one-month trendline support near 2992. One should look to buy into early morning weakness Wednesday with only a daily close under 2992 allowing for further corrective activity. Given the bullish nature of Tech Hardware, Hotels, and Industrials, it's thought that selloffs still remain largely premature and 1-2 day declines really havent taken away from the bullish picture. While a stallout has indeed happened, this doesn't need to be bearish, and for now, should provide buying opportunities for traders.

Image 7-17-19 at 1.49 PM.jpg

Europe bullish on move to multi-day highs, and rallies expected up to 3600-25. Yesterday's gains in Europe painted a rosier picture for its key STOXX 50 index vs most of the US, which dropped -0.30-0.50%, and yesterday's success should help prices extend this week. Thus, longs in FEZ, the ETF of EuroStoxx50, are preferred.

Image 7-17-19 at 1.50 PM.jpg

Transports have made some major ground in recent days, a bullish development that makes Wednesday's possible pullback buyable for further gains in the weeks ahead. (CSX after-hours earnings whiff, with 2Q revenue at $3.06 billion, vs estimates of 3.14 billion, resulted in prices falling nearly 5% after hours. However, this followed some very good price action in the last week by stocks like UNP, NSC, KSU, which all demonstrated encouraging near-term breakouts. It's thought that minor weakness Wednesday'Thursday should be a buying opportunity for this group given the recent technical improvement. Union Pacific (UNP) looks to be one of the more attractive technically in this group to favor, and/or using weakness in Transports to buy IYT.


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