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Financials, Industrials could lead as Tech starts to underperform

July 24, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com


SPX Cash Index

Support: 2968-71, 2962-3, 2952-5, 2908-10

Resistance: 3009-3010, 3021-3, 3040-2


My CNBC interview from yesterday on KO (Coca-Cola)

https://www.cnbc.com/2019/07/23/coca-cola-still-has-room-to-run-always-buy-all-time-highs.html

Tuesday Technical Video 7/23/19 discussing SPX, SOX

https://stme.in/0SELg19hhL


Link to Thursday 7/18/19 Technical Analysis Video Webinar

https://stme.in/lvcuoALeCc

SPX - (3-5 Days)- Bullish- S&P regained more than half of last Friday's decline, recouping trend from mid-June. Over 3006 in SPX cash (3010-Futures) would be quite positive for a rally to 3020 then 3040

EuroSTOXX 50- Bearish- Break of trend from June is a minor negative and will need to recoup 3500 to expect higher prices. Expect any selloff proves short-lived

HSCEI- Neutral- We'll need to see move over 11042 for bullish and under 10632 for bearish.

Trading Longs: KO, OLED, DFS, JPM, AYX, SHOP, BAX, TWLO, AAPL, ETSY, UAL, GDX, PEP, MDT, ORI, CMI, USB, TSCO, MYOK, MNST, ACAD, IOVA, PCTY, MRTX, SE, AXSM, MCD

Trading Shorts: EA, DUK, PEG, BBBY, URBN, TSLA, CTVA, RCL, CTRP, ENR, SPB

Stocks managed to churn out impressive gains of nearly +0.70%, led by Industrials, Materials and Financials. The latter has been increasingly strengthening in recent weeks, with Financials now up nearly 4% in the rolling 30 days ending 7/23/19, second to only Technology. KBE and KRE were both higher by over 1%, so this looked to be a widespread rally in the group, not just one dominated by XLF performance of a few. Stocks like DFS, JPM, TROW, FITB, RF all showed impressive breakouts and/or technical strength and should be ones to follow in the days ahead.

SOX extended gains again, but right near prior highs and very stretched while XLK also managed to make new all-time highs. The late day announcement of further anti-trust proceedings vs Big Tech very well could lead to a slowdown in this group given the combination of near-term overbought conditions while signs of upside exhaustion are now present in the SOX/SMH. Overall, one should be selective in this group, and consider that the next 2-4 weeks of gains in indices, which i feel are possible, very well might be led by Financials or Materials, vs thinking Tech can continue its dominance. As presented a few days ago, Equal-weighted Tech vs SPX is up against very important levels, so given that Tech is 20% of SPX, this should be a group to keep a close eye on for any instance of slowing that lasts more than a few days.

Outside of Equities there was an outsized move higher in the US Dollar that looked important technically and seems likely to continue. Thus, an interesting environment in the near-term where both US Dollar and Yields are pressing higher. Normally this combination is not a good one for precious metals. Yet, no real deterioration has occurred thus far. However, Emerging markets have born the brunt of this recent Dollar pop and EEM has underperformed , while China and many LatAm markets have stalled out. Near-term, this Dollar strength does look to persist into early August before any correction, and could serve to hinder rallies in both commodities and EM. Charts below and a bit more explanation of some of the comments above.

ACTION PLAN-

SELL EURUSD with targets down at 1.11


Long GOLD by owning IAU, GLD and also GDX for Gold stocks

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

Additional charts and thoughts below.

ESu530.gif

SPX near-term bullish on minor breakout on hourly charts. S&P Futures managed to climb back up above 3004 yesterday, a key area of near-term resistance on hourly charts that should lead to a retest and breakout above former highs near 3023. This bullish move happened largely given some much needed Financials performance, coupled with Industrials and Materials strength (not that the latter has much weight in SPX) While breadth has proven subpar of late, Advance/Decline did turn in a 2/1 bullish ratio yesterday, and the participation looks to carry stocks higher at least into early August. Thus, it remains right to be positioned long, albeit with lesser exposure in Technology and more into Financials and Industrials.

Image 7-25-19 at 8.26 PM.jpg

A meaningful lift in US Dollar yesterday vs Euro and Sterling and the DXY looks to move higher towards 98.25 which would represent a retest of former peaks. Near-term, one should expect some underperformance in Emerging markets, commodities, and for EURUSD to pullback to test and possibly break former lows.

KOm.gif

Coca-Cola (KO-54.33) Additional strength looks likely in KO after the minor breakout of this five year area of resistance directly following KO's breakout back to new high territory. Overall, this stock looks attractive for further near-term gains to $56-56.50, which should represent the first real resistance to this rise. While near-term momentum is close to overbought levels, the act of breaking out of a 20-year base is truly a bullish intermediate-term development and should help this stock outperform on both a near-term and intermediate-term basis. KO managed to turn up sharply back in 2017 vs Consumer Staples and has outperformed on both a 1 and 3 month basis, making this one to favor for additional outperformance.



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