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Emerging markets turning down sharply on Dollar gains

May 20, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2840-2, 2825-7, 2800-1, 2785-9

Resistance: 2900-1, 2921-2, 2952-4



This week we discuss 10 charts of equity indices, Treasuries, commodities and currencies, as we've seen some important moves in the past week. As always, we'll highlight some of the more key developments which occurred and then suggest some attractive risk/reward ideas and how to play them.






Important Developments of this past week (Shown in Bullet form)



SPX near-term trend looks to have bottomed where it needed to, right near 2800 and then made an above-average push higher on decent volume and breadth last week. Prices remain only -2.8% off all-time highs



The Monday morning low 5/13/19 coincided with a big uptick in Put/call spikes intra-day, which proved to be a meaningful signal. Markets also showed huge volume into downside vs upside stocks, marking the first 90% down day that we've seen since 12/4/18. After the prolonged decline from 4/30, this was instrumental in giving clues about a potential short-term low.



Fear seems to be on the comeback, as Equity Put/call ratio moved to its highest level of the year +0.81%, while AAII sentiment now shows more Bears than Bulls by nearly 10%



Emerging markets continue to face downward pressure, and relative charts of Developed vs Emerging show the potential for this recent underperformance to continue in the weeks ahead.



Defensive sectors showed their second week of strong outperformance, while Financials, Tech, Discretionary and Industrials all lost 1% or greater in trading. REITS, Utilities, Consumer Staples, and Communication Services were positive for the week



US 10-Year Treasury yields declined for the fifth consecutive week, yet with a meaningful retest of the 2.33% yields from March that looks to be trying to hold. Movement back over 2.50% is necessary to call for a bottom in yields.



The US Dollar broke out sharply vs many Developed and Emerging market currencies in the last couple weeks. This strength looks to continue short-term, and should put further pressure on commodities and Emerging markets.



Commodities look to be breaking down under 2017 lows, per the CCI index, and given US Dollar strength, look to weaken further in the short run, before bottoming.



Growth stocks have climbed back to new highs vs Value, exceeding former relative peaks made back in September 2018. While stretched on daily charts, this looks to further postpone any transition into Value.



Percentage of stocks above their 10-day ma has risen slightly to 45.15%, while those over their 50 day and 200-day ma have dropped to 48.61, and 47% respectively.





Key Conviction ideas heading into this week



Look to be long Equities, unless SPX gets back under 2840, which would switch positioning to short for a move down to 2775-85, or a max near 2723-5



Treasuries could be peaking out, and Yields look to be stabilizing near prior lows from late March. Shorting Treasuries looks to be a good risk/reward for the US 10-Year Treasury unless rates move under 2.33%.



The US Dollar's breakout looks to have further to extend and it's right to avoid buying dips in GBPUSD, or EURUSD. Lat Am Currencies such as Brazilian Real, Columbian Peso and Chilean Peso all look to extend losses vs US Dollar



Small caps can still work, provided prices remain above 151. This looks to be a better risk/reward for buying into IWM, but important that last week's lows are not violated.



Financials and Healthcare are two sectors to favor, both of which could show better performance than Technology in the coming months. Charts on both XLF and XLV look to be attractive



China, Taiwan and Korean Equities should be avoided near-term and look to underperform further on US Dollar strength. EEM and FXI both still appear like attractive shorts.



Commodities look to extend down further, and it looks premature to buy dips just yet

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SPX trend on a weekly chart shows the index's uptick in volatlity since 2016, where the index made substantial peaks both in January and September 2018, only to recoup all of this damage into late April. This weekly chart still depicts bullish momentum per the MACD indicator, which failed to get derailed on weakness in early May. The pullback moved to within 20 points of the 2785 target, bottoming just over 2800 before recouping about half of the losses. Unless S&P were to get under 2722, which is a 38.2% retracement of the rally up from December 2018, it's thought that this pullback is one to buy into, and rallies can happen into Mid-June without too much trouble. Sentiment has shown some pretty severe contraction in the last couple weeks, perhaps understandably so, with this trade war not producing any meaningful results thus far. But this combination of ongoing uncertainty coupled with just minor weakness in the index is seen as a positive for now. Until/unless SPX gets down under 2840 this week (which would produce a pullback to 2775-85) or under the first 38.2% Fibonacci retracement of this four month advance, SPX still has an above-average likelihood of moving back to new high territory. Upside targets lie at 3040-75, and any further weakness this week should be buyable for additional gains, as this rally does not seem complete.







SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:

Short-term (3-5 days): Bullish barring a move under 2840 on a close,which should lead to a pullback to 2775-85 before any bottom. The move late last week back to multi-day highs was seen as constructive for SPX, as it happened on decent volume and breadth. This broke the one-month downtrend from early May, and goes along ways towards thinking the pullback over the last few weeks is likely complete. Sentiment turning quickly bearish is another reason for optimism, and even if 2840 is broken, it's thought to prove short-lived, and lead just down to 2775 before rallying back sharply. Overall, weekly momentum is positively sloped, so the combination of a pullback to buy into which doesn't change momentum, but which does cause an uptick in bearish sentiment, is thought to be something to consider buying into. Getting back over highs set between 43/30-5/1 would set the stage for a move to 3040-75.







Intermediate-term (3-5 months)- Bullish- The nearterm weekly momentum remains positive for SPX and not overbought after S&P completed the best quarter of performance since 1998 and through April, the best four-month kickoff to a year in over 30 years. While near-term momentum has rolled over a bit and breadth has faltered since late February, we haven't seen much damage, if at all, to the larger trend thus far. The one "Elephant in the Room" with regards to a giant Technical Negative remains Monthly momentum which is negatively sloped and at far lower levels than last Sept/October when looking at RSI, and even on this market bounce, this did not push back to highs. For now, this won't be a concern until more breadth divergence starts to happen on daily/weekly charts. Moreover, the breadth thrust combined with bullish seasonality and lack of complacency combined with lack of Technology deterioration could lead to a bit more gains into the Summer/early Fall before any real drawdown, and it's thought that pullbacks likely prove minor. While gains at this point likely will prove less robust into Summer/Fall and offer some buying opportunities, we'll need to see some evidence of breadth deterioration and more bullishness to have concern on an intermediate-term basis. After all, Advance/Decline for Equities has pushed back to new all-time high territory, and in both prior bear market peaks, we saw meaningful divergence in Advance/decline before the broader market peaked out. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.




10 of the more important charts for this week

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Dollar near-term bullish- Could continue to put pressure on Emerging markets- Daily charts of the Bloomberg Dollar index (above) looks to have made one of the more technically significant moves last week after its highest weekly close of the year. This exceeded the minor consolidation from April and has coincided with strength against Majors like Euro, Pound Sterling and Aussie Dollar, the latter which dropped to the lowest levels in over 3 years. Moreover, this strength has been even more pronounced vs many of the Emerging market and LatAm currencies, as we've seen breakouts in the US Dollar vs Brazilian Real and also Columbian Peso just in the last week. In the short run, this Dollar strength looks likely to persist into June, which could put further pressure on Emerging markets and commodities.

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Ratio charts of Developed vs Emerging market indices show the potential of a larger breakout in relative terms for Developed markets which could play out in the weeks ahead. This recent Dollar strength has caused Emerging market underperformance, and this chart seems to suggest it very well could get worse. A move above April highs in this ratio would result in meaningful outperformance in the short run for Developed v Emerging, and this monthly chart above has formed a Cup and Handle pattern which normallly are resolved by breakouts to the upside. Overall, this helps to add conviction to the idea that Emerging markets are likely to get worse, before they get better, with China, Taiwan and Korea all being chief culprits which have begun to weaken substantially of late.

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China vs the US looks to weaken further in the short run, and could weaken further relatively speaking to test 2018 lows before showing any real stabilization. This chart of FXI to SPY produced a false breakout back in 2017 that was promptly given back last year. While there was some meaningful outperformance in China spanning six months from last October until April of this year, this was given up in a period of roughly one month coinciding with US Dollar gains along with trade uncertainty ramping up. Overall, further weakness looks likely in China which should underperform into June before trying to bottom out. One should avoid trying to buy dips until weekly Demark exhaustion is in place, which will require a move back to last year's lows before being complete. FXI appears like a better short near-term, and additional pullbacks look likely before this can bottom out.

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India is one Emerging market that's Technically appealing to consider.While many emerging markets have experienced quite a bit of technical deterioration of late, India is one of the few that looks attractive just as Elections are set to conclude. The uptrend in the Ishares India 50 ETF, INDY, has been very bullish as shown on weekly charts since lows were made back in 2013 and now recent weakness last week should represent an excellent buying opportunity, technically speaking. Momentum remains positively sloped, and structurally this has improved after having retested and now pulled back from early 2018 highs. Longs are favored with expectations of gains back over 40, while only a move down under $34 would postpone this rally, so this looks to be the risk to the downside.

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Commodities look poised for a near-term breakdown after repeated tests of support, but this could lead to a final pullback in this downtrend and represent a chance to buy into this weakness for gains in the months to come. The CCI index, the Thomson Reuters Equal-weighted Commodity index, has slipped sharply in the last week given the strength in the US Dollar, and looks apt to show further near-term weakness as Dollar strength continues into June while Treasury yields attempt to bottom out. This could put pressure on precious metals, while the Grains could suffer additionally given poor seasonality coupled with lack of a trade deal. Technically speaking a retest of prior lows made last year looks increasingly likely, and should be an area to consider covering shorts and being long. Interestingly enough, Weekly charts showing Demark indicators look to be within 4-5 weeks of having buy signals line up on the CCI index. Yet, this would require further drawdowns into early June before these would materialize. For now, the commodity space looks like a tough place to be. However, one could consider buying on any further weakness in the weeks ahead.

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Treasury yields have shown some signs of stabilizing near prior lows over the last couple days in TNX, and any ability to turn higher here would be seen as a sign of comfort to risk assets, and specifically to the Financials sector. As this daily TNX chart shows, yields peaked out near 3.25% in the US 10Year last November. We've seen a steady slide in yields with an ongoing pattern of lower highs and lower lows. Last week, however, there appeared to be some stabilization over the course of a few days right near prior lows at 2.33% for TNX, a key support level. Some evidence of positive momentum divergence has been in place for the last few months, and Demark indicators showed signs of downward exhaustion late last week (TD BUY SETUP) While it will take a move back over 2.50% to break the downtrend and climb above 2.57% to have real certainty of a low in yields, we appear to be nearing a juncture where this can occur. One can sell Treasuries with a limited downside risk, as if 2.33% is broken, this would postpone the yield selloff and serve as a stop for Treasury shorts.

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Financials have begun to show more signs of strength in Equal-weighted terms, which could be bullish for this group in the months ahead. Looking back to last week's performance, Financials certainly didn't appear too strong on the surface. This group underperformed all other 10 S&P groups with returns of -2.09%. However, last week's pullback directly followed a very sharp period of gains for Financials in the month of April, which saw ETF's like XLF reach the highest levels since last September. Looking at relative charts of the Equal-weighted Financials index vs XLF as a ratio, we see some definite signs of progress lately, which look far more constructive than what last week's performance might suggest. This group appears to definitely be at a key juncture relatively speaking, and it wouldn't take much before this group would begin to show some real outperformance. Relatively speaking, breaking out of the downtrend from last Summer would be a very good sign and in absolute terms, this would occur in XLF with any gain back over $28.14, made the first day of May. Much should depend on whether Treasury yields and the yield curve can stabilize here and begin to turn higher. However, this looks to be right around the corner and should be watched carefully for evidence of confirmation of this strength.


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Technology- Monthly Negative momentum divergence is a concern for this group . Overall, Technology has definitely started to show some evidence of slowing lately, which daily charts showed last month after the breakdown in 2-3 month uptrends for the group. At present, this near-term momentum shift has largely been substituted by strength in other sectors. The monthly chart above, shown as a relative chart of Invesco's Equal-weighted Technology ETF (RYT) vs the broader market still looks to be in good shape based purely on trend alone, with last month's pullback in Tech appearing like just a small "blip" on the charts. However, gauges of momentum like MACD show the highest peak in momentum having been made last year, with this year's early price runup occurring at lower levels in momentum. This is important and a negative for the intermediate-term perspective for Tech, and serves as a warning sign. Any break in the trend would suggest an intermedaite-term decline getting underway, which likely would be negative for the broader stock market given Tech's representation in SPX. For now, this appears as a warning only, but would take on much greater significance on a break, and is something to watch out for going forward.

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AAII Sentiment Survey- Back to inverted levels as the bears outweigh the bulls after last week. Such a Flip-flop in sentiment quickly should be viewed quite positively from a contrarian perspective. While the percentage Bears leads Bulls by 9 percentage points, this has gotten to the most bearish point in sentiment all year. Thus, it's thought that despite the wobbling in stocks over the last couple weeks, the larger trend should prove to be fine, for now, and lead to a buying opportunity back to new all-time highs.

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Equity Put/call ratio has just hit the highest level of the year after last week's spike, signifying a definite uptick in fear. While indices remain below all-time highs by just a fractional amount, it's thought to be comforting to the bulls that there remains such a level of uncertainty. Whether it be due to trade tension, or the dimming of the global growth outlook, it's typically important to watch gauges of sentiment like this closely. In this case, the recent escalation in fear should put a floor into stocks on any further weakness, and likely limit the extent of any further stock index deterioration, for now.

10 Charts of Winners, Losers on Tariff Escalation

May 13, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2825-7, 2800-1, 2785-9

Resistance: 2900-1, 2921-2, 2952-4



This week we discuss important charts of assets which might be winners and losers in this increasingly real Tariff escalation. Steel and Aluminum are thought to be the "winners" in a steadily increasing Tariff filled world, and increasingly look much more attractive from a risk/reward basis after the extent of the decline since last Spring. Automakers, on the other hand, are thought to be potential underperformers. However, as charts show below, both F and GM are looking increasingly better given the short-term improvement from last December as part of ongoing long-term bases. One thing that's not arguable, charts of US Agriculture remain in tough shape, bearish, accelerating lower and no meaningful signs of bottoms in sight. Canada also looks to be rolling over, and given its status as the largest exporter of Steel and Aluminum, looks to be in a tough spot technically after the extent of the rally off December lows. Overall, these charts will try to showcase a few potential winners and a few potential losers of this Tariff battle.









Important Developments of this past week (Shown in Bullet form)



SPX near-term trend is bearish, yet with some above-average signs of stabilization late last week, largely on little to no news regarding Trade. Momentum has grown oversold only on hourly charts, though definitely not oversold on daily nor weekly. Until 2900 is exceeded, it's right to stay the course in expecting possible weakness to 2800.



The last 2 days of last week, SPX closed well up off early lows which is seen as a sign of strength. TD Buy setups are within 3-4 days of forming, and look to occur ABOVE the TDST line. In plain English, this means that a bottom to our selloff should occur this coming week in all likelihood, barring a severe pullback that undercuts 2775.



Emerging markets were hit hard in the last week, with declines in EEM, along with many Latin American indices/gauges like ILF, EWZ, EWW,



Fear gauges like the Intra-day Put/call Ratio on Equities jumped sharply late last week, coinciding right with the low late morning on Friday.



Tech was the worst performing sector last week while Defensive sectors ruled. While all 11 sectors were negative for the week, We saw Consumer Staples and Utilities along with Real Estate, turn in performance better than 7 other sectors, all in the top quartile, while Energy bounced after recent underperformance.



US 10-Year Treasury yields declined for the fourth consecutive week, with yields pulling back to just 12 bps above March lows.



The US Dollar has been largely range-bound in recent weeks after April gains vs both EURUSD and GBPUSD.



Commodities have now sold off for five straight weeks, with gauges like the CCI index hitting the lowest levels since 2016



Both Gold and Crude oil showed some relative outperformance within the Commodity space, stabilizing while others fell sharply, like Cotton, Sugar, Coffee, and the Grains.



Style-wise, Growth has NOT really faltered much at all during this pullback and has been on a steady climb since mid-April.



Percentage of stocks above their 10-day ma fell to 35%, while those over their 50 day ma were down to 56%.





Key Conviction ideas heading into this week



Look to cover shorts and buy US Equities on any pullback down to 2800 with idea areas of support at 2775-2800. For now, trends remain bearish and right to still be defensive.



Treasuries should still be favored near-term as this TNX decline is still above targets and could reach prior lows near 2.33% in yield before any bottom. TLT and other ETF's like TMF, TMV should be favored for gains



The US Dollar's breakout has consolidated sufficiently and this looks to be an attractive risk/reward to sell into both EURUSD and GBPUSD, expecting declines in the weeks and months ahead. If May lows are broken, than "all bets are off" and this would likely signal a larger US Dollar decline.



Small caps should be favored near-term after the strength seen in April. Movement over prior highs near 159.75 in IWM were consolidated last week and should represent a good risk/reward between 150-154 for buying weakness for a move back higher over 161.



Gold is getting very close to a breakout of its recent three-month downtrend which would argue for additional strength in Gold back up to the low to mid- 1300 range. Last week's Weekly mentioned Gold turning more positive above 1280 and this has to be watched carefully now for evidence of accelerating higher. As has been mentioned previously, 1375 is the larger "line in the sand"



Outside of the Metals, it still looks early by 1-2 months to take a stab at buying commodities, and any hint of Dollar gains in the next few weeks would prolong this even longer. For now, commodity benchmark indices have plummeted, largely based more on lack of potential future demand from China rather than any real Dollar strength. Overall, it looks early to expect lows in commodities.

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SPX trend remains bearish after the break of 2900 last Tuesday which served as the first warning sign, followed by the break of 2877, mentioned in the last Weekly Technical Perspective. While the last two days managed to close up meaningfully off the lows, there hasn't been sufficient strength to argue that lows are yet in place. The area at 2775-2810 looks important on further weakness this week, representing both the first meaningful Fibonacci retracement area of the advance from December. Additionally we see that TD Buy setups could be in place on further weakness in the next 3-4 trading days. This area of TDST support lies at 2798 and should provide a cushion if reached sometime mid-to-late this coming week. For now, trends would require a move back up over the area of the prior breakdown, at 2900-1 before being able to turn bullish. Such a move likely would help lead S&P back up to 2950 which for now looks premature.




SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:

Short-term (3-5 days): Bearish under 2901, Bullish over. This past week's breakdown resulted in a quick move down to 2825, new four week lows, causing a further erosion in near-term momentum which failed to reach minimum downside targets to think the decline had run its course. While 2840 was important mid-week in Futures, the counter-trend exhaustion counts have not yet been triggered and momentum is not officially oversold on daily charts. Some evidence of fear on the rise late last week with intra-day Equity Put/call data, but until this materializes on a closing basis and we see prices start to push back higher, with stabilization in Technology in particular, it remains tough to be too positive here in the short run just yet. The back to back movement off the lows last Thursday and Friday DO look encouraging, but yet given an absence of rebound in prices above key levels and lack of any progress in trade negotiation, trends near-term remain negative.







Intermediate-term (3-5 months)- Bullish- The nearterm weekly momentum remains positive for SPX and not overbought after S&P completed the best quarter of performance since 1998 and through April, the best four-month kickoff to a year in over 30 years. While near-term momentum has rolled over a bit and breadth has faltered since late February, we haven't seen much damage, if at all, to the larger trend thus far. The one "Elephant in the Room" with regards to a giant Technical Negative remains Monthly momentum which is negatively sloped and at far lower levels than last Sept/October when looking at RSI, and even on this market bounce, this did not push back to highs. For now, this won't be a concern until more breadth divergence starts to happen on daily/weekly charts. Moreover, the breadth thrust combined with bullish seasonality and lack of complacency combined with lack of Technology deterioration could lead to a bit more gains into the Summer/early Fall before any real drawdown, and it's thought that pullbacks likely prove minor. While gains at this point likely will prove less robust into Summer/Fall and offer some buying opportunities, we'll need to see some evidence of breadth deterioration and more bullishness to have concern on an intermediate-term basis. After all, Advance/Decline for Equities has pushed back to new all-time high territory, and in both prior bear market peaks, we saw meaningful divergence in Advance/decline before the broader market peaked out. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.







10 charts of assets potentially affected by further Tariff hikes

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SLX-VanEck Vectors Steel ETF-Attractive from a counter-trend standpoint. Steel companies could potentially prosper in the wake of higher tariff prices, both by higher steel prices, along with being forced to buy more domestically. Weekly charts of SLX show the steady slide of Steel stocks since peaking out last February. While SLX is down more than 25% from last year's peak, (and still down over 65% from its all-time high peak in 2008, the progress it's made from 2016 is somewhat encouraging technically. The entire consolidation from last year still lies within the upper 1/3 of the range in the last two years. Furthermore, the mild downtrend was exceeded in late 2017 which has helped intermediate-term momentum to stabilize. The pattern resembles the making of a bullish base, which would grow far more bullish over $52 for a larger move back to former highs. Downside should be limited in this case to former lows at $33.66, but looks like a good risk/reward given the potential upside, as well as being able to buy into this 25% cheaper than last year. When the Dollar starts to turn down more aggressively, this should also be a benefit to Steel.

US Steel (X- $15.66) Pullback to long-term support should offer an attractive entry point. Looking back at the last 10 years of trading, X has bottomed out on multiple occasions near this level, starting back during the low following the 2007-2009 bear market in 2009. During 2011-2013, US Steel bottomed out between 16 and 18, while briefly undercutting this in 2016. Monthly momentum is nearly oversold again, and the decline in Steel on looks to be very overdone, with signs of TD Buy Setups now in place (9 consecutive closes under the close from four months ago) Overall given the downtrend from last year, it will make sense to keep size small until X can at least make a new monthly high. But this clearly looks to be an interesting risk/reward here given the extent of the decline while tariffs look to be increasing, not going away.

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Alcoa (AA- $25.04) Alcoa might also stand to benefit, as the aluminum industry would also be able to charge even higher prices and expand production. This stock has also been very hard hit of late, dropping nearly 60% from highs made around this time last year, just 13 months ago in April 2018. Technically trends started to weaken last Summer as AA began to lose ground and this stock accelerated lower to below 50% absolute retracement levels. Then a four month sideways period of consolidation started before this broke down again in the last few weeks, closing last week at the lowest level since late 2016 just ahead of the election. Weekly charts will show counter-trend exhaustion this coming week as a "buy" using the TD Combo indicator from Demark (not confirmed) but signs of the Aluminum industry rebounding "should" be good for stocks like Alcoa.

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Century Aluminum (CENX-$7.88) Increasing stabilization here in recent months after enduring an even more precipitous drop than AA in the last year. CENX traded up near $25 last Spring and has fallen to under $10, a huge 66% decline. Momentum on weekly charts has begun to improve in recent months on the decline flattening out, yet still no real signs of this turning higher. Movement back up over $9.91 would bring about an above-average intermediate-term gain for CENX, and should allow this to recoup at least 1/3 to 1/2 of its prior decline. The area at $5.40 should prove to be maximum support on pullbacks, so the risk/reward here is quite attractive in risking $2 on the downside for a chance to get back to the $20's.

Ford (F- $10.38) Ford is looking increasingly more attractive from a counter-trend perspective, despite this having traded lower in a very symmetrical downtrend for the last five years. The last major swing peak happened near $18 back in 2013/4 and ever since, this has seen a steady slide. Since the beginning of 2019 however, Ford has pushed higher from $7.41 up over $10 and still could reach $11.50-$12 without too much trouble before this stalls out. The ability of F to reclaim $12.15 would be a major victory in surpassing this long-term downtrend, arguing for much higher prices. For now the long-term monthly chart pattern since 2001 looks like a giant long-term base in the process of being built. Thus, when many speak of US automakers losing out given the amount of Steel in their cars, technically it's fair to say that this very well might be the case of "sell the rumor" buy the news, and that tariffs might prove to be rolled back, given how interesting the charts on the Automakers are starting to appear on long-term charts. Yet, it's right to hold off on getting too enthusiastic just yet until verifiable progress has been made in exceeding $12.15. But such a move would likely lead to Ford climbing at least 50% technically, so this is worth monitoring closely.

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General Motors (GM- $37.89) Attractive to take a stand from a counter-trend perspective after its recent drop from over $40 and would be right to buy dips unless this gets under $36.25 which would likely allow for a final washout down to near $34 before this bottoms. Similar to Ford Motor Co, GM has been forming a lengthy base for some time, most recently from the highs made in 2017 in the mid-$40's. While its near-term trend is negative, Automakers like GM are thought to have different issues besides just Steel rising in price due to tariffs. After all, these stocks have languished in range-bound consolidation during a multi-year decline in Steel. Thus, a mild uptick in Steel prices likely wouldn't be the factor that causes these to remain under pressure in the months ahead. Weekly momentum has been upward sloping and rising since last December, and it's thought to be wise to try to get involved with stocks like GM and F which have already been beaten up badly and likely would not suffer the same degree on any market pullback. Movement back over $41.50 would be a very bullish move for GM, while it's recent pullback has given investors a better risk/reward to try to buy dips.

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Soybeans - Grain charts remain bearish and tough to bottom pick-Soybean charts continue to be a major source of focus during these Trade talks given that not only China is dependent on US Agriculture, but also Canada to the immediate North. Given that Canada imports ~$25 billion in agricultural products each year from the US, if tariffs are put into place that end up harming Canada, they likely could choose to retaliate. Technically speaking, the decline in Grains has been seemingly relentless over the last seven years since peaking in 2012. The breakout attempt in Beans in early 2018 proved to be very much the "Head Fake" The subsequent breakdown caused this entire pattern to be viewed as a symmetrical triangle that could lead to a more substantial decline. (False patterns tend to be important sometimes in their velocity) Last week's close has now brought prices to the lowest levels since 2007. Weekly momentum has gotten oversold but yet countertrend measures still look to be 3-5 weeks away. Furthermore, from a monthly standpoint, the larger charts still look quite unattractive and require some real improvement in getting back over 900 before paying much attention. In the short run, additional losses here look likely.

Canada -SPTSX-(S&P/TSX Composite Index ) Increasingly unattractivehere with prices seemingly having stalled out near highs of a long-term trend channel going back since 2007. It's been thought that Canada could be one of the largest losers in the event that tariffs continue to be hiked. Canada is by far the largest exporter of foreign Steel and Aluminum coming into the US, and despite having rallied over 15% from last December lows, weekly charts show this area to be very strong resistance, having held on numerous breakout attempts going back over the last 10 years. Prices violated the four month uptrend in the last two weeks, and Demark exhaustion is present on weekly charts at recent highs which has coincided with peaks in price historically, when looking back in 2014/5, 2011, and also in 2007. While getting over 17,000 would negate any negative thoughts, the risk/reward seems to suggest selling into gains and awaiting the outcome in the next 4-6 months, given a poor technical risk/reward above 16,200. Intermediate-term support lies near last year's lows at 13776, which can't be violated without severing the entire uptrend from 2009.

USD/CAD - Dollar/Loonie intermediate-term breakout has since started to stall. Looking back, the pattern became far more bullish for US Dollar vs Canadian Dollar back in 2013 when the breakout occurred above this long-term trendline. Movement up to 2016 occurred, but since has proven very choppy and uneventful. Technically speaking it's still worth being long US Dollar vs Canadian barring a move down under 1.3275 initially, which would arouse suspicion. Further declines that undercut 1.3069 would argue for some meaningful Canadian dollar strength, indicating that tariffs likely had been avoided. For now, this is too premature to call and still likely that additional losses happen for the Canadian Dollar (shown as gains on this chart v USD) Movement back above 1.3661, while not expected immediately, would be very bullish for US Dollar /Canadian Dollar cross, causing a move up to the low 1.40s range. Overall this is important to monitor, but for now does not give a clear cut message given the last few months of trading.

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Crude oil's decline looks to be close to stabilizing near-term but yet still bearish on the trendline break. While the break of $63 was definitely seen as a bearish development, there hasn't been sufficient strength to think any type of meaningful low is yet at hand. Looking back, Crude's breakdown along with Treasury yields occurred just before Equities started to weaken (interesting given that both bottomed on the same day back in December 2018) While the Venezuelan and Iranian tension might eventually drive Crude back higher to retest recent highs, the extent of the breakdown in prices on daily and weekly charts looks more serious than anything we've seen in the last four months. Pullbacks to $58.50-59 look possible and this should allow for a better risk/reward situation to buy into. If prices turn up this week and get back above $63, then any further decline is postponed and a larger bounce to the mid-to-high 60s should get underway.

Trade tension brings about early Futures plunge to start the week

May 6, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2882-4, 2865-7, 2836-7, 2785-9

Resistance: 2921-2, 2945-9



Summary: Bullish trend could be under pressure in the short run with a close under last Thursday's lows at 2900-1 (SPX & ES_F) US Futures have plummeted Sunday evening as Trump threatened to hike tariffs this coming Friday, while China considering delaying the upcoming trade talks. This would represent the first real sign of extreme price reversal from highs. Even if this proves short-lived and tariffs are not hiked and prices move back to highs, it will take an even further toll on momentum which has been tapering off in recent weeks. Bottom line, failure to recoup what's been lost Sunday evening should jumpstart at least a minor correction for US Stocks.



Looking back, the first four months have certainly been one for the record books. S&P has pushed higher by over 17%, representing the best start to a year in over 30 years. US indices have reached new all-time high territory (except the DJIA) ,and have done so largely in tandem with a global bond market rally, while the US Dollar has strengthened, and Commodities have had a difficult time finding Footing. Meanwhile, the FOMC meeting results largely seem to have comforted the market, and prices rose to close near highs of the week. While the net change this past week was only fractionally positive, groups like Healthcare and Financials showed very good progress, each up more than 1% to lead performance over all other Sectors. Meanwhile, Energy turned down sharply, dropping 3.26% as Crude oil's sudden drop resulted in many stocks violating uptrends from earlier this year.



Overall, the two biggest technical developments heading into this past week were certainly the breakout in Treasuries, along with a similar move in the US Dollar. Commodities turned down sharply and have fallen hard now for the past couple 6 weeks. Emerging markets and China have also faltered. Meanwhile many Equity sectors which coincide with Commodity performance have also been hard hit, Materials being one in particular, though with Energy being certainly more popular and a larger percentage of SPX. But the key theme currently is that commodities are NOT the place to be near-term, and that Dollar strength has hurt many commodity specific names.



Meanwhile, Healthcare has come back with a vengeance, as last week's Weekly Technical Perspective discussed. This group makes a lot of sense from a risk/reward perspective after a lousy first four months and then heading into a seasonally bullish time for the group from May-July. Financials also are a group worthy of mention that had underperformed dramatically but have come back strongly given the Yield curve steepening over the last month. We've seen minor breakouts in stocks like BAC and C, very meaningful stocks to the Financial space, while the longer-term downtrend in Financials is now being challenged. ( Some thoughts and charts on this below)



Bottom line, heading into the month of May being overbought certainly gives reason for pause, as market participants know that this rally is likely running on borrowed time, being up nearly 20% heading into a seasonally weak time. (We'll see if Trump's comments prove to lead to action, or whether this is just a rumor and the Trade talks can resume. ) The last few weeks have certainly felt like a stalling out was approaching, with groups like Semiconductors turning down sharply and big gap-downs in key stocks like MMM and GOOGL while groups like Healthcare have been left to pick up the slack. Yet, counter-trend exhaustion is all but non-existent currently after it failed across the board in early April. It's thought that if indices are going to make any kind of meaningful peak, there should be widespread exhaustion across indices and sectors. The intermediate-term momentum is also still quite positive, and many remain under invested, waiting for that first big pullback to buy into. Sentiment polls are largely in agreement with this, whether it be AAII, or BofAML Portfolio Managers sentiment polls, showing a willingness to stand aside and not participate in this largely Tech dominated rally.



All in all, despite some minor negatives with regards to Technology stalling out a bit and lesser breadth now than late February, we've seen some successful rotation without harming price action one bit. Provided that uptrends remain in place, it's right to stick with trends and expect that S&P (when getting over 2950) should have little overall resistance until 3040-70 and should still be trusted. If overnight weakness persists into Monday and can't be recouped, then on evidence of Tech and Financials turning down, along with Healthcare, the three largest percentage sectors for SPX, it will be wise to take profits and/or stand to the side. For now, a long bias still makes sense. If/when SPX gets back over 3025, the time will be right to switch intermediate-term views from bullish to Neutral with any hint of larger decline bringing about a possible negative view, particularly into this Fall. For now, it's right to stick with trends





Key Conviction ideas heading into this week



Technology has shown some signs of waning in the last couple weeks, which should be watched carefully in the coming week. While prices and relative charts have stalled a bit since 4/24, they have not yet turned lower, but any breakdown in Tech over the next few weeks would be seen as a negative and as a bearish catalyst for stocks.



Financials outperformed all other sectors besides Healthcare this past week, returning 1.21% in S&P 500 Financials index vs a return of 0.20% for the broader market. Relative charts look to be very close to breaking out of trends since early last year, and something of the sort would be used to FOLLOW this group, expecting meaningful outperformance in the weeks and months to come. For now, Financials as a sector lies at Make-or-Break levels, but truly important to the market.



Healthcare should reach its first short-term target this week, and for those not involved, I'm expecting some kind of stallout into this coming week on a very short-term basis. Longer-term, I do believe Healthcare outperforms and should still turn in above-average performance for May/June/July. The next week will show whether this group just stalls out, or whether it reverses briefly (which would be a buying opportunity) Healthcare Services (XHS ) and Pharmaceuticals (DRG index) could outperform and should be overweighted.



Movement in both the US Dollar and in Treasuries have proven a bit "choppier" in the last week, and while Treasuries did extend gains down to near the first 2.45% target, the snapback thus far has left Yields near key junctures. The US Dollar meanwhile, broke out and then consolidated gains over the last 2 weeks, and also will need to show some signs of stabilizing here.



WTI Crude's decline looks to be nearing support, but could still weaken towards %$58.50-$59 in WTI this coming week before putting in a short-term trading bottom. As discussed last week, the larger breakdown of this trend from December looks bearish and likely puts in a near-term top that doesn't get exceeded right away. Given the prior Positive correlation between US stocks and Crude (both bottomed on 12/24/18 and moved straight higher) it's important to watch Crude carefully



Energy as a sector should be nearing its first area of support after the breakdown over the last 2 weeks, but this looks meaningful and negative technically. One should use gains in Crude as a chance to sell into this into mid-May, expecting further intermediate-term weakness in this sector. Relatively speaking, Energy stocks violated support last week on Crude's decline, making this sector one to avoid.



Industrials as a sector still look quite bullish technically after the breakout into late April and resulting consolidation. Transportation stocks look like a group to favor and one should stay long Industrials barring a move back under 76.59 in XLI or under 10630 in DJ Transports.

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MSCI World index needs to be highlighted again this week, as prices have pushed up to within striking distance of September 2018 highs and are now showing their first signs of counter-trend exhaustion on this rally. This suggests a high likelihood of at least some kind of slowdown over the next few weeks and MXWO should be watched for evidence that prices slow down here and reverse, or managed to successfully get back above this prior level of highs last year. Both would be important developments, but until a breakout happens, the higher probability result is that this rally slows.




SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:

Short-term (3-5 days): Under 2901 on a close turns trend bearish, and could bring about quick move down to 2795-2800. Over 2901 keeps trend bullish. Tech has slowed a bit and Financials are up against important relative resistance, but meanwhile, we have bullish price action out of the Industrials (Transports) and Small caps have come back with a vengeance. Volume, breadth have been largely subpar, yet we haven't seen much evidence of price weakness just yet (And maybe last night's pullback is the start) For now, 2901 is key and under at 2889, 2877. Meanwhile the ability to recover and regain 2950 this week points to 3040-75 which should be an area to sell into.






Intermediate-term (3-5 months)- Bullish- The nearterm weekly momentum remains positive for SPX and not overbought after S&P completed the best quarter of performance since 1998. While XLK, XLY and XLI were all up near former peaks, it will be right to follow prices should they get above, until some evidence of weakness arises. The one "Elephant in the Room" with regards to a giant Technical Negative remains Monthly momentum which is negatively sloped and at far lower levels than last Sept/October when looking at RSI, and even on this market bounce, this did not push back to highs. For now, this won't be a concern until more breadth divergence starts to happen on daily/weekly charts and we remain in the seasonally bullish month of April, which has been higher 12 of the last 13 years. Moreover, the breadth thrust combined with bullish seasonality and lack of complacency combined with lack of Technology deterioration could lead to a bit more gains in April before any real drawdown, and it's thought that pullbacks likely prove minor. While gains at this point likely will prove less robust into Summer/Fall and offer some buying opportunities, we'll need to see some evidence of breadth deterioration and more bullishness to have concern on an intermediate-term basis. After all, Advance/Decline for Equities has pushed back to new all-time high territory, and in both prior bear market peaks, we saw meaningful divergence in Advance/decline before the broader market peaked out. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.






10 of the most important Charts heading into this week, covering indices, sectors and ETFs

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S&P Futures- Overnight losses have caused move down to new multi-week lows. While somewhat severe to see losses around 2% overnight, the real key will be whether futures can regain 2901 and close above that level on Monday. For now, this trend has gone higher largely unabated for four months but yet momentum has now gotten overbought while breadth and momentum have begun to taper off lately. So the month of May will truly be important as to whether trends break, or whether S&P finally reaches 3000 and higher before topping out. It's thought that the waning in Technology in recent weeks could be a concern but is countered by Financials trying to break out, while Healthcare and Industrials have both been shaping up. Thus, trade fears are likely to prove temporary to markets and Advance/Decline for "All stocks" remains at record highs. To have real concern, we'll need to see more deterioration in daily and weekly trends. While failing to recoup Sunday's weakness suggests this might be starting, we'll need to see more trend damage in absence of that, then pullbacks should prove buyable.

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TNX- US 10Yr. Treasury Yields Bearish break of one-month trend suggests additional downside for Yields - Last week saw a breakdown in the trend for yields which had been slowly showing a rebound at work in Yields back up to 2.60%. However, yields did not get back above former yield Lows from last Spring/Summer and then the decline under this uptrend started in earnest last week. Closing down at multi-day lows after the break of this uptrend was a negative for yields, and has since followed through. The break under the mid-point of its Daily Bollinger band likely results in this testing 2.45% if not 2.40% before this stabilizes. For now, it's right to be long TLT, and avoid TBT, preferring to stay long Treasuries and in ETF's that give exposure to long Treasuries.

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Russell 2000 has begun to show some real strength on an absolute basis, and relative charts have also stabilized in IWM/SPX that bode well for Small caps in the short run. Weekly IWM charts show prices having extended gains above the highs of the last few weeks and now are at the highest levels since last October on a close. Specifically, this technical improvement looks likely to carry IWM up to challenge August highs at 173.39. While this move might take some time to complete, the bottom line message here is that Small-caps have bounced back sharply and something to favor in the near-term as an area of outperformance.

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Technology in Equal-weighted terms has started to wobble a bit in relative terms over the last couple weeks. The Equal-weighted Tech ETF v SPX has broken an uptrend from December, but thus far has shown no major evidence of any real downturn. But given the recent decline in Semi stocks and GOOGL lately, it's worth paying a close eye to Technology for any hint of this turning back lower. While Technology remains the largest sector in SPX and has been the best performing this year, this last week saw the group mid-range in performance, and this relative chart shows the slowdown in the group since 4/24 about two weeks ago. A more material breakdown in Tech into mid-May would give the Bears some additional ammunition regarding the possibility for stocks to weaken.

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Financials look to be nearing a real Make-or-Break in their relative trend vs SPX that should allow for a big improvement in relative performance if this area is exceeded. This coming week could bring about further near-term strength, as companies like Berkshire Hathaway (BRK/A), the largest component within Financials, announced a repurchase of $1.7 billion shares in 1Q and its Cash and Treasury holdings now exceed $114 billion. Overall, a relative breakout in Financials would give some real conviction to the idea of SPX being above to exceed 3000 before any stalling out, and this sector is one of the more important to keep a close eye on this coming week.

Energy looks to have completely broken down in the last week after trending sideways since early February. This relative chart of OIH vs SPX shows this sector largely not having participated at all on WTI Crude's rally in recent months. However on the first sign of a meaningful pullback in Crude, like we saw last week, the Energy sector reacted pretty violently in moving lower, with many sector ETFs like OIH showing meaningful trend violation. This suggests further underperformance in Energy, and while near-term absolute charts have gotten stretched, bounces in this group are likely to prove shorting opportunities for pullbacks in the months ahead. Unfortunately the snapback in performance for this group back in January looks to have proven remarkably short-lived and last week's trend violations make Energy bearish.

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CCI index, the Thomson Reuters Equal-weight Commodity Index, still looks to weaken a bit more over the next 1-2 weeks, but is growing closer to a key area of support marking lows in CCI since Summer 2017 when this bottomed out last, before embarking on a big rally into May 2018. Given that CCI is approaching a 1 year anniversary of last year's major peak, it's likely that prices could bottom out as we near that date in the next few weeks. Counter-trend exhaustion is within 1 week of forming on weekly charts of the CCI, and former lows which have been hit 2 addiitonal times after bottoming in June 2017, are likely to result in this slowing down in its descent. Therefore, if the Dollar starts to peak out into Mid-May, that could create a perfect scenario for CCI to bottom and for most Emerging markets and commodities to try to form a technical low and bounce. Those who like buying dips should give DBC a hard look into mid-May on any further weakness.

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Emerging Markets look to have stabilized in the last week, and ETFs like the IShares MSCI Emerging markets ETF managed to hold ongoing trendline support and make an above-average bounce off the lows. Technically this makes the trend a bit more bullish near-term and still creates an attractive risk/reward scenario given the extent of price right near important trendline support. Any violation of lows near 43.45 would be a big warning signal for declines in EEM down to test March lows. Meanwhile, getting up above $50 would allow this recent bullish bounce from December to continue, targeting $46.50 before any resistance. Overall, EEM looks attractive from a risk/reward standpoint and should be favored for further gains.ç

The excitement towards Cannabis stocks looks to be building, but the price action itself has been largely subdued over the last three months. This index called the BI Global Cannabis Competitive Peers has flattened out after a sharp rally to start the year, and will need to either breakout above recent highs near 240, or violate lows right above 200 to have faith in the near-term trend. However, given the length of the sideways churning, it looks right to monitor this space and simply follow whichever way the breakout takes it.

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Bitcoin and other Crypto-currencies look to have shown some above-average strength in recent weeks, which bodes well for further rallies in the short run, with more proof needed for intermediate-term conviction. Heading into this year, the excitement about Cryptocurrencies had nearly all vanished, despite the convictoin about the success of Blockchain. Bitcoin however, has managed to rally more than 55% off the late December lows, an area that represented nearly an exact 1 year anniversary from where Bitcoin had peaked back in late 2017. While the gains off these lows have been impressive they're just a fraction of wht was last in 2018 after the torrential run-up. Last week's close a tthe highest levels since last November is bullish however in the short run and makes a good technical case for further strength up to near 6000 before any minor stalling out. While any larger rally is likely to require some backing and filling, for now, it looks right to hold longs here yet again, with tight stops, expecting further gains are possible.

Healthcare on the Rebound, while Treasuries and US Dollar both show technical breakouts

April 29, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2886-8, 2865-7, 2836-7, 2785-9

Resistance: 2921-2, 2945-9



Summary: Heading into the final two days of April, SPX has managed to push back up to new all-time high territory along with NASDAQ Composite, and NASDAQ 100 index, a process which started last Tuesday. Most of the reasons for market uncertainty have proven to be largely unfounded thus far heading into the end of April, and indices are set to record monthly gains of greater than 2%, helping April's normal bullish seasonality remain true to form. In all likelihood this will be the fourth straight month of gains and Year-to-Date performance has proven to be stellar, higher by over 17.25% for SPX through 4/26/19, more than recouping the losses seen late last year. While non-technical reasons like Earnings success are being touted as reasons for this year's gains, most of the rally has occurred within a very defensive backdrop in sentiment after some major De-risking over the last few months, which still largely looks to be in place.



The biggest technical developments last week, however, occurred not with Stocks, but with Bonds and the US Dollar. We saw a big breakout in the Dollar vs Pound and Euro, while US Treasury yields turned down sharply, largely following what had begun to happen in Europe last week. These need to be watched carefully and particularly the Rate move, given that historically when stocks and bonds start to trend together after large periods of the opposite, it can lead to a change in trend, particularly when coinciding with near-term overbought conditions in equities when sectors begin to implode one by one. Bottom line, last week's rally in both Treasuries and Dollar looks to continue near-term.



Interestingly enough, this last month has proven to be very different than the first three with regards to market health, despite April's gains. While structurally indices have been pushing back to highs, various sectors have been all "taken out to the woodshed" one by one and have made it a bit tougher to make money, despite SPX set to close higher by more than 3% for the month of April. Declines in sectors like Semiconductors last week (INTC) along with Industrials (MMM) and Energy proved to have little to no effect on broader index movement, but Technology has started to tail off a bit as a sector in the last week. If this continues and this sector begins to weaken, that would certainly be something to note that could coincide with markets starting to weaken. Treasuries have begun to rally sharply again, and this also is something not to take lightly. Until proper evidence of stocks breaking the uptrend from late December begins to materialize, it's right to still favor that this market has the potential to push up a bit more. 



Finally, the subject of this week's report centers on highlighting some key charts within the Healthcare space. This group looks to be turning higher in the short run and looks to continue, and as the 2nd largest sector within SPX, near-term bullish technicals are present in XLV along with XHS and the DRG index. Following one of the biggest cases of mean reversion this year, last year's outperformer, Healthcare, is now this years worst performing sector. However, the group was last week's best performer, and we've seen some meaningful snapback in some of the hardest hit groups, like Healthcare Services( more on this below)







Key Conviction ideas heading into this week



Healthcare is likely to outperform in the short run, and very well could have begun a larger rally to kick off the seasonal strength that is prevalent during this time. XLV should be favored for more strength and specifically, sub-sectors like Healthcare Services (XHS ) and Pharmaceuticals (DRG index) could outperform and should be overweighted.



Treasuries should extend last week's gains, and TLT and other ETF's like TMF, TMV should be favored for gains with yield targets on the 10-Year near 2.45, then 2.40%. Last week's breakdown in the 10-Year Treasury yield looked important in following European yields and looks likely to continue near-term.



The US Dollar's breakout also looked important technically, exceeding a multi-month downtrend, and should result in further weakness in EURUSD and GBPUSD. One should look to sell Euro and Pound Sterling, thinking both of these move lower this coming week. Dollar/Yen is not as convincing.



Gold's move back up above 1280 is a positive development, favoring near-term Bullish lean in Gold, expecting movement back to 1330-40. Movement over 1370 is needed for an intermediate-term bullish stance.



WTI Crude's decline warrants buying into this initial pullback as part of its existing uptrend. However, the extent of the momentum downturn as a result of Crude's weakness could be important in causing a May top and pullback in the month of May. Tactically, it's right to buy into Crude and Crude ETFs' this coming week on any further weakness, with the thought of selling into gains on any move back higher to test recent highs



DJ Transportation Average late week pullback last week should prove buyable, technically, and it's right to own IYT and also XLI on this recent pullback, expecting a bounce this coming week. 




MSCI World index has not moved as sharply higher as SPX and other US indices and shows that globally, most stock indices remain under levels hit back last September, and also under last January's peak (which happened amidst very overbought conditions.) The current trend looks likely to test prior highs in the next few weeks without too much trouble, but this level very well could be important in causing some slowdown to the current move globally. We've already seen some signs of China starting to waver a bit in the last week, which looks to be continuing this week. So, while many have an SPX focus, it's' proper to keep in mind the price action of global indices like MXWO which peaked exactly where SPX did back in January 2018 along with September, for clues as to US markets and what might be in store. 




SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:

Short-term (3-5 days): Bullish over 2877, Bearish Under on a close- Still right to have a positive stance, as indices have been able to push higher despite sectors like Industrials, Energy and parts of Technology (Semis) starting to weaken. Sectors like Healthcare, the 2nd largest sector by Percentage, have been able to rally back and participate enough to buoy the market during this time, and it's thought that 2945-50 likely is challenged this week in SPX cash before any stalling out. Movement above 2950 points to 3040-75 before any reversal, while under 2889, and 2877 are both meaningful in SPX cash as support to keep an eye on.




Intermediate-term (3-5 months)- Bullish- The nearterm weekly momentum remains positive for SPX and not overbought after S&P completed the best quarter of performance since 1998. While XLK, XLY and XLI were all up near former peaks, it will be right to follow prices should they get above, until some evidence of weakness arises. The one "Elephant in the Room" with regards to a giant Technical Negative remains Monthly momentum which is negatively sloped and at far lower levels than last Sept/October when looking at RSI, and even on this market bounce, this did not push back to highs. For now, this won't be a concern until more breadth divergence starts to happen on daily/weekly charts and we remain in the seasonally bullish month of April, which has been higher 12 of the last 13 years. Moreover, the breadth thrust combined with bullish seasonality and lack of complacency combined with lack of Technology deterioration could lead to a bit more gains in April before any real drawdown, and it's thought that pullbacks likely prove minor. While gains at this point likely will prove less robust into Summer/Fall and offer some buying opportunities, we'll need to see some evidence of breadth deterioration and more bullishness to have concern on an intermediate-term basis. After all, Advance/Decline for Equities has pushed back to new all-time high territory, and in both prior bear market peaks, we saw meaningful divergence in Advance/decline before the broader market peaked out. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.





10 of the most important Charts heading into this week, including Healthcare focus

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SPX - Close at weekly highs with lack of any deterioration keeps trend bullish- Movement back to new highs in SPX joins the NASDAQ, while DJIA remains nearly 300 points below, thanks in part to the poor performance of many Industrials last week. (MMM, FDX, UPS) No counter-trend exhaustion is in place, and trends still don't show any weakness with last Friday's late strength carrying price back to new highs. The area at 2945-50 has importance for S&P into the first part of May, but over this level would suggest a move up to 3040-75 before this move stalls out and reverses.

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TNX- US 10Yr. Treasury Yields Bearish break of one-month trend suggests additional downside for Yields - Last week saw a breakdown in the trend for yields which had been slowly showing a rebound at work in Yields back up to 2.60%. However, yields did not get back above former yield Lows from last Spring/Summer and then the decline under this uptrend started in earnest last week. Closing down at multi-day lows after the break of this uptrend was a negative for yields, and has since followed through. The break under the mid-point of its Daily Bollinger band likely results in this testing 2.45% if not 2.40% before this stabilizes. For now, it's right to be long TLT, and avoid TBT, preferring to stay long Treasuries and in ETF's that give exposure to long Treasuries.

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Dollar upswing might prove temporary, but for now, last week's breakout important and a minor positive Last week's breakout in the Dollar vs major Currencies like Pound Sterling and Euro looks important, and should lead to further USD strength into mid-May before any real turn. This larger pattern was thought to be negative given the choppy consolidation in the last couple months after the decline from last November. Yet, last week's breakout does make this a bit more constructive in the near-term and will need to be reversed and get back down under the area of the breakout. This is thought to be a negative for most Emerging markets, including China, which has started to turn lower in recent days. Some of the Materials breakout lately has been given back, but due to yields also turning down, the net effect has still been largely positive for the Metals.

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Crude oil downturn last week could prove important - Last week's decline in Crude looks important in the short run, undercutting the lows of the last couple weeks and a one-month uptrend from late March. While the larger trend arguably is still intact, this decline could take a toll on momentum and prove to be important and negative as Crude gets into May. Near-term, one would look to buy into this recent decline on any further weakness, expecting a decent snapback to test highs, even if Crude has begun to peak out. Most declines take time to develop, and in this case is certainly no different. No counter-trend exhaustion is yet present, and it's difficult making a case for any kind of top based on just minor weakness. Yet, the momentum downshift looks important, and will be important to see stabilization and a turn back to highs sooner than later to have confidence that this move can continue. 

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Gold- Move back up above 1280 looks important and structurally bullish in the near-term. Move above 1300 would add to the bullish case for an impending rally back to 1360-70. This latter level is considered important in marking the highs of an intermediate-term bullish base in Gold, and getting above 1370 would argue that the next bull market in Gold is underway. Near-term, the ability of prices to have recouped 1280 warrants giving longs serious consideration, and buying in small size, planning on adding above 1300.

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VIX- Some interesting resilience in the CBOE Volatility index lately as "vol" managed to hold above the highs of the last two weeks, regardless of indices having closed back at new highs. It's thought that this divergence likely should lead to some degree of snapback sometime in the month of May. However, thus far, no ability to close above the prior week's highs, which will be important, and counter-trend exhaustion thus far is premature. The divergence, for now, is key to observe, with higher implied volatility, despite higher prices.

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AAII, the American Association of Individual Investors sentiment poll, has shown two straight weeks of bullish sentiment dropping, despite prices moving higher. The spread between Bulls and bears is just 13.5% as of last Thursday, 4/25/19, and likely means that any correction that happens in May should prove short-lived, given a relative lack of enthusiasm for this rally. The Equity outflows and BaML Global Fund Managers poll has been highlighted in recent weeks given the pessimism shown towards equities while "Cash" has been a big overweight. Until this poll widens back out above 20% bullish, it's seen as indicating a bit of a guarded stance. 


Healthcare vs SPX- The snapback rally in Healthcare is very much underway, just at a time when this group normally enters a time of bullish seasonality. Healthcare has been the worst performing group of the year, but the recent stabilization in Healthcare Services and Pharmaceutical stocks is thought to be important, while Biotech will require a bit more to have confidence of a larger bounce. The chart shown above is of the S&P 500 Healthcare sector vs SPX, and the relative downtrend took a steeper more capitulatory turn earlier this year before bottoming out a few weeks ago. Given that this got so stretched to the downside, a snapback rebound was expected to be near and now looks to be underway. To have confidence of a larger rally in this group, the sector strength would need to be sufficient to break this larger downtrend on the chart above. This is very much premature, but would be meaningful when/if this occurs. For now, technicals call for a short-term continuation of this recent relative strength.


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Healthcare ETF (XLV-$89.01) Healthcare continues to show signs of rebounding, and the XLV ETF should be able to carry higher this week to 89.80 and then 91.50-92 without too much trouble. This latter area at 92 will be important to exceed to have confidence of a larger rally in the group getting underway as this would represent a true technical positive from a structural perspective. For now, sufficient strength has been seen in the near-term to just weigh in a bit more positive on the rally this week, and it's' right to be long.

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Healthcare Services ETF (XHS) - This looks to be a very positive and significant development in XHS last week and Services should be overweighted. XHS has managed to exceed the entire downtrend from February highs last Friday which is thought to be significant and bullish. The act of surpassing this trend which had already been tested twice and held should now allow for this downtrodden sector to push higher and outperform in the weeks ahead. Movement back up to 70 cannot be ruled out and one should use minor dips Monday as a chance to buy.

10 Technically attractive stocks to own after recent breakouts

April 22, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2886-8, 2865-7, 2836-7, 2785-9

Resistance: 2921-2, 2945-9



Summary: With just one more full week left in the month of April, S&P 500 has returned 2.49% through 4/18/19, a respectable gain for the month on the heels of an already stellar quarter. April of course, has been historically a very bullish month for the market (up 12 of the last 13 years) and despite some evidence of a bit of a slowdown in price along with breadth and momentum, this hasn't translated into any weakness thus far. Stocks have still largely shrugged off many of the issues thought to be important in causing at least a minor stallout in the month of April, both from a fundamental and from a technical perspective. With regards to the Technicals, outside of the breadth and momentum slowdown, counter-trend indicators have not proven correct thus far on daily charts in causing any type of reversal based on Demark's exhaustion indicators. Moreover, while sentiment has indeed finally begun to widen out a bit from a bullish perspective, it's taken quite a while to reverse course after $148 billion of Equities was liquidated near last December's lows. The exodus out of stocks early this year has proven important to monitor. Bank of America Merrill Lynch strategists tracking of fund data shows a 90.7 billion outflow out of stocks thus far YTD, (-126.2 billion outflow from mutual funds offset by +35.4 Billion into Exchange traded funds- Barron's) However, bottom line: Trends have remained positive since early January and truly are the most significant factor to keep an eye on with regards to the prospects for a market continuation vs reversal. Until proper evidence of stocks breaking the uptrend from late December begins to materialize, it's right to still favor that this market has the potential to push up a bit more. We'll cover some of the issues below that seem important and positive, but for now, it's still right to avoid getting too defensive until price indicates that it is time. With regards to Treasuries, there hasn't been sufficient rally in yields to argue for a breakout of last year's downtrend. Markets looked to be close as of mid last week, but much of this was given back into last Thursday. Commodities have softened in recent weeks, while the US Dollar manage to finish the week in a pretty constructive manner. These latter groups will merit some discussion once more meaningful technical progress has transpired to indicate a change in trend. For now, The Dollar and commodities have remained largely range-bound, while bonds are still trending higher.



Key Developments over the last week:



Consumer Discretionary and Technology ETFs (XLY, XLK) both moved back to new all-time high territory last week, while Industrials pushed up to new highs for 2019, helped by Transportation stocks



Financials showed very impressive performance and achieved a minor breakout relative to the SPX, which bodes well for additional follow-through near-term. S&P Financials were the second best performing sector last week



DJ Transportation Average confirmed the DJIA's move above February highs last week, which is encouraging from a Dow Theory perspective whereas this had been diverging for most of March.



Defensive groups like Utilities and REITS were some of the worst performing groups last week, while Consumer Staples has fared relatively better.



Healthcare's decline was sharp enough to cause this sector to turn negative on the year, after a very good 2018. Healthcare Services stocks have gotten very oversold, yet patterns remain negative and early to buy dips.



NASDAQ 100 index moved back to new all-time highs. This is a bullish development near-term, and other indices like NASDAQ Composite, DJIA, SPX remain within striking distance.



Europe has begun to outperform US near-term, with breakouts in SXXP, SX5E and the German DAX to mirror some of the positive technical developments which happened in the US two months ago. Near-term strength likely in Europe, with SX5E expected to rise to 3600 while DAX has technical targets at 12500 up to 12750 in the short run



Gold broke down under 1280, an important short-term level representing both March and April 2019 lows. Additional weakness here looks possible until 1280 can be recouped.



Natural Gas failed in its bounce attempt and plummeted back down under recent lows, violating the entire intermediate-term uptrend from last Summer. This was a real negative early in the week. While oversold here, more is needed before trying to buy here again.



WTI Crude has slowed its pace of ascent but still looks to push a bit higher into early May before any peak. The near-term range-bound pattern in Crude over the last two weeks does not look like a negative, but something which requires a final push higher before this tops out.



US Dollar index took a very meaningful step higher with last week's close up at 1197 in the Bloomberg Dollar index, above the highs of the last seven trading days. Movement up above 1205 would be meaningful and positive for the Dollar near-term (Equates to 97.71 in DXY)

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Performance-wise, we see that Industrials, Financials and Tech all led performance last week, each group up more than 2%. Meanwhile, Utilities and Real Estate both lagged. Healthcare of course showed some very sharp underperformance, but is growing very stretched to the downside and the 1 sector which is now negative for the year after last weeks underperformance. Overall, this kind of sector participation remains more bullish than bearish with XLY and XLK back at new all-time highs.




This week's report focuses on 10 technically attractive stocks that have just shown recent breakouts. While markets have begun to demonstrate some minor momentum slowdown in recent weeks, there hasn't been sufficient deterioration price wise, and these stocks have all managed to clear multi-week and in some cases, multi-month highs which make them attractive for further gains. In the event that US equities do stallout upon entering May, any market selloff likely should create a much more bullish situation from a risk/reward perspective to buy these names, technically speaking.




SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:

Short-term (3-5 days): Bullish over 2877, Bearish Under on a close- It's thought that the breakouts in XLK, XLY and XLI in the last 2 weeks are a more positive than negative development, and despite some minor breadth and momentum slowdown, we haven't seen the rolling over in price near-term that would shift the trend to more negative. Under last Thursday's lows of 2889 is the first warning, and then undercutting 2877-8 would lead to a more meaningful correction. Upside comes in near 2945-50 and above there is not much until former highs which if challenged, should not give too much resistance this time around, with targets up near 3040-75.




Intermediate-term (3-5 months)- Bullish- The nearterm weekly momentum remains positive for SPX and not overbought after S&P completed the best quarter of performance since 1998. While XLK, XLY and XLI were all up near former peaks, it will be right to follow prices should they get above, until some evidence of weakness arises. The one "Elephant in the Room" with regards to a giant Technical Negative remains Monthly momentum which is negatively sloped and at far lower levels than last Sept/October when looking at RSI, and even on this market bounce, this did not push back to highs. For now, this won't be a concern until more breadth divergence starts to happen on daily/weekly charts and we remain in the seasonally bullish month of April, which has been higher 12 of the last 13 years. Moreover, the breadth thrust combined with bullish seasonality and lack of complacency combined with lack of Technology deterioration could lead to a bit more gains in April before any real drawdown, and it's thought that pullbacks likely prove minor. While gains at this point likely will prove less robust into Summer/Fall and offer some buying opportunities, we'll need to see some evidence of breadth deterioration and more bullishness to have concern on an intermediate-term basis. After all, Advance/Decline for Equities has pushed back to new all-time high territory, and in both prior bear market peaks, we saw meaningful divergence in Advance/decline before the broader market peaked out. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.







10 recent technical breakouts that still look appealing to own and buy dips

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Oshkosh Corp (OSK- $82.04) Bullish on OSK's ability to have gotten back over February highs. This should help this stock start to push up to test former highs established back in January 2018. Overall, this recent strength is part of the Transportation push that has helped the Industrials begin to show much better strength. Thus, while technically attractive here, it's worth mentioning that OSK still roughly 20% off all-time highs and has just been starting to gain momentum lately. Targets on gains lie near 90, then 96.25 before the push back up to near 100 that marked the peak next January. Dips should be bought barring a move back under 72, which would postpone the rally.

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Five Below (141.65) Bullish- FIVE has been a consistent outperformer this year, and it's recent technical breakout last week of the six-month Cup and Handle pattern bodes well for this to show further strength in the weeks and months to come. This stock peaked out with the broader market back in September of last year, so its not all that overbought here, largely due to the consolidation its gone through since last Fall. The breakout back on 4/11/19 happened on double the average volume. Since that time it has certainly accelerated higher, but shouldn't face much resistance until 150. On consolidation of this move, dips should be used to buy for additional strength in the months to come.

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Pepsico (PEP-$127.09) Bullish Last week's breakout extended back to new all-time high territory above two prior highs on above-average volume. This is a very encouraging and technically bullish development for a stock that has largely been range-bound since January of 2018. As of last Thursday's close, PEP had turned in the 7th best performance of all stocks that make up the S&P 500 Consumer Staples index (33 members) with returns of +17.75%. The pattern this has consolidated within for the last 15 months is one many would describe as a Ascending triangle pattern. They can lead to a final move higher of the advance, but in this case, looks to have just begun. The act of pushing back to new all-time highs on heavy volume though is bullish and should lead to further gains to targets near 140 at a minimum, with additional targets found at $150, found by extrapolating the distance between base to trough and projecting higher. Any pullback down under $125 would create an even better risk/reward.

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Paylocity (PCTY-$89.07) Bullish- PCTY's stab back to new all-time highs was consolidated for a few days last week, and represents a more attractive risk/reward for buying this ahead of a push up to 100. This represents an intermediate-term Cup and Handle with a lengthy 2 month base. The breakout thus far failed to hold on a daily basis, but should be forthcoming given the stock's push up to just under $94. Now it's pullback to just under 90 makes this a good time to consider buying dips for the move back to new highs. Weekly momentum has turned back positive after having been neutral for the greater part of the last couple months. Overbought conditions are largely nowhere to be found on weekly charts as well given the degree of sideways activity this has shown since February. Thus, an appealing name to consider given its breakout attempt as part of the larger structure.

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Wendy's (WEN- 18.90) Bullish- WEN has just exceeded the highs of a structure which has been largely range-bound since peaking in August of 2018. This act of pushing up above the highs of this consolidation is a good sign for further progress, and it's right to own WEN technically here on this breakout with upside targets initially near $22 which would represent a test of all-time highs formed back in 2006. So gains likely could prove to be 10-15% or more given the recent breakout while there looks to be little to no real resistance until levels hit 13 years ago.

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Cintas (CTAS- $213.68) Bullish- The act of pushing back to new multi-week closing highs last week has helped CTAS reach the highest levels since last year. This is a positive development technically and should drive this up to test former highs near 220 and then higher. While some might argue against buying a stock that's well up above its longer-term trend, the fact that CTAS already pushed up to levels above this last year makes a retest less troublesome, as it signals that CTAS could begin to trend up at a quicker rate of ascent. At present, this maintains a very constructive pattern and CTAS should be owned technically, looking to buy any dips for a move higher to challenge and exceed highs.

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Bank of America (BAC-$30.03) Bullish- BAC has just begun to show strength after surpassing the upper border of this downtrend from early 2018. While a different kind of breakout then many shown here, this recent progress is nonetheless important and bullish, arguing for additional near-term follow-through up to challenge former highs near 32. The minor breakout in Financials relatively speaking late last week seemed important, and BAC in particular has huge importance within this sector. Overall, near-term strength looks likely, and this should be owned for further gains to challenge former highs.

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Walt Disney Co/The (DIS-$132.45) Bullish- DIS' breakout above its four-year base has managed to extend even more in the last week but still looks attractive to own for a move to 150 initially without much resistance. This stock has been highlighted a few weeks ago just prior to its big move and now the rally on very good volume still bodes well for DIS to show decent intermediate-term strength. While the move from $120 to 130+ in the last couple weeks might argue for a lesser size position for some, this still hasn't reached overbought levels and shows no counter-trend exhaustion that suggests a reversal is imminent. Breakouts like this of multi-year bases often argue for a good intermediate-term trend to own and look to buy all dips.

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Tractor Supply (TSCO-$103.09) Bullish- A very promising breakout in the last couple weeks of a pattern that had been consolidating for the better part of four years. These types of bases tend to yield acceleration when broken, and TSCO's move back to new all-time highs is a positive development worth buying into for additional upside in the weeks and months to come. While some might view a move back to new highs as something to sell into when viewing a daily chart alone, when examining the weekly structure, one can see how TSCO has literally just emerged from this intermediate-term base. Therefore, this breakout makes TSCO one of the more attractive within the Retailing space based on a risk/reward basis along vs others that have gotten extended. One would look to buy all dips barring a move back under 90 with targets near 120 as an initial level of importance.

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Fortinet (FTNT- $91.08) Bullish- The minor breakout above last September's highs followed by three days of backing and filling argue for a long bias here in thinking FTNT is in the process of breaking out above former highs. Looking at weekly charts, the huge runup into September managed to consolidate gains but failed to give back all that much of former progress. Lately, the gains since December 2018 have managed to recoup all of the weakness from last Fall, creating a bullish longer-term prognosis in the process with the challenge of prior highs. This giant base since last Fall as part of the bigger pattern makes FTNT attractive technically, arguing for another stab back at new highs in the weeks to come. Momentum has neared overbought levels, yet has not sufficiently shown divergence enough to make one avoid buying recent dips in FTNT compared to on the first breakout attempt. Overall, this looks to push up to 110-112 without too much trouble and pullbacks should be seen as buying opportunities with the exception of a move back down under 80 which would postpone the rally.

Materials outperformance looks to continue

April 15, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2886-8, 2865-7, 2836-7, 2785-9

Resistance: 2907-9, 2913-5, 2921-2, 2945-9



Summary: Stocks remain resilient as last Friday's sharp followthrough higher makes a bearish call still seem premature. By end of week, price gains back to new multi-day highs helped S&P and NASDAQ record their 3rd straight weekly gain, after being range-bound most of the week. Technology did show some evidence of stalling out, though Financials looked to have quickly made up some slack with some strong finish on Friday. So while it was thought last week could produce some consolidation to gains, this sideways action looks to have been resolved by movement higher, not lower. There remain issues with breadth not being as strong at this stage of the rally as was seen in January and February, and while it appeared like an attractive area to take profits heading into this week with many prominent sectors up near highs (XLY, XLI, XLK, which often serves as strong resistance to gains) we've yet to see this levels repel prices strongly, but Instead most sectors have begun to push above these levels. Meanwhile, Demark indicators of exhaustion have been present for the last week on SPX, NASDAQ, DJIA, on daily charts (along with a plethora of other Sector ETFs) and were thought to be important in potentially coinciding with an end to this rally in the near-term (or at a minimum, a minor 3-5 day top) However by day's end, these have not worked out yet as planned. Many might take note that when Weekly indicators are not also in alignment, getting any meaningful selloff of consequence from a daily TD signal alone often is quite difficult.



Bottom line, fading this rally looked wrong, at least for last week, and price held up a lot better than many momentum and breadth indicators had suggested. Until price turns lower, it's best to use a "BULLISH OVER 2900/BEARISH UNDER 2900" guideline and keep stops very tight on longs. The one technical rule of thumb is that it's always best to utilize PRICE action over the other factors which look importnat in bring about tops. Factors like waning in momentum, breadth, or bullish sentiment don't mean too much if prices have not violated at least minor trendlines and started to make new multi-day low closes. This in fact did not happen, and yet again when picking a spot to try to sell into this based on very real technical concerns, the market just didn't seem ready.



Negatives:

Last week we listed some important factors which were thought to be "Concerns" on the equity rally Most of these remain important, such as



1) Negative momentum divergence (compared to Feb/March)

2) Breadth concerns (Summation index at lower levels than Feb peaks)

3) Leading Sectors for 2019 performance now up to prior highs (XLK, XLI, XLY) Often this represents strong resistance to gains

4) 20% rally into a seasonally heading into a difficult six month stretch of seasonality



Some new concerns have to be added, such as"

5) Sentiment now showing a wider spread of Bulls vs Bears (Up to 20% on AAII, joining the already wide Investors Intelligence data)

6) VIX down at lowest since last October, near 12, showing very low implied volatility in an environment where the FOMC has decided to table all further 2019 rate hikes and a probability of 47.6% of a CUT by 1/29/2020



Positives:



With regards to bullish factors, most of what we listed last week are also still in place and definitely positives to lean on.



1) April seasonality normally is robust. We've seen gains in the S&P 12 out of the last 13 years, and has averaged +1.7% since 1999.



2) Advance/Decline for "All stocks" still at new all-time highs, so despite some waning in gauges like the Summation index since February, the actual "All-Stocks" Advance decline has shown little to no real deterioration



4) Technology still showing strength, and despite XLK being up near prior highs, we saw Tech turn in the 3rd best performance figures of the week out of the 11. So despite thinking Tech should stall out, there still hasn't been hardly any real deterioration.



5) Lack of broader market Technical damage. After our YTD Rally now has added over 20% for NASDAQ and 15.98% for SPX through 4/12/19, many indices are within striking distance of all-time highs again, rapidly closing in on September/October highs.



6) Momentum is positive and not overbought on daily, nor weekly timeframes. RSI is mid-range, while MACD is positively sloped on both timeframes



7) Seasonality is bullish in this Pre-Election year stretch, and cyclically this decennial "9th" year of a decade is one of the more positive, third to the 5th and 8th years.



8) Financials were the best performing group last week of the major S&P GICS Level 1 groups. While Yields are still in downtrends and the yield curve has not begun to rise meaningfully, the price action in the Financials has been impressive of late and important given a 13% weighting in SPX.

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S&P remains trending higher with prices finally reaching levels that can be considered near-term overbought. Within 2 trading sessions, we'll see the completion of daily Demark exhaustion in all likelihood while 3 different outperforming sectors are all closing in on former important highs that likely cause this to stall out. Overall, the next 2 weeks have the highest likelihood to causing a trend reversal and could be in place by Tuesday/Wednesday. However, given the ongoing trend and momentum, any pullback likely will find support near 2785 in extreme cases, around 100 S&P points lower, before pushing back up and eventually challenging last September's highs.

This week's report focuses on the Materials group, which has gradually begun to show better and better Technical strength following the DowDuPont/Dow Spinoff last month. Most of the Chemical and Packaging/Container stocks have rallied sharply and now the Metals space seems have gotten a jumpstart with the recent Dollar decline. We'll list a few of the key charts to focus on from an absolute and relative perspective and then drill down to some of the more important patterns that could have relevance in this coming week from within the broader Equity space along with Treasuries, commodities and FX.


SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:

Short-term (3-5 days): Bullish over 2900, Bearish Under- Despite a few short-term technical worries with regards to breadth and momentum, we still haven't seen the rolling over in price near-term that would shift the trend to more negative. While upside was thought to be minimal, taking a stand against S&P and NASDAQ as of last week proved to be wrong. Given that markets have rallied sharply since December 2018 and prices were up against prior highs, this seemed like a good opportunity to take some profits heading into last week. In many things, this was certainly prudent. However, with S&P, there still hasn't been the weakness sufficient to break the uptrend and weaken enough to turn short-term trends down. Note, many of these concerns are still intact, but it's necessary to put many of these on the back burner until price can weaken. If this happens in the next few days, then it will be prudent to mention and discuss. For now, on a very short-term basis, under 2900 is the first warning, and then undercutting 2877-8 would lead to a more meaningful correction. Upside comes in near 2945-50 and above there is not much until former highs which if challenged, should not give too much resistance this time around, with targets up near 3040-75.




Intermediate-term (3-5 months)- Bullish- The nearterm weekly momentum remains positive for SPX and not overbought after S&P completed the best quarter of performance since 1998. While XLK, XLY and XLI were all up near former peaks, it will be right to follow prices should they get above, until some evidence of weakness arises. The one "Elephant in the Room" with regards to a giant Technical Negative remains Monthly momentum which is negatively sloped and at far lower levels than last Sept/October when looking at RSI, and even on this market bounce, this did not push back to highs. For now, this won't be a concern until more breadth divergence starts to happen on daily/weekly charts and we remain in the seasonally bullish month of April. Historically when 1Q has been higher by greater than 10% over the last 50 years, it has added to those gains into year-end 9 out of the last 10 times with a median gain of 8% (Ryan Detrick) Moreover, the breadth thrust combined with bullish seasonality and lack of complacency combined with lack of Technology deterioration could lead to a bit more gains in April before any real drawdown, and it's thought that pullbacks likely prove minor. While gains at this point likely will prove less robust into Summer/Fall and offer some buying opportunities, we'll need to see some evidence of breadth deterioration and more bullishness to have concern on an intermediate-term basis. After all, Advance/Decline for Equities has pushed back to new all-time high territory, and in both prior bear market peaks, we saw meaningful divergence in Advance/decline before the broader market peaked out. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.


Key Materials charts of importance, along with other important index and sector charts for the week

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Materials breakout (XLB) now following through - Materials are suddenly beginning to show much better technical structure in recent weeks after a lengthy period of consolidation from last Fall. We've seen XLB prices jump higher to break out of the intermediate-term base at work which very much resembles a bullish reversal pattern with Neckline resistance near $56. (See chart above ) Moreover, XLB has also exceeded the entire trend from last year which started a couple months ago. Near-term targets lie at 60-61 for XLB but on any weakness, this should be used to buy dips.

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Materials relative chart v SPX shows longer-term trend breakout- When graphed in relative terms, we see XLB/SPX having exceeded the entire trend from last year. Much of this strength began after DOW joined the Dow Jones Industrial Average following the DowDuPoint spinoff, but proved to be a factors that precipitated further strength in most of the groups within Materials: Chemicals, Building construction, Paper, packaging and containers, and the Metals space. With the US Dollar starting to show increasingly more evidence that a a move lower should happen, not higher, this bodes well for many commodity names that should help to provide good performance for 2019

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Freeport McMoRan (FCX- $13.70) Bullish, and further gains look likely in FCX which could reach $14.92 initially and then $16.18 as first targets on this latest runup. This stock has gradually begun to show more and more strength in recent weeks. Its breakout above the 1 year downtrend two weeks ago was thought to be a very encouraging sign and last week FCX made its highest weekly close of the year, closing up near last October's price levels. As the daily chart shows above, FCX fell over 50% from this time last year when it peaked out near $19.70 in April 2018. However, it managed to stabilize and turn higher along with most of the market and has gradually begun to produce a pattern of higher lows off the bottom. The Specific reason for appeal here though lies with two reasons: First, the recent bullish base that has seen February highs exceeded and then the longer-term downtrend from January 2018 peaks. Both are bullish developments and along with a gradual recovery in the price of Copper itself, which FCX tends to be highly associated with, these factors should help this stock's momentum continue.

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Avery Dennison (AVY-$116.31) Bullish with recent strength likely to carry AVY up to former highs near $123.60 before any resistance. This specialty Chemicals company has turned in some of the best performance among all of the Chemicals group. It's higher by 29.48% YTD, making this the 3rd best performing stock within the Materials ETF, XLB that tracks the Materials sector. Specifically in this case, the gains have broken the downtrend from last year while not having carried AVY to extraordinarily overbought levels. Counter-trend exhaustion is premature, while the ongoing momentum remains strong. Targets initially should arrive near former all-time high peaks which is the first target to look for on this recent rally. Until/unless the trend from December 2018 is broken (which now is still quite premature) , it's right to stick with this and buy AVY as one of the stronger names in the business whose rally doesn't look complete.

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FMC Corp (FMC- $79.97) Attractive, and strength to technical targets near $90 look possible on a breakout of FMC's recent base. Unlike the prior names listed, FMC looks attractive given the stock's potential to break out of the 6 month consolidation range which has kept this stock range-bound since last October. This Agricultural Chemical company had seen its stock triple in the run-up to highs from 2015, and this recent base now looks to be giving way which should allow this rally to continue. The first week of April's close of $80.42 managed to finish at the highest levels since last January, exceeding three prior peaks in the process. Thus, FMC's near-term strength out of this base makes this an attractive stock to consider for the possibility of further gains as part of this larger pattern.

Vulcan Materials (VMC- $122.15) Bullish and its move back up above the downtrend from last year bodes well for further gains up to $130 and then $140 before any real resistance. Technically speaking the act of getting back up above former lows that had held on multiple occasions was the first positive sign, and often results in short-covering and technical buying as the breakdown into this spring looked like a false move. Then this was followed by the break of the actual downtrend. The combination of these technically is thought to be very encouraging for the prospects of further gains. Strength higher to test former highs near $140 is a very real possibility and the first area of real resistance where it's right to sell into gains. Overall, VMC should be owned here in small size with any minor dips being used to add to longs.


Financials ETF- (XLF-$27.14) Near-term bullish and movement OVER 28 would help drive a larger rally. Apart from the Materials focus, it's also important to keep a close eye on what's happening to the Financials sector which has vital importance to the broader equity market, with a 13% weight in SPX. This group had lagged badly over the first few months of this year. However, it's jump last week successfully carried prices to the highest levels of the year and should help XLF push higher initially to areas near $28 which marks a larger intermediate-term trend. Bottom line, in the near-term, this move looks important and positive and should help this group make further near-term progress.


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Pound Sterling v US- GBPUSD- Near-term churning nears breakout as range narrows- Given all the focus on BREXIT these days, we see that the Pound has been slowly consolidating gains within its bounce from last December. The last 7 weeks have been largely neutral/range-bound, but the highs and lows have shown some signs of constricting lately which should give way to an upcoming breakout in the weeks ahead. Overall, the bias is for higher prices given the ongoing four month trend, but we'll need to see movement back up over 1.3167 before pressing bullish bets. This would drive GBPUSD up to test March highs at 1.3381 and likely carry over this level up to 1.36 which is the larger intermediate-term line in the sand from the 2014 highs. On the downside, it's important to watch for any failure of 1.2987 which would postpone the advance


Sentiment has started to grow more bullish, and finally some might say after a 15% + rally off the lows. While formerly we saw Investors Intelligence show over a 20% spread between bulls and bears, the AAII data (American Association of Individual Investors) had remained subdued, with just a small spread between bulls and bears. Last week was thought to be one of the first weeks where this sentiment poll also jumped and showed more than 20% Spread now to mirror what's being seen in Investors intelligence. Thus now we're seeing bulls start to grow which should be a concern from a contrarian perspective.


Smooth breadth gauges like McClellan's Summation index have bounced in the last couple weeks, but still lower than late February. Many discuss Advance/Decline back at new highs in the last couple months as a sign that breadth has been very good, and that's very much true. However, when looking at the Summation index, we see that most of this strength happened in January and early February, while since then, the further attempts at pushing higher in March largely happened with much lower breadth. To put this in perspective, many groups like Financials and also the Small cap arena suffered throughout March and these are important to highlight as areas that have been much weaker through this rally. At present, this has turned up in recent weeks again, but the market breadth at current juncture still looks weaker than what was seen 2-3 months ago. This should be monitored carefully for any evidence of this turning back lower.

Top Technical Shorts to consider after this Run-up

April 8, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2886-8, 2865-7, 2836-7, 2785-9

Resistance: 2899-2901, 2907-9, 2921-2



Summary:  Equity trends remain steadfastly bullish but are now getting stretched, and have arrived at near-term areas where resistance could set in, as early as this week on a very short-term basis. Momentum is nearing overbought territory yet again after one of the best quarters in over 20 years time, while the groups that have led this rally, namely Technology, Consumer Discretionary and Industrials, are now up to levels near prior highs which are thought to be important from a price perspective. While the overall momentum and breadth of this rally from late December 2018 along with ongoing trend remain impressive, markets likely can take a small breather after recent 23% gains from December lows before continuing higher to challenge all-time highs. Given no discernible evidence of any trend damage, it's tough making a larger call for any sort of market peak. However, factors like divergences, upside exhaustion, cycles and sentiment can all be useful in pinpointing areas that are sub-optimal for new long positions, and result in short-term turns, to the downside as well the upside. Some of these concerns will be shared below, and the overall thesis remains that this intermediate-term trend does not look complete, and any dips in the next 2-3 weeks likely turn out to be buying opportunities for a rally to exceed last September highs. Outside of Equities, we have seen some attempts in Treasury yields bouncing in the last week as part of an ongoing decline in yields that got underway back in December of last year, continuing lower this past March. Meanwhile the Dollar index has largely been unchanged most of the year, having closed last Friday at the same number, 1198, where it ended 2018.. 1198.22 on 12/28/2018 in the Bloomberg Dollar index, vs 1198.24 last Friday, 4/5/2019. Thus, despite all the BREXIT worry and minor bounce in Pound vs USD, the broader US Dollar has been quite range-bound thus far for most of 2019. Below i'll discuss some of the concerns about the Equity market at this stage and then review some of my top picks for Technical shorts for the weeks ahead.



Near-term Concerns on this Equity rally:


1) Negative momentum divergence- Gauges of momentum like RSI (Relative strength index) peaked out in late February when SPX was at 2813. Now 80 points higher, RSI has been unable to move back to new high territory. Monthly negative divergence is very prominent, but is more of an intermediate-term concern for next year, not 2019.


2) Former tops are now being challenged in ETFs of sectors like Consumer Discretionary, Technology, Industrials (February highs) Financials (March highs), with 3 of the 4 of these sectors being the top performing thus far of 2019. At a minimum, this should cause some slowdown to this move and has the potential for a mild reversal.

3) Demark indicators as a means for upside exhaustion are now being seen (Or will be present most likely by Tuesday) on Daily charts in NASDAQ Composite, DJIA, SPX, RTY, RIY, NKY, MID, NYA, SHCOMP, SXXE, SX5E, DAX, UKX, AS51, DWCF. (The VIX, meanwhile, has the same but opposite signals (nearing a BUY) which will be complete in the next 1-2 days potentially. Note, given that the weekly signals are still very premature and non-existent at this time, I anticipate this means that any selloff proves minor for now.

4) Recently breadth gauges like McClellan's Summation index, which is a smoothed version of McClellan Oscillator, peaked out in late February. So while the Advance/Decline did move back to new highs, the smoothed gauge of breadth has begun to weaken.


5) SPX and other US indices are up 15-20% YTD thus far and within three weeks of entering May, the typical start of a slowdown in performance. While trends and momentum remain bullish near-term, it's doubtful that the next 3-6 months bring about an equal degree of rally as has been seen since December. Thus, the majority of gains for this year very well could be in place. While near-term trends are now bullish, it makes sense to consider taking profits on stocks nearing former highs and being far more selective at this stage of the rally.




Positives: Reasons for encouragement this year and/or into the Fall

1) Markets have just completed the best quarter of performance since 1998 (SPX) and now are in one of the seasonally strongest months of the year. April has shown gains for the S&P 12 out of the last 13 years and has averaged 1.7% for the month since 1999. Thus any minor pullback likely could still lead to late month strength.


2) Advance/Decline for "All stocks" still at new all-time highs, so despite some waning in gauges like the Summation index since February, the actual "All-Stocks" Advance decline has shown little to no real deterioration


3) Sentiment gauges such as AAII are still only showing readings of +6.75 spread between Bulls and Bears ( the American Association of Individual investors) While other data like Investors Intelligence and DSI data shows more bullishness, the lack of this poll confirming the others is a concern. Also as mentioned last week the BofAML Global Fund Manager survey for March 2019 showed Equities as the biggest underweight and Cash as the biggest overweight


4) Technology has still not really shown much deterioration and just a stalling out at this time. At 21% of the SPX, this is meaningful relative strength from this top sector.


5) Lack of deterioration. Structurally, S&P managed to get back up above former key support that was broken and exceeded meaningful trendlines from last Fall, now trading just 3.5% below All-time highs.


6) Momentum is positive and not overbought on daily, nor weekly timeframes. RSI is mid-range, while MACD is positively sloped on both timeframes

7) Seasonality is bullish in this Pre-Election year stretch, and cyclically this decennial "9th" year of a decade is one of the more positive, third to the 5th and 8th years.


8) Defensive leadership has begun to wane in the last couple weeks, with signs of Consumer Staples breaking down and both Staples and Utilities were lower last week, which would seem to be a positive for Risk assets.


9) Financials outperformed last week , showing 3.3% returns for the week as Treasury yields bounced. While yields remain under pressure and still trending down, this relative strength in Financials is seen as helpful at a time when Technology could stall.

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S&P remains trending higher with prices finally reaching levels that can be considered near-term overbought. Within 2 trading sessions, we'll see the completion of daily Demark exhaustion in all likelihood while 3 different outperforming sectors are all closing in on former important highs that likely cause this to stall out. Overall, the next 2 weeks have the highest likelihood to causing a trend reversal and could be in place by Tuesday/Wednesday. However, given the ongoing trend and momentum, any pullback likely will find support near 2785 in extreme cases, around 100 S&P points lower, before pushing back up and eventually challenging last September's highs.


This week's report focuses on 10 names which look technically vulnerable for the weeks ahead. For those looking at shorting into this move, these stocks look attractive as technically bearish shorts. As always, it's right to utilize tight stops on shorts in the event these turn up for risk management purposes.



SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:

Short-term (3-5 days): Bearish- Looks like markets are very very close to levels which makes sense to take a stand in thinking this move stalls out and/or shows some minor trend reversal which could happen by Tuesday/Wednesday of this current week. While Monday and potentially Tuesday could still be positive, it's likely that 2905-2915 will have importance early in this week as resistance which could bring about a turn back lower. However, one should consider buying implied volatility and/or awaiting some type of reversal before getting too short, as the overall weekly trend remains in good shape. Thus, this is a very near-term thesis only at this time and one would look to use any pullback to test March lows near 2785 as a chance to cover shorts and/or hedges, expecting that on an intermediate-term basis, there still is more to go on the upside in the months ahead.

Intermediate-term (3-5 months)- Bullish- While monthly momentum remains negative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and indices have just completed the best quarter in nearly 10 years time. Historically when 1Q has been higher by greater than 10% over the last 50 years, it has added to those gains into year-end 9 out of the last 10 times with a median gain of 8% (Ryan Detrick) Moreover, the breadth thrust combined with bullish seasonality and lack of complacency combined with lack of Technology deterioration could lead to a bit more gains in April before any real drawdown, and it's thought that pullbacks likely prove minor. While gains at this point likely will prove less robust into Summer/Fall and offer some buying opportunities, we'll need to see some evidence of breadth deterioraiotn and more bullishness to have concern on an intermediate-term basis. After all, Advance/Decline for Equities has pushed back to new all-time high territory, and in both prior bear market peaks, we saw meaningful divergence in Advance/decline before the broader market peaked out. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.



Attractive Technical shorts to consider after this Run-up

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CME Group Inc. (CME- $170.09) CME looks to be nearing areas to take profits on this bounce and consider shorting for a move back to new lows. Many of the Exchange stocks have been among the weakest in the Financials group in recent months, with CME being the worst performing of all 67 members that make up the S&P 500 Financials index, down -9.58% YTD. As can be seen on weekly charts the trend violation of the uptrend from 2017 alone was a real negative early this year. CME has since bounced 4% in the past two weeks, yet remains underneath both the long-term uptrend that was violated, along with a minor downtrend connecting last year's highs with the bounce attempt into early March. Counter-trend exhaustion hits likely within 2-3 days time, making 172.50-175 an excellent area to consider selling/shorting, expecting CME to pullback down to recent lows. Weekly MACD remains negative, and it's difficult getting too optimistic on CME's chances of making furhter gains given how weak momentum has been along with structure. Overall, it looks right to sell into this recent bounce, and expect CME turns back lower.

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Tilray (TLRY- $59.54) Bearish, and additional losses look likely in TLRY to areas down near $52.81 extending to $50 as a decent area of support to this decline. Overall, despite the gains being seen in many "Pot" stocks this year, TLRY has been a notable laggard. Its undercutting of late December 2018 lows on a close last week does not seem to make this more attractive to buy, but looks more likely to extend lower. Counter-trend exhaustion per Demark is premature on both daily and weekly charts, and this has been consistently weak in recent weeks despite a bounce in most of TLRY"s peer stocks. Bottom line, this still looks early to buy, and is a better near-term short than long, technically until/unless this can get back up above $75.55 which would take a monumental effort. One should avoid buying dips and use minor rallies to sell/short, expecting TLRY likely drifts down to the low $50's which is the first meaningful area to cover shorts.

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Signet Jewelers (SIG-$26.85) SIG remains under pressure, and even with better Adjusted earnings results last week, these still failed to beat comparable year-earlier figures. The stock technically has been under a ton of pressure in the last six months, though arguably, it has begun to try to stabilize at low levels since January. Unfortunately, this treading water along the lows type pattern has failed to participate in any of the strength in this year's early rally, and now looks to be fading in the last couple days. SIG's drop to multi-day lows last Friday looked important and negative, and likely drops this back down to the January lows near $23.80. Unfortunately with a sizable net loss and continued store closings, it matters little whether the stock might "appear" cheap. Technically patterns of this sort tend to be resolved by a move down under the lows of the recent consolidation, and in this case, it looks right to bet on a move down to near $20, whic makes this still very vulnerable. Shorts should use stops on any daily close back over $29, but it honestly should require a rally back over $33 before thinking that the worst is over. Near-term, additional pullbacks look likely and it appears premature to try to buy dips. Avoid and/or short technically.

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Guess? Inc. (GES- $18.55) Bearish and despite a real boom in Retail stocks lately, GES has not participated and now looks to lose further ground given last week's decline on heavier volume. The stock has had a history of showing support right near current levels over the last year. However, the break of the intermediate-term uptrend looks to be a concern three weeks ago and the stock remains lower by over 15% from where it traded just last month. Technically I'm expecting a pullback down under $18 which would result in this likely losing further ground to near $14.50 near last Spring's lows. Until this can get back up above $19.90, this remains one to avoid buying dips and/or considering as a technical short, looking to add on any break of $18.

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Kroger (KR- $23.90) Technically weak, and last week's close at the lowest levels since this same time last year doesn't quite look complete. Additional selling looks likely in the weeks/months ahead with targets down near 2017 lows just under $20. While KR had shown some promise back last Fall with the breakout attempt of the downtrend from 2015, this showed little to no real follow-through and ended up selling off back down to undercut the two-year trend from late 2017. Bottom line, momentum is negatively sloped and not oversold and counter-trend signals of weekly exhaustion are about 2-3 weeks early to signaling any kind of low. Thus, additional weakness looks probable here, and it's right to avoid and/or short until/unless this can regain $26.50 which would be a stop for Shorts.

L Brands (LB- $27.46) Underperformance not encouraging. Look for break under recent lows. LB is yet another Retail stock which seems to be going in a different direction than most of its peers. After having lost over 35% into year end, it's bounce failed to live up to what the market has shown and this has barely gained any ground in 2019, trading range-bound along the lows. Patterns of this sort which fail to appreciate during big market moves often will prove susceptible to weakness on any signs of turn down, and thus it remains right to hold off on expecting this to join its peers, but rather to pullback and undercut recent lows. Near-term technical targets lie at $24.76-$25. Any decline down under $24.76 on a weekly close argues for a more lengthy correction which likely should hit $20 or below, reaching levels this hasn't hit in 10 years. For now, it's right to avoid and/or short, technically speaking, and look to add on a break to new monthly lows.

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Altria Group (MO- $54.77) Bearish, and last week's pullback to new multi-week lows after its 20%+ bounce from January looks to extend in the weeks/months ahead. While MO bounced from $42 to $57, this hasn't broken the downtrend over the last couple years. This bounce puts prices near a level which arguably is a very attractive risk/reward to consider shorting into. While the downtrend hits near $60, this area in the mid-50s was exactly where MO bottomed back in May of 2018. Thus, former lows often can be an attractive spot to sell gains in a stock which has reached this area. Overalll, the move down under the lows of the past few weeks should successfully jumpstart the decline back lower, particularly when Staples has begun to weaken itself as a sector, breaking meaningful trends back lower. Downside targets lie at $47.50, then $42.50 with resistance and stops to gains at $57.85.

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Owens Illinois (OI- $19.23) OI remains a technical laggard, and recent gains should be used to sell/short thinking that a pullback down to test and break December 2018 lows near $15.60 is likely. The downtrend that connects highs going back since January 2014 intersects near $21.50 and is an attractive area to consider shorting. Yet, even at current levels, OI lies around 50% of its all-time highs where this peaked out in January 2014. The stock has barely gained any ground since the market's December 2018 lows, and it looks right to avoid buying here but consider shorting for a move lower in the months ahead. Stops on shorts lie at $22.50 and any gains over that level would postpone the decline.

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Overstock.com Inc. (OSTK- $16.87) Recent deterioration in the last few weeks suggests a further downturn to test former lows before any meaningful bottom is in place. OSTK broke down in mid-March and last week's mild rally attempt failed to reclaim any area of importance which would argue that a rally is underway. Momentum remains negatively sloped, and technically it looks like an attractive risk/reward to bet on a return to $12.33 to test December 2018 lows in the months ahead. Stops on shorts should be placed near $19, with any break of $15.93 being used to press shorts for this pullback to extend another 15-20% lower.

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CBOE Global Markets Inc. (CBOE- $95.85) CBOE joins CME as being one of the weaker stocks within the Financials complex. While markets have gained ground to the tune of 15-20% in recent months, this has largely gone nowhere, treading water in neutral consolidation since late December 2018. Movement down to $90 looks likely initially, with a break of this level leading to a quick decline down to $79 which is the 50% retracement of CBOE's entire rally from 2010-2018. Stops would be placed over $99, but given the structural shape of this pattern since CBOE's peak early last year, technicals suggest a downward bias with a likely break back to the downside. Thus, it looks right to position here with thoughts of adding to shorts on a break of $90.

Additional follow-through possible this week after best quarter in nearly 10 years

April 1, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2795-6, 2780

Resistance: 2858-9, 2863-6, 2875, 2882-3



Summary:  Trends remain near-term constructive, and price action has still largely ignored some of the recent breadth and momentum weakness seen in the month of March, with S&P having just managed to complete its best Quarter in nearly 10 years' time. SPX is now just 3.2% below its all-time high from September 20, 2018. This is one of the 10 best starts to the year ever, and my colleague from LPL, Ryan Detrick, has noted that over the last 50 years, gains >10% in 1Q have gone on to show gains for the full year 9 out of the last 10 occasions, with a median return of 8%. (1987 being the lone exception) While Technology nearing resistance and counter-trend exhaustion being close should mark at least a short-term peak to this rally sometime this month and potentially as early as 4/4-5, it looks early entering this week to abandon stocks and/or hedge, and further gains still look likely. Meanwhile in the Dollar, we've seen some evidence of price turning higher in short-term fashion last week, which has served to cause commodities to turn lower and signifies that our long-awaited commodity rally is still very much premature. Meanwhile, bond yields remain a key focus as the 3mth-10 year spread has inverted, while US 10Year Treasury yields have gotten very compressed, with yields down to 2.338 before bouncing last Friday. It's thought that this strength in the Treasury market (yield weakness persists in the month ahead, and that gains to 2.47-2.52% would be an excellent time to buy Treasuries for a possible move to 2.25%.



Overall, these are thought to be some of the key positive and negatives, shown in Bullet form.



POSITIVES:



1) Advance/Decline for "All stocks" has moved back to new all-time highs in March, showing little to no evidence of any larger breadth deterioration



2) Sentiment gauges such as AAII , the American Association of Individual investors, showed a drop in its Bull/bear readings down to +6 last week, with Bulls at 33.20% and bears at 27.20%- This nearly neutral reading coincides with the data from BaML Fund Manager survey lately which shows Equities as the biggest underweight and Cash as the biggest overweight (March 2019)



3) Technology's outperformance in March caused this sector to regain the top spot for YTD returns, now showing performance of 19.37% YTD. At 20% of the SPX, this is meaningful relative strength from this top sector.



4) Lack of deterioration. Structurally, S&P managed to get back up above former key support that was broken and exceeded meaningful trendlines from last Fall, now trading just 3.5% below All-time highs.



5) Momentum is positive and not overbought on daily, nor weekly timeframes. RSI is mid-range, while MACD is positively sloped on both timeframes



6) Seasonality is bullish in this Pre-Election year stretch, and cyclically this decennial "9th" year of a decade is one of the more positive, third to the 5th and 8th years.



NEGATIVES:



1) Bond yields are certainly giving a warning of some sort about economic growth and have decoupled from equities as both bonds and stocks have been rallying in unison.



2) Momentum remains negatively sloped on a monthly basis and is showing negative divergence, probably the most bearish occurrence to happen to a long-term chart typically before a decline gets underway. Most former peaks were all preceded by meaningful negative momentum divergence



3) Technology has rallied back to near former highs, a level that looks to have some real importance in potentially causing resistance to this rally. The SOX also shows a similar chart and resistance to the S&P Information Technology index, indicating that April might show some slowdown in Tech



4) Recently breadth and momentum have softened a bit, as seen by McClellan's Summation index, which peaked out in late February. So while the Advance/Decline did move back to new highs, the smoothed gauge of breadth has begun to weaken.



5) Defensive outperformance has been prevalent for the month of March, with Real Estate, Consumer Staples and Utilities all performing better than the SPX and better than Financials, Industrials and Healthcare



6) The extent of Financials underperformance lately has been a concern given its 13% weighting in the SPX and This group along with Healthcare and industrials all turned in "down" months for March. It's thought that if none of these groups steps up this month and Tech starts to stall, further gains could prove difficult to come by.

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S&P strength in the final two days of the month and quarter has led to some early pre-market follow-through ahead of Monday's session and it's thought that given a lack of counter-trend exhaustion, a run-up to test and exceed recent peaks at 2866 is in order. It's right to stay long this week, using any minor weakness to buy dips until/unless 2785 is breached, which would postpone any further rally.




This week's report focuses on the stocks within the Retailing sector, which have started to turn in some above-average performance lately after a very poor Q4 2018. Relative charts show XRT , the ETF which tracks the Equal-weighted Retailing index, having bottomed out near former lows vs the SPX and now turning higher. Technically speaking, this group looks like one to favor in the weeks ahead, and writeups below concentrate in some of the more bullish technical names to favor. These are as follows: COLM, FL, ULTA, DECK, FIVE, TSCO, DLTR, and SFIX.






SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:

Short-term (3-5 days): Bullish- Still very little evidence of any price weakness, and while breadth and momentum have stalled a bit, the late gains last week on Thursday/Friday are likely to lead to a move to test and exceed March's 2866 peak. Cycles converge on 4/5, this coming Friday, which could bring about a near-term peak for stocks. Thus far, Demark indicators are 2-3 trading days away and structure remains bullish. Long, looking to buy dips with stops at 2785 (2789 for ES_F)

Intermediate-term (3-5 months)- Bullish- While monthly momentum remains negative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and indices have just completed the best quarter in nearly 10 years time. Historically when 1Q has been higher by greater than 10% over the last 50 years, it has added to those gains into year-end 9 out of the last 10 times with a median gain of 8% (Ryan Detrick) Moreover, the breadth thrust combined with bullish seasonality and lack of complacency combined with lack of Technology deterioration could lead to a bit more gains in April before any real drawdown, and it's thought that pullbacks likely prove minor. While gains at this point likely will prove less robust into Summer/Fall and offer some buying opportunities, we'll need to see some evidence of breadth deterioraiotn and more bullishness to have concern on an intermediate-term basis. After all, Advance/Decline for Equities has pushed back to new all-time high territory, and in both prior bear market peaks, we saw meaningful divergence in Advance/decline before the broader market peaked out. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.





Top Retailing longs to consider from a technical perspective

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Stitch Fix Inc. - Class A- (SFIX - $28.23) SFIX looks attractive here technically after giving back about 25% from its gap in mid-March when this surged on record volume. That 30+ million share day in mid-March caused the stock to get over $37 before pulling back in recent weeks. This area just above $28 stands out given the trend from last year connecting lows while SFIX has just made a new multi-day high close as of late last week. Gains should occur which take the stock back to the mid-$30's and to test and exceed prior highs.. Given the current structure this is an attractive risk/reward here because the downside risk is very well defined and one would look to hedge/stop out longs on any close down under $26.82.


Columbia Sportswear Co. (COLM - $104.18) Bullish- COLM's gap higher on very high volume last month has managed to consolidate in recent weeks while not losing hardly any ground. This is thought to be a very bullish development which should lead this over $107 and allow for a push up to $120 in the weeks and months ahead. The gap last month managed to clear the entire base seen in this stock since last summer which is a very encouraging development. Overall, one should position long, looking to buy minor dips with thoughts that a push higher is imminent and likely occurs on above-average volume again.

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Deckers Outdoors (DECK- $146.99) Bullish- The act of consolidating gains over the last seven weeks after a very good rally should allow for some upside followthough that allows this base to be resolved by a move higher in the weeks to come. No evidence of any counter-trend sells are present, and further gains look to happen specifically based on last week's move back to new multi-week highs on a close which can help this get to $160 before any real stalling out. Pullbacks should be used to buy dips technically as its thought that DECK should not violate the longer-term trendline in place. The recent consolidation has helped to alleviate overbought conditions, making this attractive to buy during this consolidation.

Dollar Tree Inc. (DLTR- $105.04) Bullish given the degree that this has pushed to the highest levels since last March after having exceeded a very flat bullish base over the last few months. While daily exhaustion could halt this progress near $108-110 in the short run, weekly signals are very much premature and should allow for further gains up to $116.65, near the highs that were made back in February of last year. Overall this looks bullish to buy and use minor pullbacks to add, with only a decline under $94.75 postponing this larger advance.

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Five Below ( FIVE- $124.25) FIVE looks quite positive given the mini-Cup and Handle pattern that has formed in this stock after already a very sharp rally in recent months. FIVE managed to gap higher last week when LULU rose sharply but remains better positioned technically to show further progress in the weeks ahead. It's thought that gains to challenge and exceed February highs at $133.65 should happen in the near future and it looks right to position long here technically with thoughts of adding on a weekly close over $133.65 with targets near $145-$150. Stops under $114 on a weekly close which would postpone this move.

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Foot Locker Inc (FL- $60.60) Bullish- FL has managed to consolidate its recent breakout back down to a key area to consider buying technically, as this lies right near the pivot and right above the longer-term trendline connecting 2017's lows. While this has some work to do in order to get back to all-time highs, momentum is positively sloped and upward sloping in recent months given this stock's progress. The ability of last week to close positive after three negative weeks of pullback is seen as a real positive and weekly MACD remains positive while this is still very much trending up since 2017. Overall an attractive risk/reward given this recent consolidation and stability within the uptrend.

Restaurant Brands International Inc (QSR- $65.11) QSR has formed a bullish Cup and Handle pattern in the last few weeks and prices look to be exceeding recent highs which bodes well for follow-through in the weeks ahead. This company which owns 27,000 Burger King and Tim Horton's restaurants, looks well positioned to move to $70 in the near-term technically and one should position long and buy dips barring a move back down under $62 on a daily close. Momentum is not overbought given the consolidation in the last couple months, making this more attractive from a risk/reward basis.

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Tractor Supply Co. (TSCO- $97.76) Positive for gains to $120- TSCO shows a very bullish intermediate-term Cup and Handle pattern at work for the last few years and the ability of prices to consolidate near the "neckline" of this pattern in recent months is quite constructive for this technically. While it appears that price is right up to resistance, on a weekly chart, last Friday's close managed to exceed all prior closes going back since 2015, bringing this back to new all-time highs. It's thought that a move up to 100 is likely near-term and then $120 is possible in the months ahead, as TSCO begins a more measured move after moving back to new high territory.

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Retailing starting to make progress higher after a rough few months.SPDR S&P Retailing ETF, the XRT which is designed to monitor the S&P Retail select Industry index, an equal weighted index to the Retailing sector, has gradually been showing some signs of bottoming in the last couple weeks. Prices have broken back above minor downtrends and we see a very good rebound from late last year that has now exceeded the larger downtrend from last Fall. This should bode well for XRT to strengthen further in the weeks ahead.

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Signs of rebounding as part of a bearish trend for Retailing- Retailing relative to the SPX remains in a bearish downtrend from last year, but has just reached former lows and has started to show signs of rebounding in recent weeks. Demark indicators on relative charts have triggered Weekly exhaustion and should enable this group to be able to outperform relative to the SPX in the month of April. Thus, Retailing is a tactical overweight and many of the stocks chosen are ones that are showing very good signs of technical strength and should be favored.

Fridays pullback not too meaningful price wise just yet, but likely is a "Shot across the Bow" for this 3 month rally

March 25, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com




S&P 500 Cash Index

Support: 2795-6, 2780, 2753-5, 2727-31

Resistance: 2812-3, 2826-7, 2858-9




Summary:  Trends remain bullish, though last Fridays decline was sufficient to put some "Wear and Tear" into momentum and breadth that likely should begin a topping process for the Equity market in the near-term. While this doesn't preclude Equities moving higher this week to end the month and quarter, it does mean that upside likely will prove limited in all likelihood for the month of April and we will finally see some evidence of selling pressure in April after 3 sharp months of rally. Treasuries moved sharply higher with yields now down to 2.41% in the 10year and dropping under the 3-month yield for the first time since 2007. Readers might remember this happened back in 2006 about a full year ahead of the crisis and was something to keep note of. Meanwhile the Dollar has temporarily stabilized and bounced in recent days, but Gold has managed to push higher anyhow. It's thought that Dollar strength likely proves temporary into April before turning back down, and Gold might begin to finally make a move towards the more important 1375 area of "neckline" resistance. Defensive sectors gained ground last week as Technology showed some meaningful reversal signs right near former highs.



Looking back, equities showed their first ~2% decline since the end of December as prices fell sharply with six sectors falling more than 2% and breadth finishing down around 3.5/1 negative. That's a big change from the kind of price action and sector performance we've seen lately. However, it's worth noting that given the extent of Thursday's gains, Friday only finished down around 3 points under Thursday's lows. However, with Tech having gotten to right near prior highs, it's thought that Tech likely cannot rebound too meaningfully in the weeks ahead before consolidation. What's considered a real negative, is the extent to which Treasury yields are dropping precipitously. The bond market seems to have lost any sense of confidence for US economic growth. As for positives, structure is still in OK shape, and we've seen a heck of a rally the first few months, which tend to be positive for the year historically. Additionally, sentiment is a bit subdued, and Demark Exhaustion is still EARLY to form, and will require a move back to test highs.



Overall, the base case is that last Friday was potentially a tipping point for momentum and breadth , but yet we'll see signs of prices trying to claw back this coming week to help the quarter finish out on a good note. Breadth however, is unlikely to match on the Upside what it did on the downside last Friday. Thus, we still face a troubling situation heading into April in the short run that likely means at least a minor pullback is going to begin in April. However, it's thought that this won't erase even 50% of the move up from December and should turn out to still be a buying opportunity for stocks in the months ahead. As has been mentioned, it's still likely that the brunt of any real selling could be pushed off until the Fall and certainly next year likely is setting up to be Sub-par, both technically and economically. For now, we'll use last week's Friday dip to try to buy for a push higher this week.

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S&P pulled back sharply, but this largely just erased what had been a pretty stellar move last Thursday. Prices did undercut the 10-day m.a. and as of Futures trading pre-open Monday morning have broken the uptrend from December. Bottom line, it's thought that this first pullback is buyable, but one should now look to be selling rallies over the next week on any gains. Key areas of support are found at 2796 down to 2780. Below that lies 2753-6 and then 2727 the March 8 lows. Until/unless those early March lows are violated at 2727, this pullback should be buyable in the next couple weeks. Seasonality and intermediate-term momentum remain positive, so despite some breadth falloff and price weakness, any short-term peak given the 3 month rally we've enjoyed, likely will take some time and some Backing and filling before even a meaningful short-term top.





New Technical Longs/Shorts to Consider technically for the next 2-3 weeks:



LONGS: GDX, VZ, TMUS, NEE, EXC, XLU

SHORTS; BBBY, NWL, TPR, OSTK





A more thorough stock writeup will be given once I return on some of the more appealing technical setups being seen. Note, for those on Twitter, follow me on @NewtonAdvisors where i post Long and short stocks every trading day with brief analysis. My Videos are being posted on YouTube and also on my blog at http://newtonadvisor.com/blog While my travel might prohibit these from being updated as quickly this recent week, I appreciate your patience and things should return to normal by this coming Wednesday.





SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:


Short-term (3-5 days): Looking to buy early week weakness Monday/Tuesday, thinking a final push higher is likely into end of quarter before markets experience some consolidation in April. After such a lengthy run of 3 months, it's tough to call the top based on 2 days of pullback. My thinking is that we experience some "backing and filling" and rallies into end of week are better to sell, than with S&P under 2800. So both in S&P and also in Europe in SX5E, one should look to buy this initial dip.

Intermediate-term (3-5 months)- Bullish- While monthly momentum remainsnegative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and the breadth thrust combined with bullish seasonality and ongoing pessimism combined with recent sector emergence (Technology and Financials breakouts) should lead equities higher into the Spring/Summer before any further rolling over happens that causes more intermediate-term damage. The latest strength over the last few weeks has now caused weekly MACD to turn positive and join the Daily momentum in moving up. Thus, it's looking increasingly less likely that an immediate retest of December lows is likely, but something of the sort certainly cannot be ruled out for September/October of this year. Structurally, as has been noted, we have seen technical improvement in US benchmark indices, with prior lows having been recouped along with downtrends from last Fall's highs being exceeded. While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.


The most important charts from last week

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Technology looks to be stalling after having rallied right to near the prior trendline that had been broken along with getting up right near prior highs. While a possible further retest cant be ruled out for this coming week, upside should prove limited for Technology and this shouldn't be the sector to overweight for April. It's thought that profits should be taken on most Tech names on a 2-3 week basis and rotating into Defensives makes sense, particularly on any early week rallies.

Treasuries have rallied very sharply in the last couple weeks, with yields now down under 2.45%. (TNX) This shows the markets lack of conviction in the economy to stay on track, and suggests a possible washout in Yields to near 2.25% before things stabilize. Overall, one has to keep a close eye on Treasuries as prices rise but this looks to be one of the better patterns and should not be faded just yet. On signs of this pulling down under 2.30%, one can consider shorting Treasuries. For now, this move has happened very quickly and signs of exhaustion are now still absent. TLT looks to be a long, and would use any minor pullback to still buy dips.

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Utilities look to be one of the better sectors to favor in the short run to overweight. As written up the March 11 Weekly Technical Perspective, this group has turned higher and has outperformed in the short run. While the longer-term pattern shows XLU to have a lot of resistance up at $60.50-61, the near-term shows a very good likelihood that this can be met. Last week's gains helped prices get up to and over prior highs on a daily close, and likely help to spur on price gains to $60 at a minimum into mid-April before any peak. So Utilities along with REITS, and Consumer Staples, & Telecomm, the so-called Defensive trade, should work in the next few weeks. In this case above, XLU should be owned and recent stocks mentioned in the Daily reports such as PNW, SRE, EIX, NEE should be favored as Utes that could show better than average relative strength.

The US Dollar - Minor gains this week should be right to sell into given larger pattern. The Dollar decline has reversed course as of late last week, but technically it's right to look to sell into gains over the next 1-2 weeks, favoring a pullback under recent lows that should drive the Dollar lower in the months to come. This larger consolidation pattern has been at work since May of last year, and the choppy action just in the last couple months following the October 2018-January 2019 decline argues for lower prices on an intermediate-term basis, not higher. So while a bit more strength is possible given last Thursday's reversal and attempted push higher above the minor downtrend from two weeks ago, this should create opportunities to sell US Dollar and buy Pound Sterling and Euro.

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Gold's pattern has turned more bullish lately with the bounce attempt after having broken down from its most recent failed test of 1340-6. Given that the US Dollar has attempted to stabilize and bounce over the last couple days, this resilience in the face of Dollar strength is impressive. However, much of this Gold strength is happening as rates plummet, which some might view as more plausible. Near-term, technically, one would expect resistance on this rise anywhere from 1327-1346 again in the weeks to come. This minor bounce hasn't completely washed away the technical negative of having broken the three-month trend from last November's lows. Until there are more concrete signs of the US Dollar turning down, this could still take some time for Gold. However, on a breakout above 1375, this would be the real signal that argues for a larger advance to unfold. The broader trend since last Summer has indeed improved, so it's thought that a larger move higher should be in the process of getting underway. Near-term, however, it's a must to have patience until prices can clear former highs that have proven to be so challenging over the last few years. Once this trend starts to get underway higher, one can have a more material bullish intermediate-term thesis without worrying as much about the near-term swings.

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McClellan's Summation index (A smoothed version of the McClellan Advance/Decline oscillator ) shows breadth having tapered off in recent weeks. As seen above, Breadth has actually been worse than expected in recent weeks despite the market's lift. Thus, last Friday's downturn coupled with a potential Monday follow-through could be important in signaling the start for Equities to gain some much needed consolidation. This will be something to monitor closely in the days and weeks to come. For now, the minor pullback isn't all that damaging, but simply a warning sign for a possible pullback sometime in April as breadth is not cooperating with price action. Divergences in charts like these can often be important in signaling a chance in trend. As the bottom part of this chart showed in December vs January, momentum oscillators ON breadth itself made a higher low in October compared to December/January, which was a key positive in suggesting the Equity decline should be near exhaustion. For now, any bounce attempt back to last week's highs this week likely should be viewed with suspicion given the degree of breadth falloff in recent weeks.

Can this Run in Technology continue? Bullish into end of March, then a Stallout likely

March 18, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2764-5, 2727-31, 2678-81, 2672-5

Resistance: 2815-8, 2824-5



Summary:  US Equities have now trended higher in 10 of the last 12 weeks, with SPX gaining nearly 500 points in just under 3 months' time, or +20% since Christmas Eve 2018. Trends which had begun to wither a bit into early February managed to hold support after just minimal drawdowns and then last week regaining all of the prior week's losses. Now the act of having pushed up to new highs on better breadth and momentum this past week keeps the near-term technical situation looking bullish and still difficult to fade, despite the extent of recent gains. While this rally is thought of as one to consider selling into next month, it's important to see signs of Technology starting to turn lower and for S&P to give back the area of its most recent breakout. At present Technology does not seem ready to rollover, and still should be overweighted this week as further gains seem likely.



Outside of Equities, we've seen signs of the Dollar turning back lower, albeit within an uptrend that began in late January. While commodities have tried to stabilize, it still looks a bit early for this to work until February lows in BBDXY index can be breached. Meanwhile, Treasuries have been persistently strong, similar to Equities with yields reaching the lowest levels since January (TNX)



Sector-wise, it was thought that Technology and Industrials would have a difficult time carrying this rally by themselves, as both are showing gains of more than 15% YTD. It was thought that other sectors would need to come to the rescue. This looks to be happening slowly but surely. Just in the last week we've seen measurable signs of Financials and Healthcare starting to outperform. This is not immaterial, as these two sectors combined account for over 25% of the SPX. Thus, there has been a broadening out in this rally that can't be overlooked. The main risks at this point have to do with Tech stalling and rolling over (discussed below with charts) along with counter-trend signs of exhaustion appearing. Meanwhile momentum not rising as quickly to confirm this recent push back to new monthly highs is important. However, the bottom line is.. we'll need to see evidence of index weakness to pay attention, and overall, that just hasn't happened.



As the chart below shows of the MSCI AW World index (EX-US), most of the globe has rallied in lockstep but at a slower pace, after having weathered a much more difficult 2018. Thus, the snapback rally here has not even recouped 50% of last year's drawdown. Yet, the act of exceeding the downtrend does still suggest further gains are possible in indices globally in the months ahead, and it looks premature to fade this rally. Note that last year's pullback got right down to important support which had held prior pullbacks as what happened in early 2016. Thus, it's often important to take a look at charts outside of the SPX to put things into perspective.

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TECHNOLOGY- Has this move run its course? Or is there more likely?This week's charts and discussion center on Technology, which has bolted higher to take the lead again this year with very sharp gains in recent weeks.Technically speaking, it looks premature to give up on gains into this week, as it looks very likely that this coming week and potentially the next could be positive. Technology has moved back to new all-time highs on an Equal-weighted basis, while main Technology gauges like S&P 500 Information Technology index are within striking distance of all-time highs and look likely to challenge these areas in the next 2-3 weeks. However, as will be discussed below there are some intermediate-term concerns, largely hinging on momentum having turned down sharply late last year on weekly/monthly charts. This will need to be resolved by continued sharp gains back to new highs on relative and absolute charts. However, some indices like the SOX look to be just below prominent highs and showing negative momentum divergence that likely could make this sector slow. Bottom line, for March, it looks right to be involved with Technology and overweight this group. However, on signs of Tech stalling into April and/or May, it's right to watch for the degree of any consolidation and /or decline before weighing in on the balance of the year and/or next. It's thought that Tech likely does stallout into the Fall of 2019 and might begin a period of underperformance given the monthly charts waning in momentum. But at present, it's tough to give up on this sector until prices begin to weaken materially and one cannot abandon Tech simply because of prices being overbought alone, as plenty of good charts remain in place.




Most Important Technical Developments of the Past week:



1) TNX broke down last week to the lowest levels since January (US 10yr) as did the 2 and 5 year yields. (30 year held up in stronger fashion)

2) Financials began to turn higher and outperform and Regional banks in particular look attractive to outperform. Interestingly enough, this group has worked despite yields turning down sharply


2) US Dollar index turned down over the last couple weeks, and this weakness has helped a bounce in both China and also Emerging markets


3) Momentum and breadth which flattened out a bit into late February, have turned up a bit, with momentum in particular moving up to test levels of late February. For now, momentum is not as high as was seen in late February, so this has created the start of some negative divergence. Yet, until prices turn down, this can certainly continue this current week. Breadth, meanwhile, has improved by the Advance/Decline pushing back to new highs. Yet, momentum on breadth is much lower than in late February.

4) Sentiment looks to have contracted further in the last week, with AAII converging to show just a 1.36% spread between Bulls and Bears. After having widened out into late February to nearly a 20% spread, now this has retreated to near unchanged. Thus, sentiment certainly isn't too complacent right now in a way that would put in a top. (Back in January 2018 this showed over a 40% spread between Bulls and Bears)


5) Demark "Sell Setups" were formed this past week on weekly charts for Value Line Arithmetic, SPX, NASDAQ, DJIA, SX5E, along with many major sectors, including XLK, XLI, XLE, XLY, XLB, XLF. Note that Daily counts however, have been recycled and now are continuing up on different counts. Thus, its thought that when these complete and Daily and weekly are in alignment, this should coincide with at least a short-term peak, likely in late March/early April.

6) Cycles- (time period between 3/20-4) This month brings about an important six-month anniversary to last September's peak, while being 90 days from the late December lows, 270 days from the late June 2018 lows, and 120, 135 days from the November turns, which suggest the following periods could be important: Additionally this rally from late December will be exactly equal in time to the pullback from mid-September as of March 29.

7) Crude oil looks to have made a decent about-face and should push up to $61-$63 in the weeks ahead into April. Meanwhile, Gold and Silver look to have begun at least minor drawdowns in recent weeks and this looks to continue.

8) Sectors like Industrials and materials both underperformed last week, while Technology and Healthcare made sharp gains. This continued rotation into Tech looks important and bullish in the short run.

9) Defensive sectors like Utilities and REITS did manage to both make absolute breakouts in the last couple weeks, though both are nearing areas of resistance on weekly and monthly charts. Additionally, relatively speaking, both lagged last week. It's thought that both sectors should be less likely to continue recent gains.


10) Small-cap outperformance ended quickly in late February and this has been given back sharply in recent weeks. While this isn't necessarily bearish for the overall market, it's important to mention given that the first two months showed very promising strength in this group.




LONG IDEAS within Technology: A, CRM, FLT, GPN, PANW, TEAM, RNG, PCTY, PAYC, PYPL, COUP, CYBR, SPLK, AMZN, NFLX




SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:



Short-term (3-5 days): Bullish into late March before stalling out- Last week's push above 2825 keeps the near-term trend positive and exhaustion signals are premature for a turn. The combination of these along with the fact that momentum has lessened in its intensity should still allow for additional strength this week. While the week following March Quad-expiration historically has been negative following a positive week, we'll need to see movement back down under 2788 to pay attention. Until then, trends look likely to push even further higher with targets at 2850-60 for this week

Intermediate-term (3-5 months)- Bullish- While monthly momentum remains negative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and the breadth thrust combined with bullish seasonality and ongoing pessimism combined with recent sector emergence (Technology and Financials breakouts) should lead equities higher into the Spring/Summer before any further rolling over happens that causes more intermediate-term damage. The latest strength over the last few weeks has now caused weekly MACD to turn positive and join the Daily momentum in moving up. Thus, it's looking increasingly less likely that an immediate retest of December lows is likely, but something of the sort certainly cannot be ruled out for September/October of this year. Structurally, as has been noted, we have seen technical improvement in US benchmark indices, with prior lows having been recouped along with downtrends from last Fall's highs being exceeded. While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.


10 important Technology Charts heading into this week, sector, index charts and then 3 attractive stocks to consider

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Technology relative to SPX- Bullish for further gains to test 2018 highs.Relatively speaking, this chart of S&P 500 Information Technology index v SPX shows the recent breakout last month that helped Technology start to accelerate and outperform in a big way. This strength helped Tech regain the top spot for 2019 performance, and this move does not yet look complete. Daily charts of Tech/SPX still argue for another 1-2 weeks of outperformance, and given the sharply upward nature of momentum recently, this looks to get near former highs from Summer 2018 before slowing. Until there is evidence of Technology stalling out, it's right to be long/overweight, expecting further near-term relative strength, and likely a lack of any market correction until late March.


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Technology (S&P 500 Information Technology index) Bullish, but faces a tough task after rallying to near 2018 highs. Technology as seen on monthly charts began to turn up sharply back in 2016 and accelerated faster once prices got up above former highs from 2000. Often the first breakout above a former high should allow for some upward follow-through. While the last three months have been higher this year after last year's drawdown, it's imperative for Technology to reach and exceed last year's highs to keep this chart in good shape. The slowdown in momentum from last year remains a concern on an intermediate-term basis for Technology, so it's thought that Tech faces its first real test in the next 2-3 months after this recent run-up. Bottom line, movement back up over 1338.90 sooner than later would be a very good sign. More likely, however is that Tech stalls out this Spring slightly under this level and consolidates. Movement back under 1162.76, or February 2019 lows, would be problematic for Tech for this coming Summer and Fall, so this is what to watch for that could be an issue for Technology and for the market as a whole.


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NASDAQ vs SPX relatively-No signs of this turning back lower. Along with keeping a close eye on Technology, watching the relative performance of the NASDAQ itself is often useful as it's Tech and Biotech heavy in weighting, and the start of relative out/underperformance can often give early warning signs about Technology along with turns in the broader market. As this relative chart shows above, the NASDAQ/SPX chart peaked out last June, providing a three-month warning on when the broader market topped out. The decline undercut its lengthy uptrend in early October 2018, coinciding with the start of more substantial market weakness which lasted through December. In similar fashion, the turn back higher managed to exceed downtrends from last Fall earlier than the broader market accomplished this. Thus, an early warning on market strength occurred which preceded the larger advance in the broader market. Overall, relative chart of the NASDAQ to broader market can be helpful to watch closely. For now these are still pointing to a bit more strength over the next 1-2 weeks.


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NY FANG index (Bloomberg)- FANG looks to be breaking out. As relayed last week in "Newton's Notes" , The FANG stocks look to have exceeded a meaningful area of trendline resistance that has served as resistance for this group since last Summer. This goes a long ways towards explaining some of the underperformance earlier in the year. The last week of strength, however, seems to argue that this part of Technology is now trying to play "catch-up" after the lengthy consolidation.


Semis look to be nearing resistance & likely stall by the end of March -The Philadelphia Stock Exchange Semiconductor Index (SOX) has strengthened up to an area of important resistance stretching back since mid-2017. In the short run, this is likely to provide some solid near-term resistance at 1425-1450 that likely holds prices. However, in the event this is surpassed, prices likely would trend up to 1500-25, which should constitute a strong area to sell. Given the 18 month consolidation and downturn into last December, this recent rise has had little effect on momentum which has been much weaker than what's been seen back in late 2017. Thus, the start of negative momentum divergence looks to be a serious challenge for the longevity of this advance, if and when prices push up to new highs. Bottom line, the next 3-5 days look to be positive for Semis, but one should expect a stalling out, and the next 2-3 years might prove difficult to achieve the kind of gains which occurred in 2016-7 given the slowdown in momentum.


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Equal-weighted Technology vs SPX (SPXEWIN index-Bloomberg) v SPX- Near-term bullish for Tech, as the breakout now has managed to exceed former highs from 2018 and looks poised to push up further this coming week. When looking on an equal-weighted basis for Technology, relative to the SPX (SPXEWIN index vs SPX) the breakout late last year provided a "green light" for Tech outperformance, as this equal-weighted index had exceeded a key downtrend going back since last Summer. At present, we've seen some stalling out, but now in the last two days, this ratio has begun to turn higher yet again. Overall, movement back to new highs over the next 2-3 trading days looks likely, which should translate into further Technology outperformance into late March, and a continued market rally. Once this begins to stall out and reverse, some clues about SPX and its turn back lower will be evident. For now, it pays to stay the course this coming week, anticipating further gains.

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Apple Inc (AAPL- $186.12) AAPL is growing close to resistance, which could come about between $188-$190 this coming week. The combination of near-term overbought conditions coupled with prices having risen above its upper Bollinger Band and within 2 days of counter-trend exhaustion all makes this a less than perfect risk/reward technically at this juncture in the near-term. While the breakout happened earlier last week near $176-8, at current levels it doesn't have as much appeal. However, the intermediate-term picture given the upward shift in momentum over the last few months is still attractive. Thus, for traders, one would look to sell into gains between Wednesday and Friday this coming week, looking to buy dips. On any weakness back to $178-$180, this present attractive buying opportunities between April and September.

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Salesforce.com Inc. (CRM- $161.51) Attractive to buy for a test/breakout of late February highs. The consolidation in CRM proved mild over the last couple weeks and resembles a Cup and Handle pattern to the chart pattern since last September. Movement back higher looks to have started late last week and it's right to lean long, expecting a test of $166.87 around $5 higher. Movement above this on a weekly closing basis would argue for a push up to $180 as this would constitute a breakout of this six-month bullish base. For now this latter part might prove premature, but heading into this current week, longs are recommended technically, with thoughts of an upcoming challenge of former highs. Any movement back down under $157 would stop out shorts.


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Palo Alto Networks (PANW- $239.72) PANW is attractive for further gains to near $260 in the near future. Its quick rally back to challenge and briefly exceed last Fall's highs looks important technically. This level also was important based on the prior highs hit back in 2015 when PANW made it slightly over $200, a significant high, albeit at a slightly lower level. Overall, further near-term gains look likely to 260, with gains over this level leading quickly up to near $280. Only a pullback under $222 disrupts this rally potential, leading to consolidation before gains can occur.

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Agilent Technologies Inc. (A-$81.10) Bullish as the last few weeks have exceeded the highs of a lengthy bullish base that began back in early 2018. Last week's recovery of the pullback attempt on weekly charts is constructive for a bit more rally in the near future. While weekly Demark indicators are close to completion, this likely will not be in place until early April to signal any sort of upside exhaustion. In the short run, movement up to $85 looks likely, with movement above that taking Agilent up to $90. This lengthy bullish base shown on weekly charts from early 2018 was important when exceeded last month. While the stock has rallied somewhat since that time, the full extent of the rally cannot be called complete, and this pattern remains constructive for further gains. Only under $75 would the advance be postponed.

Utilities look attractive for further outperformance

March 11, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2764-5, 2727-31, 2678-81, 2672-5

Resistance: 2815-8, 2824-5



Summary:  Equities have begun trending lower as of last week, marking the first weekly close at multi-week lows of 2019. Asian indices also fell to new weekly lows, while Europe began a minor drawdown, but arguably held up much better than the rest of the world. Treasury yields fell back to prior yield lows though held prior support, while the US Dollar's gains hit new three-month highs, resulting in meaningful weakness for Emerging markets along with most commodities and China. Overall, it was thought that the breadth and momentum slowdown might finally catch up with stocks, and last week's early Reversal on Monday proved to be the technical catalyst, with a key reversal day on huge downside volume. Given the extent of the move off the lows, which in many indices and sectors has proven to be 15-20% within the last 10 weeks, the upside for the next few months is likely to be not nearly as robust, and selectivity will be very important. To review, in the short run, there were a few reasons to suspect this recent rally might be susceptible into March. Technically speaking, breadth and momentum deterioration, a lower than average Equity Put/call ratio, Demark exhaustion (daily and weekly), defensive outperformance in Utilities, and limited upside based on Weekly Bollinger Bands (2% Std. Deviation) all stood out as potentially having importance, along with the fact that markets peaked out near the 10-year anniversary of 2009 extreme lows (which started this 10 year Bull) All of those looked important.

However, on an intermediate-term basis, we've seen some very constructive signs that still warrant a bullish outlook on an intermediate-term basis for this year. Those concern : 1) Greater than average market breadth on a weekly basis starting with late December/early January breadth thrust /Advance Decline for all equities back at new all-time highs 2) Pattern improvement (SPX getting back UP above areas of important resistance 2630 and then 2715, exceeding trendlines from last Fall 3) Ongoing skepticism about a China deal and overall subdued sentiment after many drew down risk into this decline in December/January and have been slow to add risk back on 4) Bullish seasonality stats going back since 1950 about the time following mid-term election year troughs and the resulting push back higher 5) Technology breaking back out to new all-time highs on an equal-weighted basis (20% of SPX) 6) Decennial cycles of years ending in 9 coinciding with bullish pre-Election year cycles- Both of these suggest this year has a higher than average tendency to be positive 7) Bullish January and February which produced some of the best early year gains in years (while near-term overdone, this factor alone argues for intermediate-term strength 8) Bullish momentum on a weekly basis


So after these negative and positives, we're left with a constructive trend on a weekly basis, yet near-term concern. Last week proved to be the first down week that largely undercut prior lows.. so now what? The daily chart below serves to put this move into perspective. Last week's decline managed to sell off sufficiently to nearly reach the lower Bollinger Band on daily charts. Counter-trend exhaustion now on the downside has nearly completed, and we've seen a contraction in Bullish sentiment in the last week, with AAII gauges (chart below) pulling back to see just a 10% spread now between bulls and bears. So after a huge 15% rally, last week's pullback alone was sufficient to turn sentiment back down and show some meaningful contraction. This looks to be important, as declines that cause sentiment to rise this quickly likely should prove to be short-lived. Thus, it's likely technically in my opinion that this first draw-down is near completion and should not get under 2700.

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Most Important Technical Developments of the Past week:



 1) The Arms index, or TRIN, (Advance/Decline divided by Advancing Volume/Declining volume) produced a very high reading after its rally into last Monday's close, with that reversal day bringing about the highest reading of volume into declining vs advancing stocks for 2019. While TRIN readings over 2 often can bring about capitulatory lows in the market, when they occur following steep rallies on reversal days, the effect is often the opposite (See late 2017)



2) Sentiment seems to have contracted quite rapidly on last week's pullback. Popular gauges like AAII sentiment contracted last week to just 10 percentage points of Bulls over Bears, in a rapid about face to the previous widening. Thus, while Investors Intelligence remains showing a high 30+ spread between Bulls and bears, AAII is now just a tad above neutral. Furthermore, the Equity Put/call ratio showed a steep gain up to .75 which is the highest since mid-January. Overall it's thought that bearish sentiment spiking is a bullish sign for stocks.



3) US Dollar index bottomed out and turned higher sharply to the highest levels in weeks. This looks to have hurt commodities and EM of late, though these might prove temporary once the Dollar turns back lower.



4) China and EEM pulled back sharply given the Dollar rise. The move in China had been delayed and had not followed the US or European move, so last week's late breakdown looked meaningful.



LONG IDEAS within Utilities: PNW, ETR, NI, DTE, AEP


Short-term (3-5 days): Expecting that last week's pullback is nearing support and weakness under 2700 is unlikely before this turns back higher. While Friday could have marked the low, one can't rule out additional near-term weakness given the recent pullback, but should not prove widespread given both the breadth acceleration and some signs of fear coming back quickly. Look to buy into dips this week and expect that markets should start to turn back higher.

Intermediate-term (3-5 months)- Bullish- While monthly momentum remains negative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and the breadth thrust combined with bullish seasonality and ongoing pessimism combined with recent sector emergence (Technology and Financials breakouts) should lead equities higher into the Spring/Summer before any further rolling over happens that causes more intermediate-term damage. The latest strength over the last few weeks has now caused weekly MACD to turn positive and join the Daily momentum in moving up. Thus, it's looking increasingly less likely that an immediate retest of December lows is likely, but something of the sort certainly cannot be ruled out for September/October of this year. Structurally, as has been noted, we have seen technical improvement in US benchmark indices, with prior lows having been recouped along with downtrends from last Fall's highs being exceeded. While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.


10 important charts on Utilities and Sentiment/Breadth

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Utilities bullish for further outperformance XLU looks to be on the verge of a 3-5 week period of outperformance given the breakout above prior highs from both December 2018 and also late 2017. This is considered to be a constructive technical development and a pattern widely considered to be a giant Cup and Handle spanning the last 16 months. Utilities is the only one of the major sectors showing such a bullish breakout pattern at this time, and should be considered as a Technical overweight, particularly considering last week's selloff after such a lengthy run. Movement up to $59-$59.50 looks likely, and one should use minor dips as something to add to existing longs.

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Utilities bullish near-term, but upside likely limited to $60 in XLU. The weekly XLU puts this recent Cup and Handle pattern in perspective. While the 16 month breakout is certainly constructive, the intermediate-term trend channel should be important in holding this rally on gains over the next month, which lies up near $59.50-$60. This has held this rally on two separate occasions since it began in 2015 and likely should hold on this go-around as well. Thus, it looks right to be near-term bullish, but one should temper enthusiasm about this proving to be anything more than just a 5-7% rally given this meaningful resistance.

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Utilities vs SPX in relative terms appears attractive- XLU v SPX looks to be bottoming out given the breakout, pullback and rise to the highest levels in the last few weeks. Relative charts show a very good chance of this rising further in the weeks ahead, and should rally to challlenge prior highs made earlier this year. Many times these relative charts tend to show movement far before the absolute movement occurs. In this case, this appears like an attractive breakout, pullback and now turn back higher, while the absolute charts were more of a traditional breakout.

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The breadth correction started in the last week after recent push back to new highs. Advance/Decline on "All stocks" has just pulled back to violate the trend from late December. The strength of the move from late December is thought to be a real positive but yet now has begun to correct this move to new highs. Overall, this pullback and trend break is a minor negative but overall should prove short-lived given the positives of the push back to new highs.

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American Association of Individual investors Sentiment (AAII) has contracted to just 10.6 points of Bullish vs Bearish spread as of last week. This is a pullback from earlier 25 just a couple weeks ago and shows the extent to which this recent weakness and signs of economic slowdown have taken a toll on sentiment. This goes to show that further intermediate-term weakness could prove short-lived as sentiment might turn bearish too quickly.

Pinnacle West Capital Corp (PNW- $93.16) PNW has formed an attractive Cup and Handle pattern in the last 16 months that makes this appealing to buy the breakout, expecting further gains ahead. Similar to the broader Utility space, PNW has just gotten up above prior highs from December 2018 along with November of 2017. Weekly momentum is not overbought, and Demark exhaustion is still premature on monthly charts based on TD Combo, requiring another 2 months of gains before this should begin to stall out. This looks precisely like an appealing time to own this near-term given some of the recent market volatility which began again last week. Gains up to $100 look likely and one should use pullbacks to 90 to add to longs given the improvement in its technical structure. While near-term targets lie near $100, one can use trailing stops and own provided this remains above $92.64 on its advance.

Entergy Corp (ETR- $92.49) Bullish- ETR has broken out to the highest levels since 2008 just in the last couple weeks, exceeding the highs of a bullish base which had begun in early 2015. This should allow for additional upside in the weeks and months ahead, and targets the 61.8% retracement zone of its 2008-9 decline near 101. Specifically the appeal for ETR here despite a 10%+ move YTD has more to do with its intermediate-term pattern shown above, and exceeding this larger 4 year triangle is thought to be quite constructive technically. While ETR has reached the 50% level of its prior drawdown from 2008, no counter-trend measures of exhaustion are in place that would suggest this should peak out here. Thus, additional upside looks probable given this recent technical improvement, and this should be overweighted for the weeks/months ahead.

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NiSource (NI- $27.42) NI just starting to show evidence of breaking outafter having trended neutral/range-bound for the last few years. Last week's rally managed to exceed the trendline guiding the highs of the recent short-term triangle pattern. This likely carries NI back above $30 and could extend given the extent of the longer-term range-bound pattern which has been intact since 2015. Overall this appears like one of the better risk/rewards given a breakout in Utilities given that NI has not already made its move but has been basing. This recent push to new multi-week highs should serve as the technical catalyst for further acceleration.

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DTE Energy (DTE- $123.20) Bullish- Move to 130 likely Similar to the broader Utility space, DTE has appeal given its move to just exceed prior highs of this recent base which has been intact over the last couple years. The act of making a weekly close above $121, specifically given the trend connecting this high to the prior from 2017, should allow for upward continuation in the weeks ahead. Movement up to near $130 looks likely, with stops on longs put near $118. Overall, it's worth following the Utilities that are breaking out coinciding with the larger sector making a similar move, and this should lead performance in the weeks ahead.

American Electric Power (AEP- $81.95) Bullish given the act of pushing back up above areas of resistance that have held since late 2017. While similar to the broader Utility space, AEP has made a series of higher highs within a larger channel starting in 2015, it's been the most recent bullish base formed since 2017 that gives reason for the near-term optimism. Given that both weekly highs occured between $877-$80 and AEP has just gotten above this area, the pattern reflects a Cup and Handle which likely propels this up near $85 in the weeks ahead. Thus, while broader market volatliity has come back over the last week, this Utility has just broken out to new highs and should offer some outperforamnce into April for those looking for selective longs. Stops on longs under $78 on a close with upside targets near $85.

Healthcare looks to be on verge of turning higher relatively; Stock indices look to be nearing exhaustion

March 4, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2764-5, 2727-31, 2678-81, 2672-5

Resistance: 2815-8, 2824-5



Summary:  Equities have now risen for 9 of the last 10 weeks (SPX) with late January missing just by a hair in being positive. Breadth and momentum, which had both started out fairly positive in late December/January, has flattened out a bit in the last couple weeks, but we've seen precious little evidence of anything but rising prices with a huge string of higher highs, higher lows and higher closing prices on weekly charts since late Christmas Eve. Overall, Markets will be unable to continue rising at this pace, as we've now seen gains of more than 450 points in 10 weeks time, or 19.2%. It's likely that March brings about some type of trend reversal (at least on a short-term basis) but it's expected to prove minimal and end up being a buying opportunity for further gains into April. Overall, until there is evidence of prices turning down, it's difficult to highlight the negatives over the price structure alone which has proven downright resilient. We'll be on watch for evidence of some stalling out (as given some of the reasons listed below, i do feel there's an above-average probability of this happening) Yet, it still looks proper to use 2764 as the dividing line in the sand for Bull/Bear and being over this level keeps the rising trend intact. With regards to Fixed income, the most technically important move last week seemed to come with Yields starting to turn higher dramatically ,which happened in the 10 and 30 year Treasury, while USD/JPY also followed suit. This had been sorely lacking in previous weeks and was listed as a warning sign, but similar to early January, yields look to be following the bounce in Equities, not vice versa. Furthermore, the Dollar decline looks to have reached a temporary floor and last Friday's gains look nearterm bearish for commodities, particulalry the Precious metals after a big run. Overall, the risk appetite seems to be slowly coming back into stocks, but positioning still indicates that Money market inflows are the highest in nearly two years, and had risen last month to the largest level since early 2016. This BofA Merrill Lynch GFSI Money Market flow index shows net flows into Global money market funds as a fraction of total Equity market capitalization. Since the October-December 2018 decline resulted in such a huge period of risk being taken down, this hasn't all come back yet. Thus, intermediate-term sentiment is telling a different story than some of the recent complacency that's entered the market, suggesting that pullbacks in March still could prove to be buyable.

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Most Important Technical Developments of the Past week:


 1) TNX and USDJPY both showed very sharp rallies into end of week, suggesting that the recent non-correlation to Equities might be ending. This is seen as a promising sign for Financials as the Yield curve has begun to steepen as well




2) US Dollar index looks to have bottomed near-term. While the patttern in the last few years remains range-bound and the larger pattern suggests a period of Dollar weakness in the years ahead, at least for the short-term, the Dollar looks to have bottomed out.




3) Momentum and breadth which both started out quite positive in early January, have both flattened out in recent weeks. Daily MACD has turned negative based on last week and both the Advance/Decline and Stocks trading above their 200-day ma both peaked around 2/20-5.




4) Sentiment looks to be finally nearing a time when AAII has joined Investors Intelligence in widening out in the spread between Bulls and Bears (It only took 10 weeks and a 19% GAIN !!! ) Bulls/bears now is over 20% in AAII, and is more supportive of a near-term peak in stocks




5) Demark "Sell Setups" should be present this week on a WEEKLY basis for Value Line Arithmetic, SPX, NASDAQ, DJIA, SX5E, along with many major sectors, including XLK, XLI, XLE, XLY, XLB, XLF. This is the first time that Weekly exhaustion has lined up with Daily since late December, and utilizing weekly counts often can add to greater success when looking for reversals.




6) Cycles- This month brings about an important six-month anniversary to last September's peak, while being 90 days from the late December lows, 270 days from the late June 2018 lows, and 120, 135 days from the November turns, which suggest the following periods could be important: Additionally this rally from late December will be exactly equal in time to the pullback from Early October as of mid-month. Looking at March, the following periods have the potential to be important: 3/5-6, 3/15-7 and 3/24-6.




7) Gold and Silver look to be peaking out in the short run and given the 1-2 combo of Rates and Dollar rising, these could selloff more in the short run with targets down near 1250 for Gold and a likely maximum move to 1220 which should be buyable.




8) Sectors like Industrials, Tech and Discretionary are all nearing upper Bollinger Band areas on weekly charts, which combined with the Demark exhaustion, will make for a difficult time pushing too much higher without consolidation.




9) Small-caps have made an impressive enough comeback vs the Broader market that it should pay to own Small caps this year, as the RTY vs SPX managed to break out above its six-month downtrend and RTY also got above three different prior lows since 2016. This looks meaningful and RTY should be favored and bought on pullbacks.




10) Healthcare looks to be on the verge of starting to turn back higher after nearly six months of underperformance. Some of this was due to mean reversion and turning down after a very decent period of performance. But this group is now showing Daily and weekly downside exhaustion and it looks right to position long in Medical devices, and Pharma while still avoiding the Services stocks


LONG IDEAS within Healthcare: MTD, ZTS, VRTX, REGN, SRPT, VCEL, COO, DXCM, SNN, AZN




SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:




Short-term (3-5 days): Expecting short-term peak this week or next- but until weakness happens, trend still bullish until/unless 2764 broken - Raising stops on longs- Still no evidence of any deterioration, but stock indices and many sectors will show counter-trend exhaustion this week, while momentum and breadth have started to falter. It looks right to consider selling out of Technology to go into Healthcare




Intermediate-term (3-5 months)- Bullish- While monthly momentum remains negative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and the breadth thrust combined with bullish seasonality and ongoing pessimism combined with recent sector emergence (Technology and Financials breakouts) should lead equities higher into the Spring/Summer before any further rolling over happens that causes more intermediate-term damage. The latest strength over the last few weeks has now caused weekly MACD to turn positive and join the Daily momentum in moving up. Thus, it's looking increasingly less likely that an immediate retest of December lows is likely, but something of the sort certainly cannot be ruled out for September/October of this year. Structurally, as has been noted, we have seen technical improvement in US benchmark indices, with prior lows having been recouped along with downtrends from last Fall's highs being exceeded. While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.


10 important Charts heading into this week, Recent Technical developments in Equities, along with Healthcare charts

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SPX trend bullish near-term, but warnings now appearing on daily and weekly charts suggesting trend should reverse in March, even if short-lived. SPX has now gained nearly 20% in the last 10 weeks from intra-day lows on Christmas Eve 2018. This retracement has carried over 75% of the prior decline and puts prices within 5% of all-time highs. At present, the risk/reward isn't as ideal for new longs heading into March based on the following developments. First, as seen in this weekly chart above, counter-trend "TD Sell Setups" can be formed as early as this week with just a move over 2813.49 in SPX cash on weekly charts. These have been important in the past in signaling exhaustion that has led to trend reversals. Second, the upper area of the 2% Bollinger Band hits just above current levels. This is likely going to provide at least some minor resistance. Third, momentum based on gauges like RSI is now at a 69 on daily charts and has begun to diverge from peaks made in mid-February. Fourth, other momentum gauges like MACD have rolled over to negative now on daily charts. Thus, there seem to be some things in place now which argue for this rally to stallout and make at least a minor reversal before prices are able to reach former highs. Risk/reward is not as favorable and one should be on the lookout for trend reversals in the next couple weeks, potentially as early as this Wednesday/Thursday. Under 2775 would serve as the first warning and then under 2764 allows for a pullback to get underway, which should prove short in nature.

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Treasury yields broke out of minor trends last week- Daily charts on 5, 10 and 30 year yield Treasuries show the last few days of gains in yield terms, which exceeded the minor trend of the last month. This looks to be an important development technically at a time that yields had lagged the equity move as both Treasuries and Equities were moving higher in tandem through the back half of January into February. Now Yields along with USDJPY both look to be moving higher to join the Equity rally, not dissimilar from what was seen in early January. While Yields have pushed up above the higher Bollinger band, any minor dip in yields should prove to be a chance to sell Treasuries, expecting higher yields in the month of March.

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Gold and Silver have both turned down in recent days as the Dollar and Yields have shown signs of hitting support and turning back higher. As mentioned above the Yield breakout looked to be significant. The Metal trade meanwhile broke down below the uptrend of the last six months. It's thought that Gold could pullback down to 1250 without too much trouble. While the intermediate-term prospects have improved for the Metals given the Dollar weakness, it's recent pullback looks to have additional downside in the month of March before this stabilizes. One should hold off on buying dips until this move plays out.

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XLK- Technology ETF- Technology looks to be nearing absolute levels of importance, and could stall out in early March. While as we've discussed in the daily reports about Technology breaking out in relative Equal-weighted terms vs SPX, the XLK itself is set to record signs of exhaustion now on a counter-trend basis in early March, while nearing the highs of its downward sloping Bollinger Band, the 2% standard deviation of price movement. Additionally, when Tech broke down under its 2-3 year uptrend, it was thought to be bearish and did in fact lead lower. Now we're seeing prices on the verge of retesting the area of its breakdown, something which also has importance. Overall, it's thought that the area at 71.50-73.50 has real significance as a key area of resistance, and one should consider either lightening up into this area, or hold off from chasing the Tech rally.

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Healthcare looks to be on the verge of trying to bottom out and turn back higher, something which on a relative basis bodes well to consider using recent relative weakness to overweight this group. As weekly charts of XLV/SPX show, we saw a breakout last year of nearly a 3-year downtrend in Healthcare. However as the broader market bottomed out in December, this group undperformed relatively. Now we're seeing evidence of both Daily and weekly exhaustion counts on Healthcare right at a time when this is testing the area of the lower Bollinger Band, just above the area of last year's breakout. This creates an attractive risk/reward to overweight Healthcare and look to add to this on evidence of this confirming these Demark signals and turning higher.

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Healthcare might be better to favor in the months ahead vs Technology.Relative charts of XLV to XLK, or Healthcare vs Technology, show a similar pattern of a breakout in this pattern followed by a retracement in the last couple months. This brings about an attractive risk/reward in trying to buy into Healthcare vs Tech, and investors that are too "tech-heavy" might want to consider Healthcare which looks attractive to buy dips after this minor pullback.

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Pharmaceutical stocks look attractive given the bullish base in DRG which has grown more attractive in its ability to push higher to test the highs from late last year. DRG peaked out in 2015 and this level wasn't retested until late last year. While a natural area of resistance that resulted in some backing off in this index, we see that prices have immediately pushed back to just below these former highs. The quickness with which prices have moved back higher is seen as a very bullish development for this sector, and should drive prices to make a larger breakout in the weeks and months ahead. Given the signs of Healthcare trying to bottom out relatively, a breakout in Pharma stocks would make good sense, and something to watch for carefully in the weeks ahead.

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Biotech likely to stall out near former highs within 1-2 weeks. Biotech, as shown by the XBI, or SPDR S&P Biotech ETF, looks likely to show further near-term strength which should retest former highs. Yet, this sector has already made a large rally in the last couple months given the extent of the drawdown, and weekly exhaustion counts, similar to the SPX, are within 1-2 weeks of forming. Thus, this rally likely should stallout near former highs vs thinking an immediate breakout is imminent. One can still favor many of these stocks on an intermediate-term basis, but near-term, it's more likely that some type of stallout happens in March, so one should look to buy pullbacks if given the chance in the weeks ahead.

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IHI, or the Medical Devices ETF, has just pushed back to new high territory, something that leaves this sub-sector in much better technical shape than what's happening with either Pharma, or Biotech. While near-term overbought, the act of pushing back to new high territory should help prices move to 240-5 without too much trouble before hitting resistance. Overall, the Medical Devices sub-sector appears to be the strongest part of Healthcare.

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Healthcare Providers, on the other hand, are the weakest part of Healthcare and should be avoided as an area to consider, in favor of Medical Devices, Pharma or Biotech. Charts of the IHF, the Ishares US Healthcare Providers ETF, Weekly charts show the large uptrend in this group being broken and prices recently being repelled after having rallied to test the area of the former breakout. This often is important in suggesting further weakness. Thus, until there is evidence of February highs being exceeded for IHF, it's right to hold off on buying dips, and expect that further underperformance is possible in this one area of Healthcare.

Rally extends to Dec highs as China trade truce extended

February 25, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2727-31, 2678-81, 2672-5, 2622-4

Resistance: 2800-1, 2815-8, 2824-5



Summary:  Equities continue to charge higher, as this past week now marks 8 of the last 9 weeks of gains. While sentiment is growing a bit more constructive from its December 2018 pessimistic levels, it's nowhere near levels of complacency that marked the peak around this time last year back in January 2018, 13 months ago. Trends remain bullish near-term, momentum has turned bullish on daily and weekly basis, and Breadth has been much more constructive of late. Thus, heading into the final week of February, there still seems to be little with regards to price or momentum lately that would suggest this trend is stalling out. Bond yields meanwhile have been churning but largely lower, and have all but ignored the equity gains of late. The Dollar continues to show signs of peaking out, and has turned down a bit more forcefully of late. Meanwhile Commodities have begun to lift along with Materials and mining stocks and Emerging markets have firmed. Most of this still seems quite constructive heading into this week. While it's right to try to pinpoint factors that might allow for a slowdown and/or reversal, price is the most important factor and nothing price wise has yet to show meaningful enough deterioration that would allow for a reversal. Thus, while counter-trend signals are now abundant this coming week in suggesting some type of Reversal should be near, we'll continue to utilize the uptrend from December, and until this is broken, it will be right to still stay the course. The chart below highlights the Value Line

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Overview: Equities continue to be largely "unloved" while trends have steadily pushed higher. The uncertainties of China Trade policy have largely had little effect in causing any ripple to this bounce, and technically speaking it's always been right to lean more on trends then to anticipate what might be factored into the market or not on Trade. Technically it's likely that this trend DOES show some type of stalling as we enter March, given the confluence of both Counter-trend exhaustion now on multiple sectors, indices while Treasury yields remain quite weak. However, trends remain bullish near-term and simply have not given us much reason to want to fight them, regardless of momentum "nearing" overbought levels, or Treasuries rallying sharply as well. Breadth has been quite strong in the last months, and Summation index (chart below) has risen to the highest levels in over 2 years. Skepticism of this rally is also a factor and many who missed the rally are now holding out for pullbacks to buy, as opposed to chasing this move. Furthermore, the "smart" money as per CFTC data shows no evidence of shorting into this move and indicates a bullish bias, which is largely constructive on an intermediate-term basis. This week, the focus this week will be trying to pinpoint what still CAN work, as opposed to trying to fight this move. After all, as discussed, there still has been no meaningful change in this trend from late December. Until this trend starts to give way, it's right to just concentrate on what has an above-average chance of continuing to work in the days and weeks ahead. However, it's not wrong to think that this recent pace of gains will be very difficult to sustain in the coming months. Given the extent of the deterioration which took place in October-December, monthly momentum remains negative and quite a bit below the peaks which were registered near this time last year. Thus, this recent rally has largely had little to no effect in carrying momentum back to near recent highs and this will continue to be an intermediate-term issue for stocks.


Overall, the recent technical damage in the US Dollar looks important and the focus should be diversifying out of Equities after a 17% bounce and into Commodities given their recent stabilization. Metals and mining stocks, and Chemical names look like better risk/rewards than Technology, though selective longs in Industrials, Discretionary and Tech still looks prudent given the extent of the positive momentum of late. Bottom line, the bullish seasonality combined with a less than enthusiastic sentiment situation and recent trend breakouts looks to still favor a bullish view on Stocks overall for the months ahead, with any minor pullback that breaks uptrends from December thought to be short-lived and not something which immediately leads to a retest.


LONG IDEAS: TOL, ITB, STX, WDC, FTNT, CRM, FXI, CLX, CHD, INFO, STOR

SHORT IDEAS: TTWO, ACOR, M, SNPS, HAE


SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:


Short-term (3-5 days): Bullish until/unless 2731 broken - Raising stops on longs- Markets have flattened a bit but the trend has not turned down sufficiently to think this week will be lower. SPX is now within striking distance of early December highs, which was thought to have some importance heading into Late February. (overnight futures higher on china tariff truct delay) Counter-trend signals will be in place this week. Yet, quite a few indices and sectors have now broken out, and it's thought to be likely prove to be a short-term stalling/reversal only which then should be buyable into this coming Fall. Above 2803 would lead to 2815-8, and this could have importance into mid-week. But important to see evidence of 2731 broken to have any real concern and then this would likely lead down to 2681 the 2/8 lows. Remaining above this over the next couple weeks keeps the trend in very good shape.


Intermediate-term (3-5 months)- Bullish- While monthly momentum remains negative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and the breadth thrust combined with bullish seasonality and ongoing pessimism combined with recent sector emergence (Technology and Financials breakouts) should lead equities higher into the Spring/Summer before any further rolling over happens that causes more intermediate-term damage. The latest strength over the last few weeks has now caused weekly MACD to turn positive and join the Daily momentum in moving up. Thus, it's looking increasingly less likely that an immediate retest of December lows is likely, but something of the sort certainly cannot be ruled out for September/October of this year. Structurally, as has been noted, we have seen technical improvement in US benchmark indices, with prior lows having been recouped along with downtrends from last Fall's highs being exceeded. While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.


10 important Charts heading into this week, showing some of the recent Technical developments in Equities, FICC, and Sentiment

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Equal-weighted Technology is now moving back to new highs.Bloomberg's Equal-weighted Tech index on an intermediate-term basis has shown remarkable improvement in the last week vs the broader market during a time when it was thought that most Tech was nearing resistance. While counter-trend exhaustion still looks to be close for Technology, this Equal-weighted Tech vs SPX chart has just broken back out to new all-time high territory. This can't be viewed any other way than bullish in the near-term. While Semiconductor stocks certainly have work to do given the SOX still under 1400 (See charts below) this movement in Tech is a welcome development that should allow for additional Tech strength in the weeks and months to come.

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Industrials breaking out- Industrials when shown on Equal-weighted Basis, are also now just breaking out, with last week's close above the highs of this intermediate-term trend of Equal-weighted Industrials vs SPX. (Measured using Invesco's S&P 500 Equal-weight Industrials index (RGI) vs SPY ) Given GE, MMM, BA weight in index, it's thought to be more accurate to use Equal-weighted Industrials vs just the XLI. Overall, a breakout of the trend which has held since last year is thought to be a positive development for this sector and can allow for additional gains.

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Europe is getting close to its first meaningful area of upside resistanceWhen eying the IEV, the Ishares Europe ETF, additional gains look likely early in the week, but appears to be heading right towards a serious area of trendline resistance drawn from last year's highs. Similar to the SPX, counter-trend exhaustion will form this week and this looks to be a better area to consider selling into than SPX considering the ongoing downtrend which has not yet been surpassed. So while the near-term trend is bullish, one could look to take profits on further gains this week and/or consider shorting above 43.50, as from a risk/reward basis, longs look unattractive going into March with prices still under this longer-term downtrend. 

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Semiconductors- SOX still trending higher, but finally getting to areas of importance which has held since peaking out last March. Similar to European ETF, IEV, the Philadelphia Semiconductor index, or SOX also lies just below important levels. Movement back up to 1385-1400 from 1364 still appears likely, so Semis still appear a bit early to sell into at current levels. Following another 3-5 days higher which gets over 1385, this would be a better suited Sell vs at current levels. Momentum remains positively sloped and this uptrend from late December remains very symmetrical in sloping higher. So given this sectors leading tendencies, it remains important to highlight that the current uptrend has not shown any evidence of peaking, but does look to be close to key levels, which are just 20-40 points above, and Demark indicators will signal exhaustion within 1-2 weeks. This points to an above-average chance of this stalling out into March at a one-year anniversary of last year's peak. 

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Transportation Breakout likely leads to additional gains- Transportation has been one of the driving forces in the Industrial move lately, but yet much of this has come from the Rails. The DJ Transportation Avg has officially exceeded the downtrend from last Fall as of last week, which puts this trend on better terms, suggesting that further gains should be likely. Stocks like CSX, NSC, and UNP have all enjoyed gains of over 9% in the last month, and despite some of the woes in stocks like FDX and UPS which have underperformed along with the Airlines, Transports look like a group to favor given this rally back over key resistance. Transports should have resistance at 11044 near December highs, and IYT still looks to trend higher to 200 from its current 190.

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Bloomberg Dollar index- The extent of the Dollar weakness in recent weeks is an important part of the larger thesis of why Emerging markets might outperform in 2019 along with Commodities finally starting to turn higher for intermediate-term gains. China has strengthened relatively to the US lately and it's thought that this strength can continue and might begin to outperform US stocks. Near-term, this Dollar weakness looks to persist and if 2019 lows are violated, this would also constitute a breakdown of this entire structure over the last year. On a development of this sort, one should consider intermediate-term Pound Sterling and/or Euro longs and also longs in commodities as an asset class that could give stocks some meaningful competition this year as an outperforming asset class. 

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Utilities have managed to engineer a much stronger comeback than many anticipated lately, as this group has turned in strong enough performance to rank fourth best over the last month and the 2nd best performing sector last week. So this recent outperformance during times of market strength is thought to be unusual and something to pay attention to. Technically speaking the last 4-5 weeks have given a snapshot at why further strength might be likely in this sector, as we've seen a move right back higher to test both prior highs in a very short period of time. Thus, when it seemed likely that the peak and selloff into December might bring about further intermediate-term weakness, this ability to snap back as quickly in recent weeks bodes well for an intermediate-term breakout back to new all-time highs. In the short run, there is some resistance directly above. However, this is thought to be temporary and any pullback should be used to buy with targets in the low 60's.

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Breadth much stronger than expected of late- Minor waning proved just temporary- Looking at weekly Breadth, this has risen pretty dramatically in the last couple months, and was thought to be something to keep a close eye on in terms of gauging whether this rally had any "legs" or whether just a minor bounce that should then give way to a move back to lows. As this weekly chart of the Summation index shows (the Smoothed gauge of McClellan Oscillator) this has gotten above all levels seen in the last year, and has reached the highest levels since 2016. Thus, recent strength has been remarkably broad-based in a manner that was initially thought to be very difficult heading into this year. Technically in my experience, breadth surges like this are an impressive guide to what could play out in the next 3-5 months. While momentum seems to be nearing near-term overbought levels, it's becoming increasingly clear that this rally might have more to go on an intermediate-term basis, either into late April/May, or into Late August before a more meaningful top.

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VIX getting down close to levels where it's right to consider owning implied volatility. VIX has now fallen off dramatically from December peaks and is within striking distance of levels that were important all of last year. While this looks to potentially have a final maximum flush down to 10 from its current 13.51, we can see that the area from 9.50-11 has largely held for the last three years. Thus, any further drop in implied volatility would likely constitute an attractive area to buy implied volatility for means of hedging and/or long-dated speculation on Vol levels rising from these depressed levels later in the year.

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Sentiment has gotten slightly bullish, but certainly not at extremes- Sentiment polls are worth highlighting, since bearish sentiment seems to have evaporated, as might be expected with a friendly FED and 17% rally in the last 8 weeks. Yet, DSI and Investors Intelligence readings still haven't lifted AAII Bulls all that dramatically over Bears. (American Association of Individual investors) Last week's reading was a 13% more Bulls than Bears. Thus, positive and a big improvement over the bearish readings from late December. Yet, historically it's only been when both AAII and Investors intelligence both showed readings +30% either Bullish or bearish to really make a difference.

Financials should be favored for Outperformance

February 18, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2727-31, 2678-81, 2672-5, 2622-4

Resistance: 2780-2, 2785, 2800-1, 2824-5



Summary:  Ongoing resiliency for US Equities and none of the catalysts that were thought to be potentially warning signs given the uncertainty have brought about any real weakness of late. Much of the slowdown which has happened a couple different occasions during this runup from late December proved to be 2-3 days maximum before trends pushed back higher. Specifically, equity indices remain trending in bullish uptrends and managed to close out the week near weekly highs. Bond yields have been largely under pressure in recent weeks and still no real evidence of yields turning back higher. The real news this past week concerned the US Dollar having begun a potential larger move back to the downside, which served to help commodities strengthen. While a bit more weakness is thought to be necessary to call for a larger decline in the Dollar throughout the spring and summer, this turndown looked important last week. Moreover, the breakout in commodities reached multi-week highs and cleared a multi-week sideways base which had kept the group largely churning sideways of late. Heading into this current week, technically we'll need to see some evidence of price weakness to think that the Bulls don't carry indices even higher into early March. Momentum is not yet overbought while Demark indicators still haven't lined up in an ideal fashion to signal a reversal. The Chart below shows prices having shown little to no real damage thus far. So bottom line, we'll need to see a break of this trend for concern, and until then, trends remain bullish.

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Overview: Equities head into this current week having trended higher for seven of the last eight weeks. We've seen a snapback higher in Technology Industrials and Financials, while momentum has been strong enough to push back to positive territory on weekly charts. Structurally, SPX remains in much better shape than this time two months ago, and has managed to rally over 400 points off the lows, or greater than 17%, nearly 1/2% a day for 34 trading days. Breadth, which started off strong in late December/January, has gradually waned somewhat, but has not turned lower as thought might be the case in mid-February. Additionally, markets continue to trade within a thick cloud of uncertainty as many still express doubts that the Government shutdown can be averted all together after the initial funding, while many are skeptical of a true Chinese deal that would satisfy what was agreed upon last month. However, the prospects of a deal of some sort seems to be helping to underpin an ongoing bid in Equities as few believe that a true deal has been completely discounted by stocks. Thus, while many are hopeful that a deal of some sort can be put into place by March 1, many are not willing to buy into this rally without a pullback of some sort. But trends remain near-term bullish and momentum is now positive on both Daily and weekly charts.

Specifically, two things have improved in the last week which were mentioned as negatives but seem to have recently fallen by the wayside. First, we've seen Defensive strength largely start to reverse course in the last week, as groups like Utilities, Staples and REITS have all begun to flounder and weaken back to former weekly lows. This past point in particular is often an important harbinger of gains in stocks and normally it's important to see the Defensives really start to gain ground before expecting too much of a correction. Second, breadth has failed to show any real weakness which was thought to happen last week and start to show a negative reversal. Last Friday's gains happened on nearly 3/1 positive breadth, and this has not turned down as might be expected. Finally, it's worth pointing out that Demark indicators have not confirmed any type of exhaustion just yet and while both TD Sequential and TD Combo are in place, the Setup count has been pushing higher in another count,(which is now a 4) which very well could lead to 9 daily bars before registering a 9-13-9 pattern. (In plain English, this simply means we might very well get another 4-5 days of rally before this move is complete)



In terms of the negatives that remain, and are important to highlight, the chief concern revolves around Yields remaining quite weak and not following suit and/or leading Equities higher. Given the past positive correlation, this was thought to be important, while a divergence in Yields and stocks should be cause for suspicion. At present, both Bonds and stocks have been persistently strong. Additionally, Technology seems to be nearing resistance, both with SOX near key trendline resistance at 1385-1400 and also Equal-weighted Technology right near former highs. Without at least some proof of Technology starting to weaken, however, it's tough using this point as a real negative for now.


This week we tackle the Financials, a group which was largely weak for most of last year, having peaked at nearly this exact time in February 2018, while this February we've seen the group start to emerge. Specifically, Financials have made sufficient technical improvement of late by means of trendline breakouts in XLF, KRE and Relative breakouts on a short-term basis to expect further near-term strength out of this group. On a weekly basis, it should be mentioned that longer-term relative charts of XLF/SPX have not improved sufficiently to make the case for a year-long rally in this group. Therefore, a near-term bullish call only is appropriate for now. Though given some divergence in Technology in following Equity indices lately, one can make the case that those who are long in Technology might benefit from a move into Financials. One should position long in Regional banks, along with the Credit-card processors, while expecting the larger banks to start gradually joining in on the strength. Longs to consider at this time technically are found in V, AMTD, JPM, WABC and PRU. Charts and analysis of these are found below.




SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:



Short-term (3-5 days):  Bullish until/unless 2681 broken- The trend heading into February has failed to show any signs of weakness thus far in the uptrend from late December. Thus given S&P has gotten up above 2760, and given last Friday's strength, prices still look to have the possibility of pushing higher within this trend, but likely have maximum upside to near December highs near 2800. On the downside, we'll need to see weakness down under 2731 at a minimum to have any sort of inkling of an impending pullback. However a move to new multi-week lows under 2680 would break the uptrend from December and give more conviction. As mentioned, several of the negatives have not played out to stall this uptrend, and it's important to see the weakness in Trend before weighing in that any decline should get underway.


Intermediate-term (3-5 months)- Bullish- While monthly momentum remains negative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and the breadth thrust combined with bullish seasonality and ongoing pessimism combined with recent sector emergence (Technology and Financials breakouts) should lead equities higher into the Spring/Summer before any further rolling over happens that causes more intermediate-term damage. The latest strength over the last few weeks has now caused weekly MACD to turn positive and join the Daily momentum in moving up. Thus, it's looking increasingly less likely that an immediate retest of December lows is likely, but something of the sort certainly cannot be ruled out for September/October of this year. Structurally, as has been noted, we have seen technical improvement in US benchmark indices, with prior lows having been recouped along with downtrends from last Fall's highs being exceeded. While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.


10 important Financials Charts heading into this week 5 Sector, index, relative charts and 5 technically attractive Long ideas

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Financials relative to SPX (S&P 500 Financial index vs SPX) We've begun to see some definite stabilization in Financials in the last month after a very poor showing in 2018. The group peaked out in relative terms nearly at this exact same time last year, while arguably now bottoming relative to the SPX. Daily charts showed a minor trendline breakout from the last month, while weekly (shown above) highlights the bottom made late last year, the rally, and now what appears to be a higher low. While we'll need to see movement now back over January highs in relative terms to have conviction of an intermediate-term bottoming in this group, the stabilization to this downtrend from last year as seen above, (with the downtrend having given way to sideways trading) is a definite positive to weekly momentum. It looks right to favor Financials to strengthen further in the weeks and months ahead given the absolute breakout in both KRE and XLF in the last week, which has helped momentum improve on near-term and also intermediate-term timeframes. 

SPDR S&P Regional Banking ETF (KRE- $55.97) - Bullish near-term after KRE broke out above the downtrend that had guided the Regional banks lower in recent months. This strength has helped this group recoup nearly 50% of the damage done since last Fall, and counter-trend exhaustion remains premature to sell into this move. Thus, KRE still looks attractive to own here with thoughts that a move up to near $60 is possible before any stalling out. KRE has outpaced the recent gains in XLF and should be favored relative to the group as well (Additional charts on this below)

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KRE v XLF (Regional Banks relative to Financials XLF) Regional Banks should be favored for additional outperformance. This relative chart of KRE to XLF shows the recent breakout that happened with Regional banks when compared to the XLF, which had been trending lower since last June. This looks to be a very favorable development for KRE which had underperformed much of last year but seems to have rebounded nicely in the last month. Thus, when deciding how to play this Financials move, Regionals look like the better bet after coming back to life following a very tough 2018. 

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SPDR S&P Bank ETF (KBE- $44.92) Constructive given recent bottoming and technical improvement. KBE is bullish given the rebound from key support and rally back over the downtrend that held this sector under pressure for the back half of 2018. This monthly chart helps put the decline into perspective, as the Bank weakness failed to get down sufficiently to turn the intermediate-term trend negative. The corrections in this sector over the last 10 years found key support near a giant uptrend line connecting lows going back since March 2009. As can be seen, the pullback into 2011, 2016 and now late 2018 all held where they needed to in order to avoid violating this giant uptrend. Additionally, the rally back over the prior lows which had held throughout much of last year was an important and positive technical development. Thus, while momentum did turn down sharply from last year, this rebound has begun to help weekly momentum begin to stabilize and weekly MACD has started to converge again from its negative state. Bottom line, a rally up to the high $40's looks very possible given the technical improvements in the last month. Only a move back down under December lows would cause the intermediate-term picture to worsen. 

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XLK vs XLF (Technology vs Financials)- Tech looks to be peaking out relative to Financials. This daily chart of XLK to XLF shows the relationship of Technology to Financials over the last couple years. While Tech has indeed been positive over the last few years relative to Financials, this ratio turned more neutral starting last year and the recent lift from December in Equities has brought this ratio up to levels where it makes sense to consider switching from Tech to Financials for the weeks and potentially months to come. As can be seen, relative ratios of XLF/XLF have hit trendline resistance and begun to stall in the last couple days. Thus, while the longer-term trend in Tech has been in good shape, while Financials have been falling for the last year, it looks like a good risk/reward time to favor Financials after a very sharp rally has taken place within Tech. Despite much of the focus on Technology these days, some sector rotation appears to be in order, so it looks right to favor XLF and in particular Regional Banks- KRE, over Tech in the short run.

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Visa Inc. (V- $144.91) V is attractive technically and the Credit card processors continue to be one of the more attractive subsectors within the Financial space. This stock broke down nearly $30 from last year's highs before regaining the area near prior lows back in late December. Similar to the SPX, this represented a structural positive that has allowed prices to trend higher sharply over the last month. While prices have gotten a bit stretched vs its most recent uptrend off the December lows, no evidence of any counter-trend exhaustion is now present. Additionally the stock has exceeded an area of trendline resistance drawn from last Fall (not shown) Overall a rally back to 150-2 looks likely in the short run before any stalling out, or nearly 5% higher from current levels. One should consider any minor pullback to $140-1 as a chance to buy dips for further gains in the months ahead.

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JPMorgan Chase & Co. (JPM- $105.55) JPM looks attractive technicallygiven the stocks breakout last week above the last four week's highs. This area also coincided with the lows made throughout much of 2018, so last week's strength was important and positive for JPM's structure. Additional gains look likely in the short run to 108-110 and over 110 would help to drive this stock back higher to test former highs made last year. Overall, this has lagged some of the other Financials lately but the move back over 105 should help this begin to show better strength in the days/weeks ahead and makes this more attractive to own technically.

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TD Ameritrade Holding Corp (AMTD- $56.86) AMTD is bullish given the breakout of this downtrend which has held since last Summer in 2018. While the stock had been under quite a bit of pressure last year, not dissimilar from the whole group, this breakout back over its downtrend near $52 has helped the structure improve tremendously from a technical perspective. While the stock has seen a bit of consolidation in the last couple weeks, this has helped to lessen recent overbought conditions and last week's strength likely results in AMTD pushing up to the low $60's without too much trouble. Overall, this stock looks attractive to own and buy dips in the weeks ahead.

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Prudential Financial Inc (PRU- $94.15) Attractive from a risk/reward basisafter PRU's 30%+ selloff late last year failed to violate importnat support that would have turned the larger structure negative. As weekly charts show going back over the last 10+ years, the stock's pullback last year managed to hold 10-year trendline support and has successfully bounced back over $90 in recent weeks. Thus, last year's breakout was nearly 100% retraced from the pivot area near 90, and now the stock has turned up sharply to test the downtrend from last Year's peak (shown in Green) Rallies back over $97 should drive PRU up to at least $110 with a good likelihood of a retest of former highs. Dips can be used to buy with stops placed at December lows, as any break of last year's lows would also violate the uptrend line going back since 2009. For now, this looks like a good risk/reward and can be owned here technically with the plan of adding on an additional trend breakout or on any minor pullbacks in the weeks to come.

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Westamerica Bancorporation (WABC- $63.30) This Western Regional bank is appealing technically given the lengthy bullish base this has formed since the beginning of 2017. The stock's recent churning in recent months does not take away from the stock's attractiveness and its rebound from late December has managed to carry the stock again back to key resistance between $63-$65 which has held for the last two years. However, the quickness with which this has regained recent losses makes this bullish to buy at current levels, anticipating a breakout of $65 in the weeks ahead. The Regional bank breakout as seen by KRE should help WABC to make its own base breakout in the weeks to come. Thus, buying here ahead of the breakout makes sense, as this area should lead to an upcoming move in the near future

Avoid Energy, Commodities, Emerging Markets; Technology closing in on resistance this week

February 11, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2681-2, 2672-5, 2622-4, 2596-8

Resistance: 2738-40, 2744-6, 2750-1, 2760-2



Summary:  US Equity indices have now extended gains for six of the last seven weeks, and S&P is higher by more than 12% from its December low weekly close at 2413, while up over 17% intra-week from Christmas Eve. While weekly momentum and breadth have been constructive factors supporting this rally, some of the recent slowdown in the last week suggests indices might have a difficult time getting through the balance of February without at least a minor correction (More on this below) Bond yields have moved straight lower, as stocks and bonds have been trending in unison lately, while the Dollar has managed to break near-term uptrends in pushing higher for six consecutive days. This push up in the USD, meanwhile, has been problematic for the commodity trade and also for Emerging markets, which look to be taking a breather. Thus, while the broader landscape for Risk assets appears to have recovered meaningfully on an intermediate-term basis, there are some reasons for short-term concern where investors should be alert (and these will be discussed below) Below we highlight the Value Line Arithmetic index on a weekly basis, the Equal-weighted gauge of 1700 names. As has been mentioned last week, the recent strength managed to both regain prior lows as well as achieve what looks to be a meaningful breakout of the entire downtrend from last Fall. This broad-based gauge showing material strength does give some reason for optimism in the months ahead. The chart below shows this as being a clear-cut case of a failed reversal pattern, as prices have gotten back into this former base. This takes some of the bearishness out of the equation for the next 3-5 months as opposed to if SPX had held 2630 and turned back lower. Near-term, however, as we've discussed for the last couple weeks, there are some near-term warning signs that could allow for some minor backing and filling before this rally continues. More on this below.

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Overview: S&P and other US benchmark indices have now given their first real "scare" on this run-up in backing off on two consecutive sessions before rallying on Friday up off the lows to just avoid a third day's loss. While not proving damaging in the least on weekly charts, this has served to take some steam out of near-term momentum, and breadth indicators also have reached prior extremes that suggests there could be some selling in the month of February before a further rally higher can occur.




The following points seem important to highlight:



1) Bond yields and USDJPY have lagged on the Equity bounce from December and Bond yields have gone lower in recent weeks which gives reason for concern given recent trending tendencies (positive correlation)



2) Technology has snapped back in a big way, but remains trending lower from last June and October and looks to be reaching an area of resistance in the next 1 week that could be important and serve as a Headwind. The SOX in particular shows strong resistance directly overhead.


3) Structure has gotten more bullish for equities with the breakout of the downtrend from last Fall and Breadth was noticeably strong in early January, yet now breadth is beginning to stall out again and last week's decline occurred on much heavier downside breadth than what rallies had occurred on to the upside



4) Sentiment largely remains subdued, and while less bearish than last month, this hasn't gotten bullish yet. Last week's comments on Trump not visiting with Pres XI prior to early March were widely attributed to having "caused" the decline. While I tend to favor cycles as a reason, vs news, if any sort of news had this kind of power, a further decline on "news" would cause sentiment to turn back to bearish very quickly and likely limit the extent of any decline



5) The Dollar has managed to make a very good rally of late from important support- This broke minor trendlines and looks to be a key factor that has adversely affected Emerging markets and also commodities (Charts on all of these below)



6) Last year's major low in early February coincided with the same window last week which proved to be important in causing stocks to stall out and for SPX to turn down, right at a key 1 year anniversary (2018 low projected forward a year resulted in a 2019 high) and the 90 degree time frame from early November also lined up into last week.



7) Defensive sectors began to gain ground last week, with meaningful relative breakouts in Consumer Staples and also some upturn in Utilities. REITS have been quite strong, but now up against more difficult levels to expect follow-through. Thus, the best risk/reward among the Defensives looks to be Staples.




Overall, it was thought a few weeks ago that 2710-5 would hold rallies. This was surpassed, and allowed for a brief push back up to 2740 before reversing to move right back to the same area near 2710. However, much of the reason for near-term caution continues to be important to highlight heading into this current week with regards to a slowdown in short-term breadth and momentum, counter-trend sells, cyclical importance combined with near-term overbought conditions (intra-day only- Daily charts are not quite there) Bottom line, nothing has changed dramatically, flattening out in Market exposure makes sense over the next 1-2 weeks, but one should look to buy into dips into 2/19-20 on any pullback (important time-wise) , as the improvement in structure at this point likely should not lead to a larger selloff to test/violate December lows. Additionally, the China deal likely will end up being helpful to markets, regardless if the Date is pushed out. For now, this seems to be the key narrative with regards to what many are pinning the ebbs and flows of stocks on.





SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:




Short-term (3-5 days): Upside limited to 2760- It's thought that early week strength likely fails to make meaningful movement over last week's highs and should stall out at 2745-60 at a maximum before turning back lower. (IF 2624 is broken, this would serve as a downside catalyst of importance) While prices managed to close back up near highs of the session Friday, making the brief two-day pullback not overly important, we did see momentum and breadth start to wane. It's thought that early week strength should be a chance to sell into this move, and that a larger pullback can still happen in February that would take SPX down under 2600 before any low.




Intermediate-term (3-5 months)-  Bullish- While intermediate-term momentum and trends remain negative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and the breadth thrust combined with bullish seasonality and ongoing pessimism combined with recent sector emergence (Technology and Financials breakouts) should lead equities higher into the Spring/Summer before any further rolling over happens that causes more intermediate-term damage. While a retest of recent lows certainly can't be ruled out, it looks less likely in the short run, given the positives of former lows being recouped along with downtrends from last Fall's highs being exceeded. While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.

10 important Charts heading into this week

SPX- Daily

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SPX has made a minor pullback last week, though the extent of last Friday's bounce into the close might allow for another 2-3 days of gains, which then find resistance and turn lower. It's thought that equities still have an above-average chance in weakening in February, and last week proved to the start of this, as the minor two-day pullback did negatively affect both breadth and momentum. Additionally, one Demark sell (TD Combo) was confirmed last week, (which is bearish) while the other (TD Sequential) did not, but is 3 days away. Thus, a minor bounce which fails to break above 2760 but shows a couple days of mild gains where breadth falters further, would be a big tell this week to the possibility of a further decline, which is looking increasingly likely in the short run. Under 2624 is necessary to think a larger pullback is underway, and would lead initially to near 2578-80. On the upside, early week gains are expected to stallout and not get above 2760 in this scenario. While many are mentioning the 200-day m.a. as being resistance, it should be noted that this largely failed to have any real meaning late last year when it was pierced on the upside and downside several times to no effect. (The 200-day in the NDX looks more important, as this lines up with a key 61.8% Fibonacci retracement level for NDX when studying this chart.

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Stocks diverging from Yields, Dollar/Yen- This overlay chart shows the degree that US Stocks , Treasury Yields and USDJPY have all largely trended in unison in recent months, except for the last few weeks. Stocks have continued higher, while Yields have been pulling back. This could be problematic if the past relationship between bond yields and stocks is any guide. On both prior occasions in the last six months where stocks diverged from yields, stocks ended up following yields, which led the way lower. This time around we've seen bond yields turn down sharply again, while S&P has bounced. It's thought that any early week strength in Equities likely results in a stalling out and should result in a pullback in Equities which joins Treasuries yields in the near-term before yields find support and rally.

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Technology - Close to resistance- Sell into early week gains- Technology has successfully made a very good bounce in recent weeks, which directly followed the relative charts of S&P 500 Information Technology index v SPX surpassing the downtrend line from last Fall. This resulted in very good performance over the last month (Technology was the third best performing sector in the rolling 30-day period, with gains of +8.42% vs SPX +5.18%) Last week proved to be even better for this group relatively as it finished second best, with returns of +1.76% for the rolling five days, second to only Utilities. Overall, this daily chart of Tech relative to S&P still looks to have another 2-3 days of outperformance/gains, which are thought to be a potential source of early week strength for the market. Yet, the group is nearing what's believed to be a very important area of overhead resistance that likely limits gains and causes a stalling out. Given Tech's 20% weighting within SPX, this area which has held since last June's peak should be important as resistance this week, causing a further stalling out in this group in the short run.

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Energy remains a very weak link in the market right now, and its January outperformance looks to have reversed pretty violently given the downturn in Crude which resulted in XLE, OIH and XOP all turning lower. The chart above highlights the Exploration and Production ETF, or XOP which looks far weaker than either XLE or OIH. Thus, this should be the "Go-To" for those wishing to fade and/or short Energy this coming week. Energy gave up over 3% last week, yet still looks early to bottom, and XOP still looks attractive as a technical short, with areas of importance down near $25.50-$26, a meaningful distance still from Friday's close of $28.36.

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Financials seem to be nearing their first meaningful area of support on this pullback after the breakdown two weeks ago. The relative chart of XLF/SPX looks to have 2-3 days of further selling max this week before showing signs of stabilizing given the presence of a possible TD Buy Setup (Demark) on daily charts. Thus, while the intermediate-term trend for Financials remains bearish from early last year with the recent rally holding where it needed to before turning lower, we look to be nearing the first important area of support which might cause some stabilization in this group after the last couple weeks of selling. This is important naturally given that Financials represent 13% of SPX. It should pay to be on the lookout for any weakening in Treasuries and/or steepening in Yield curve and stabilization in Financials, which should be beneficial for US Equities.

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Consumer Staples are starting to turn up meaningfully in the last week, a sign of defensive positioning that often comes about as Equities start to weaken. This relative chart of the XLP/SPY broke out late last year relatively on SPX weakness in December. The group pulled back as the bounce got underway, yet now has begun to turn higher in a meaningful way in recent weeks. Staples managed to turn in gains of 1.12% last week while the S&P was just fractionally positive, and Staples actually ended up besting Discretionary, which fell for the week. Overall, this looks likely to lead to additional strength in the weeks ahead for the Staples group, and one should not be too quick to ignore.

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US Dollar bounce from support still looks to have some upside- The Bloomberg Dollar index (<35% v Euro) has successfully rallied off key support and broken out above the minor downtrend connecting recent highs in this decline. This is a positive development and likely coincides with this making additional headway higher this coming week and potentially the week thereafter. While the larger chart remains problematic from a structural perspective, it looks right to still bet on more Dollar strength in February which likely is a negative for Emerging markets and also for commodities. UUP is a popular ETF designed to profit as the Dollar rises. (UUP- Invesco DB US Dollar index Bullish fund)

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Commodities rolling over- The Thomson Reuters Equal-weight Commodity index broke support of the last few weeks, and the recent Dollar gains look likely to coincide with additional downside in commodities in the month of February before any type of larger rally can get underway. While the Dollar overall should begin a larger selloff sometime this year that would be beneficial for commodities, in the short run, this CCI move is bearish and likely leads this group lower. One can bet against the group using DBC, the Invesco DB Commodity index tracking Fund.

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Ishares MSCI Emerging Market ETF- EEM- Short-term breakdown after intermediate-term breakout- This Emerging market ETF managed to violate the uptrend from December, putting this rally also in jeopardy in the short run as the US Dollar makes ground higher. Near-term, it's likely that any bounce in EEM stalls near prior highs from last week near $43.50. While a 3-4 day rally would help counter-trend signals to line up, momentum is also starting to reflect a crossover in Daily MACD which is a negative. Thus, despite the larger breakout of the one-year downtrend early last month, this looks to require some backing and filling in the weeks ahead before EEM can move higher. This coincides directly with the recent bounce in USD, and in the short run, EEM should be avoided, expecting strong resistance at $43-$44.50 and support down near $40.75-$41.

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Equity Put/call ratio- While daily readings have pulled back from extremes, moving averages still show heightened levels of Put/call and highest since 2016. While sentiment has gradually become "less bad" on this rally from late December, we still face a situation where the 21 and 34 week moving averages lie at the highest levels we've seen since early 2016. Thus, on any pullback in Equities in the weeks to come, it's likely that sentiment gets fearful that much more quickly, given that we're already starting at a pretty high base. Overall, this is one of the factors that should limit extent of any pullback as any selloff would make fear go back into the market very quickly.

Short-term Stalling out likely this week, though larger patterns have grown more constructive

February 4, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2650-3, 2630-2, 2596-8, 2570, 2550-1, 2513-5

Resistance: 2675, 2683-5, 2700-5, 2709-10



Summary:  US Equity indices remain in in steep near-term uptrends as January came to a close last week, having risen over 7% for the month of January, putting last month's performance in the top 10 January's of all time. Momentum remains positively sloped on a daily basis, while negative on monthly charts, but the recent uptrend has been strong enough to now cause momentum to turn positive on a weekly basis. Neither daily, nor weekly momentum is overbought and prices have broken downtrends from last Fall while having regained over 60% of the decline from last September's highs. Globally we've seen some attempts at both Europe and Asia stabilizing after their own drawdowns from last Fall, Bonds have followed stocks in the last week, showing some rare divergence from their recent negative correlation, but the yield curve has largely gone sideways since early December after having been cut in half since October highs. The Dollar, meanwhile has pulled back sharply in recent weeks to an area of nine-month trendline support which looks to be a temporary holding area for this correction. Commodities meanwhile have largely begun to act much better in recent weeks, with precious metals turning up sharply and Crude oil continuing its recent stabilization after last year's decline. Overall, a very good start to the year thus far for both Equities and Commodities with Emerging markets acting well as the Dollar has begun to weaken after peaking at nearly an exact two-year anniversary of former highs. The chart below highlights the Value Line Arithmetic index, the Equal-weighted index of 1700 names, which has made a constructive breakout of the downtrend from last Fall, similar to SPX, NDX and DJIA. This broad-based gauge gives some reason for optimism in the months ahead. While approaching areas which could result in a temporary stallout, the combination of improving momentum, bullish seasonality and ongoing skepticism about the economy, China, FOMC, and earnings should help stocks fare better than many expect this year. Some charts and a few good risk/reward ideas in stocks are presented below.

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Overview: S&P has now rallied for five straight weeks, rebounding over key areas thought to be potentially be problematic near 2630 (Nov lows) and turning in performance of greater than 7% for the month of January. This ranks in the top 10 January's of all time and data from Stock Traders Almanac shows us that the 20 top January's since 1950 with 4% or greater performance all led to positive performance for the year as a whole. Every one. So while some might be skeptical at the power of the so-called "January Effect" (which has been right about 75% of the time in showing that a positive January can lead to a good year) history shows Zero "down years" in the top 20. So this is definitely something to give some consideration.




The following seem to be pertinent issues and highlights, technically, heading into the first full week of February.( Each point is followed by whether this is a positive, or negative)




1) Trendlines from last Fall's highs have now been exceeded by SPX and DJIA to join the NASDAQ, while Value Line Arithmetic index has also broken out above this key resistance. (Positive)




2) Weekly momentum indicator MACD has now turned back positive. So now SPX has positive momentum on both a daily and weekly basis, while not overbought, and structure has improved. (Positive)




3) Financials have turned lower relatively speaking in recent days after pushing up to key relative trendline resistance vs SPX (Negative)




4) Treasury yields and USDJPY have both been trending down over the last week, diverging from Equities. This happened also back in late November and it was right to follow Treasuries as they ended up leading Equities down(Negative)




5) US Dollar seems to have found good initial support after its recent pullback. Technically I expect a bounce, which might negatively affect Emerging markets and Precious metals in the month of February




6) Counter-trend Sell signals to this uptrend on indices like SPX, NDX, RTY and others can all appear this week on strength, which would be the first signals to show up since the rally began in late December. (Negative)




7) Summation index as a smoothed breadth indicator, has now reached peaks seen last Fall and is due to stall out this week or next. Counter-trend exhaustion has also appeared on this indicator also. Bottom line, this indicates a good likelihood of a breadth slowdown/reversal, and that should be a temporary negative for stocks (Negative)




8) Sentiment still looks to be muted at best and certainly not all that enthusiastic despite a 13% rally in 5 weeks. This is bullish, in that any minor drawdown would cause investors to get pessimistic far more quickly than normal, and is a reason to support a larger intermediate-term rally (Positive)





Overall, my recommendation last week was to look to sell into rallies at SPX 2710-5, an area which has largely been reached. Structurally patterns are better than a few weeks ago and momentum is not overbought. However, the presence of counter-trend sells appearing this week is important (they have been in the past) and the divergence of Treasury Yields and USDJPY is also a concern. Financials turning down relatively speaking represents about 13% of the market, and has to be watched carefully. Yet, markets still have shown little to no signs of reversing course however, and this truly is important before betting on any pullback after five "UP" weeks. The key issue for bears early this week centers on the fact that some time factors still look a bit premature to suggest any imminent downturn. But I do recommend increasingly a more cautious stance to this bull move in the short run (While not advocating shorting indices here, I think buying implied volatlity for February/March makes a ton of sense) Risk is very well defined for those that are negative and positive in that one has a difficult time being short over 2715. Meanwhile stops for longs are largely down at 2596, which might be a bit more than some wish to risk. Flattening out in Market exposure makes sense over the next 1-2 weeks, but one should look to buy into dips, as the improvement in structure at this point likely does NOT give the Bears the gift they want in seeing indices get back to December lows. Additionally, non-technical factors like a China deal seem to be approaching. While many believe China will never concede to the issues demanded of them, it's logical to expect a deal of some sort to materialize and my thinking is the market will still view this as a positive, and has not been priced in.




SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:




Short-term (3-5 days): Upside limited - I'm expecting markets to stall out either this week or next, and for now, there are still a few time-related aspects which are not perfect to sell right away, and also price has given us precious little indication of rolling over. Thus, after a five-week rally, it's a must to have at least one reversal day which makes a multi-day low before thinking any pullback is imminent. Near-term, I do like exiting longs on indices at 2710-5 and would await weakness, and prefer buying stocks that are just breaking out and offer a bit better risk/reward than the indices themselves here.




Intermediate-term (3-5 months)-  Bullish- While intermediate-term momentum and trends remain negative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and the breadth thrust combined with bullish seasonality and ongoing pessimism combined with recent sector emergence (Technology and Financials breakouts) should lead equities higher into the Spring/Summer before any further rolling over happens that causes more intermediate-term damage. While a retest of recent lows certainly can't be ruled out, it should prove brief in nature, allowing for further strength which could allow for a lot higher retracement before more weakness happens.

While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.

5 important Charts heading into this week along with five technical long ideas to consider

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McClellan's Summation index- This recent bounce has caused breadth to expand rapidly, but we've now reached an area that's caused resistance on three separate occasions since late 2017. Additionally, counter-trend Demark exhaustion is now present for the first time on this bounce. Thus, I expect markets slow and begin to make at least a minor pullback in the upcoming weeks and this looks to be an early warning sign of at least a partial slowdown and/or upcoming reversal in market breadth.

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US 10yr.Treasury Yields- It's always important to monitor if yields and stocks have been trending together (they have in recent months) and when this starts to diverge. Treasury yields have now been falling for the last two weeks and we've also seen the Yen higher in the month of January. This is at least a minor warning that all might not be what it seems. Previously we saw yields turn down in November and stocks followed, so this is an important chart to pay attention to heading into this coming week.


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FinancialsThe last week has seen the Financials turn down pretty sharply on a relative basis, and relative charts of XLF/SPX show this to be a pretty major area to monitor which looks to have been resistance on this bounce. While a move back above would be very positive, this is not likely going to happen until yields can stabilize a bit more. Near-term, this downturn in Financials is seen as a minor negative, given the 13% weighting in this group within SPX.

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US Dollar seems to have found initial support - The recent downturn in the Dollar looks to have arrived at its first real area of importance after the pullback from last Fall. This drawdown coincided with Emerging market strength along with precious metals outperforming. Both of these could now be subject to at least a minor trend reversal after their recent runups. The Dollar vs the Pound specifically looks to rally after recent BREXIT-inspired weakness, but yet as we've discussed, a big bounce in the Dollar into February should be something to sell into. Charts, momentum and cycles all suggest intermediate-term Dollar weakness. However, heading into February, it does look like a minor reprieve is here.


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Gold looks to be near its first area of resistance on its rally, which could produce some stalling out in the metal after its decent bounce in the last couple months. While technical trends and momentum have both improved in Gold in the short run, Gold has gotten overbought and now shows evidence of upside exhaustion. Moreover, the Dollar is showing some evidence of wanting to rally near-term, so the combination of these could be a negative for Gold into February. However, dips should be used to buy in Gold in the weeks and months to come, as the larger pattern has been slowly improving. As i've mentioned in recent weeks, gold needs to get up over 1375 to jumpstart the intermediate-term rally, something which will be important and quite bullish when it happens.



5 Technically Attractive Long Ideas to Consider

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Medpace Holdings (MEDP- $65.73) This recent breakout back to new highs is quite bullish technically as the move exceeded both prior highs of a bullish base going back since last Fall. This looks like an excellent risk/reward to consider for longs and a move into the low 70's is possible into the Spring. Pullbacks should be used to buy dips if this occurs anytime in the next two weeks. For now, this is a an attractive long.

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Trade Desk (TTD- $145.24) Trade Desk is bullish technically and last week's breakout above the entire trendline connecting highs should allow for further strength to areas of resistance near $165. This entire consolidation from last Fall is seen as a corrective move and now should allow for a rally back to new high territory sometime this Spring. Near-term, the breakout from last week doesn't show any evidence of near-term exhaustion and the fact that TTD has been sideways since late last year has helped to alleviate any near-term overbought readings in momentum.

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Atlassian Corp PLC (TEAM- $99.27) TEAM just managed to push back up above former highs back to new all-time high territory last week, which puts this stock on very good ground, technically. Additional gains are likely to targets near $105 and then $110 before this faces much resistance. Similar to many names, this peaked out last Fall. Yet, the recent rally has been strong enough to break back out to new all-time highs. Technically this is a very constructive development, and bodes well for TEAM to continue to push higher to targets mentioned above.



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Finisar (FNSR- $22.66) FNSR has gradually been showing better technical strength after pushing up to new monthly highs in December. Its weekly pattern shows a formation that looks to be bottoming out after the pullback from last year. Gains up to $25 look possible after the recent strength this stock has shown, while any movement back under recent lows would serve to stop out longs. Overall, this looks to just be trying to push higher and weekly charts closed at multi-week highs after this recent consolidation, which is a positive.

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Intelsat SA (I-$24.90) Bullish breakout bodes well for follow-through- This Satellite services company has seen some impressive ability to turn back higher after losing 50% of its value from October into December of last year. The act of climbing back above January highs is quite constructive technically speaking and should allow for further gains up to the low to mid $30's. Overall, this looks quite attractive given the recent breakout while remaining well down off all-time highs.

Major S&P Sector Review

January 28, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2650-3, 2630-2, 2596-8, 2570, 2550-1, 2513-5

Resistance: 2675, 2683-5, 2700-5, 2709-10



Summary:  Stocks have defied odds yet again, and remain trending higher since late December to the tune of nearly 12% as part of the ongoing downtrend from last September. Technicals had suggested gains might be possible this past week, but now we face a much more difficult situation as January comes to a close. Prices have nearly reached make-or-break levels with a bullish near-term technical trend and momentum sloping higher, yet this remains part of a downward trend with bearish momentum on both weekly and monthly charts. Hence the difficulty in this market of truly finding a trending situation that offers a good risk/reward. The Dollar showed perhaps a more technically significant move than Stock indices this past week, rolling over and sparking jumps in Emerging markets, commodities, particularly the precious metals, and many Materials names. Treasuries meanwhile extended gains, breaking down out of key near-term trends (though last Friday's snapback in yields is worth noting) Overall a difficult rally for many to have participated in over the last month as many pared down risk, understandably, and were left to chase this market higher as it's risen not unlike last January's rally. The issues of Government Shutdown, China Trade , or FOMC worries that were in place in December that many attributed to the market selloff really haven't dissipated, so many who use news to follow markets have been left to chalk up our 12% rally to Earnings alone.


Bottom line, this looks to be a very tough time to initiate new longs in many stocks, or to go short this rally just yet, without any real evidence of stock indices rolling over. The next 2 weeks likely provide some real clarity in this regard, as either S&P gets over 2715 and continues going throughout the Spring. or prices stall out and turn lower starting sometime this week. For now, it doesn't look like a time for big bets, but to simply let this move play out and respect whatever direction it takes. The chart below highlights the S&P's move and how this fits into the larger framework. As can be seen, prices are literally right below make-or-break resistance and have recouped nearly 60% of the entire pullback from September. Within the last two weeks, prices have regained the former lows from February, April, October and November lows, and have strong resistance between 2685-2715. It's thought that another 3-5 days of gains could be possible based on last weeks rally. Yet, it's proper to respect any decline that kicks off next week that undercuts 2596 given that prices have reached a window where changes of trend are absolutely possible. Given the choices mentioned above, the highest probability seems to be another few days of rally which then stall out and turn lower into February. But it pays to be aware and ready for any outcome, as movement above 2715 would be one to follow.

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Overview: S&P is now higher by 13.3% from Dec 24, 2018 close, and seems to have defied expectations of most in recent weeks, just at a time when many had begun to throw in the towel on this economy and had begun taking down risk. Making money on V-shaped recoveries is often quite difficult, as it's rare that one avoids losing money on the drawdown, invests at the lows and profits on the rally. Many tend to lose money on longs and divest during some part of the pullback, fail to get in on the rally, particularly with so much ongoing uncertainty, and are left with tough decisions now heading into February with markets up over 6% for the month of January.



Bottom line, the positive factors of early Breadth thrust from December/January combined with recent breakouts in Technology relatively speaking (SPXEWIN/SPX) and lack of any technical deterioration during this rally along with the absence of overbought conditions and Demark exhaustion are thought to be positives right now. These coupled with very bullish seasonality factors heading into Pre-election year argues for gains over the next 3-6 months. However, negatives such as a dropoff in breadth in the very near-term (last week) along with cyclical projections to this time in late January and some flattening in momentum could very well prove to be negatives heading into the new month. The largest potential negative concerns the ongoing bearish technical structure for indices like SPX and DJIA which remain under downtrends from the mid-September 2018 peaks.


Overall, indices are at a real crossroads after this runup heading into the final few days of January into early February. It's not wrong to consider both bearish hedges and/or implied volatlity after this runup, and both bullish and bearish theses have credence, though the positive thinking applies much more to a 3-6 month timeframe than near-term. One can attempt to sell into this rally anywhere from 2685 up to 2715, but over 2715, it's right to think the rally extends and shorts would be wrong. For those bullish, one can't say with a lot of confidence that there's a Zero chance that this recent rally continues moving higher. After all, the first big resistance level at 2630 proved not to be all that effective on the first push higher and prior November lows gave way to strength, in SPX, DJIA and NASDAQ, the latter which now arguably is trying to breakout of the larger intermediate-term downtrend. For those with a long bias, getting or staying long here is not wrong with the potential for movement up to 2685-2715 , knowing that over this level, S&P rallies even more. However, the key level for stops on longs would be 2596 and anything under this level argues that a larger selloff can unfold. SO in both cases, the area for risk is very well defined, and it's thought that the next 2 weeks, a definitive answer will be determined which should shed some light as to what's in store. For now, indices lie at a very important area, and it makes Big bets unattractive until this pattern is resolved, one way or another.


SECTOR HIGHLIGHT: ST- Short-term



BULLISH- Communication Svcs, Consumer Discretionary, Energy (ST) Utilities, Financials, Technology, Real Estate (ST) Materials (ST)




BEARISH- Industrials, Consumer Staples (ST) Heatlhcare (ST)


SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:


Short-term (3-5 days): Upside limited in short-run- Reversal possible from current levels, or up at 2710-5 later this week- Indices lie at levels now where selectivity is important, until S&P can breakout above 2715. The absence of a breakout of the downtrend from September makes for a poor risk/reward for longs after this push higher. While Demark signals are not yet in place to suggest imminent drawdowns, cycles have importance now that US indices have reached the 1-year anniversary of last year's peak, and prices have pushed up 13% to right below important trendline resistance. So the risk/reward is poor currently until markets show more evidence that breakouts can happen. Bottom line, trend will be bullish until 2596 is breached.



Intermediate-term (3-5 months)-  Bullish- While intermediate-term momentum and trends remain negative for many indices given our weakness since September and particularly since December, the near-term trend remains positive from late December and the breadth thrust combined with bullish seasonality and ongoing pessimism combined with recent sector emergence (Technology and Financials breakouts) should lead equities higher into the Spring/Summer before any further rolling over happens that causes more intermediate-term damage. While a retest of recent lows certainly can't be ruled out, it should prove brief in nature, allowing for further strength which could allow for a lot higher retracement before more weakness happens.

While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Overall, it's right to be constructive on 2019 given likely positive January performance combined with bullish cyclical trends for this year, and expect that the larger bear market likely gets postponed until 2020.

S&P Major Sector Review- S&P 500 GICS Level 1 indices & ETFS, shown RELATIVELY vs SPX for purposes of relative weakening, strengthening, and early trend detection

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EnergyBullish short-term, but ongoing bearish intermediate-term downtrend More work needs to be done before thinking Energy will outperform for the year just based on January's sharp outperformance. Weekly charts of OIH vs SPX as a proxy for Energy (more realistic than XOM, CVX heavy XLE) remain short-term bullish, trending sharply higher within an ongoing intermediate-term downtrend. It was thought that rallies could happen early this year in Energy given the combination of mean reversion, severe oversold conditions and bullish seasonality. Energy remains the best performing sector YTD with returns of 9.58%, with Financials close on its heels at 9.03%. Further gains seem likely despite such a robust January performance, and pullbacks should be used to buy technically, as WTI Crude looks apt to move into the 60s which should be an ongoing boon for Energy stocks. OIH remains preferred over XLE, and gains in this sector look possible into trendline resistance, where this daily uptrend will meet its first real test. Overall, despite the weekly downtrend in place, the first month's momentum and performance has been strong enough to endorse favoring further outperformance in Energy during the seasonally bullish February-May period for Crude.

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Consumer Discretionary- Short-term and intermediate-term Bullish-Structurally this looks to be one of the more attractive areas in the market right now, having powered higher to the tune of >17% since the Christmas Eve low, the best performing sector off its December lows. While the S&P 500 Consumer Discretionary group does have some high weightings in stocks like Amazon, Home Depot, McDonalds, Nike to name a few, the Equal-weighted Consumer discretionary group is showing a similar level of strength, having just broken out vs the Equal-weighted Consumer Staples. The relative pattern on Discretionary vs SPX shows a rapid rise back to new highs into last Fall with just a minimal amount of deterioration before a push back up to exceed the highs of this consolidation (Shown by resistance line over recent highs ) Such constructive price action out of this group bodes well for additional outperformance, and overweighting looks prudent until this starts to show some evidence of faltering.

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Financials-Short-term stretched after a rally in XLF up to important resistance near $26. Intermediate-term bullish given the trend breakout which happened last week. This group, in relative terms to SPX, has just broken out of the downtrend from last Winter, which on a weekly chart, can be seen by relative XLF/SPX having exceeded the trend from the highs made early last year. This should be a bullish development for Financials, and while rates continue to be depressed, Financials have turned up pretty sharply and are only second best to Energy for performance for the year, higher by over 9% for the month of January. While many believe this kind of performance is due to fail, it's impressive that this group has broken out of the long-term downtrend, and is a bullish factor for markets overall this year. One should use mild pullbacks to buy into Financials, thinking that last week's breakout can lead this group higher.

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Technology - Short-term Bullish, Intermediate-term bearish- Tech has shown some impressive evidence of rallying back sharply in recent weeks, just at a time when many had given up on the growth trade and Tech in general in favor of Value. Relative charts of the Equal-weighted Technology index vs SPX show the break of the uptrend from 2016 which happened last Fall, but also the ability of Tech to have recovered and successfully exceeded this downtrend from last year's highs. Overall, the Semi results last week helped to bolster this sector, which broke back out vs the broader market relatively. Additionally, many FANG related names have begun to snap back in recent weeks, which might have been expected. Yet, despite the rally from December lows, intermediate-term trends remain under pressure given the snap of the two-year uptrend, and any evidence of Tech stalling in the month ahead likely would cause momentum to start to turn back lower. Overall, this sector looked to have rallied back at a time when it was sorely needed, and the resulting consolidation for Technology proved very much short-lived compared to the extent of its rally last in recent years. Software remains the sub-group of Tech to consider owning, while the Semiconductors have begun to stabilize and now many rallying sharply ,and Stocks like AAPL have begun to slow in their rate of descent and are trying to work back higher.

Healthcare remains near-term bearish, yet intermediate-term bullish. This group has experienced quite the roller coaster ride in recent years, as we saw severe underperformance out of Healthcare from 2015-2018 until this group turned higher and broke out over the longer-term downtrend that caused many momentum indicators to turn bullish. Just this past November, the group turned back lower and has just violated the uptrend which has been in place over the last year. Thus, while groups like Medical Devices and Pharma remain in very good shape technically, this group has been a laggard over the last week and over the last 1 month timeframe and many of the Pharma names have experienced selling pressure. Overall, mean reversion in a strong group like Healthcare was in 2018 is not unusual to kick off a new year, but this should not prove to be a prolonged period of underperformance in these names, and weekly and monthly structure still supports buying into pullbacks technically.

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Industrials- Near-term bearish, intermediate-term neutral. This group took a turn for the worse late last year with its breakdown of $71 in XLI which also coincided with longer-term relative charts breaking key two-year uptrend line support. While a snapback in the group has happened along with many other sectors, the near-term view looks challenging given both absolute and relative trends which remain in tough shape. XLI on absolute charts has rallied into key resistance, while the weekly relative chart vs SPX has been range-bound. While stocks like GE, URI, LUV, UNP, FLR, PWR have all rallied more than 15% YTD thus far, others like UAL, DAL, SWK, EXPD, MMM have barely covered much ground, all being up less than 3% YTD. Overall, it's likely that the recent rally stalls out in the next 1-2 weeks and makes at least a minor pullback of its gains since December. And while the long-term trend was broken for industrials, the selloff hasn't gained much overall traction. Thus, the medium-term view is more neutral until additional strength or weakness occurs.

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Communication Services - Short-term neutral; Intermediate-term Bullish-This Tech/Telecom combined sector has actually been shaping up quite nicely in recent months, and the broader trend looks constructive for additional gains. Relative charts of the XLC v SPY show this base-building in effect for Communication and the recent pullback should be buyable for movement back to recent highs. It's relative pattern appears like a reverse head and Shoulders pattern with movement above recent highs needed to confirm this formation. At present, the pullback over the last month looks to be stabilizing, but yet still difficult to label the short-term bullish. However, it's expected that Communication does start to push back higher in the weeks to come, so it's worth taking an intermediate-term stab at this group, which is largely Technology based, but yet includes the major Telecom providers.

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Real Estate- Short-term bullish- Intermediate-term Neutral- The REITS look to be gaining a bit of steam in the short run, after two successful rally attempts since the broader trend began to breakdown into early last year. The relative trend, as shown above, made one false move higher initially, but has been followed by an even steeper advance which has just happened in the last few weeks. The downtrend from last Fall's peak looks to have been exceeded, while prices are just now beginning to recapture the prior lows that were violated. So there are reasons for optimism technically now with this group which weren't apparent heading into the end of 2018. Yet on a longer-term timeframe, more work needs to be done to help these stocks truly begin a larger bullish recovery. The absolute trend of REIT ETFs like VNQ remain largely neutral since 2016, and this recent bounce has not changed that view. Movement over $86 would likely coincide with the relative charts starting to show much more relative strength. For now, it's right to own the Real estate group, but yet be watchful that gains can continue to materialize and help make up some of its losses from last year before weighing in too bullish.

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Consumer Staples - Short-term bearish; Intermediate-term bullish- The breakout in Staples which happened towards the end of 2018 on market weakness coincided with its relative chart v SPX moving up above a two-year downtrend which signified potentially the start of some meaningful outperformance. However, the market rally of late coincided with this turning back lower relatively speaking, and it still hasn't deteriorated sufficiently to think the larger breakout has been nullified. Thus, While near-term trends in Staples are negative, any further decline over the next few weeks would bring this group down to a very attractive area to consider buying dips for some outperformance at some point in 2019. For now this relative chart breakout looks almost completely opposite to what has happened to US stocks. Yet from this reverse position, this selloff should create a decent chance to buy dips given the long-term breakout. Thus, this should be a group to favor owning on a bit more relative weakness into February (broader market strength)

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Utilities- Short-term and intermediate-term bullish. The breakout which happened in Utilities on relative charts in January has made this group worth considering yet again, while longer-term charts of the group also remain constructive on both a daily and weekly basis. As weekly XLU/SPY charts show above, the breakdown which happened last year was thought to be bearish for the group, but once yields began to turn back lower, along with the broader market decline beginning last Fall, this resulted in outperformance for Utilities. This group over the last 12 months since 1/25/18 has been only one of two positive groups in the last 12 month timeframe and was the best group in the prior 12 months from 1/25/18-1/25/19. The breakout back into this base shown above was the first constructive sign, followed by the breakout of the downtrend from last year. Combining this bullish picture with the absolute strength in this group, and relatively little technical evidence as of yet of Yields turning higher, it's still right to bet on the Utes in thinking this group moves higher in the weeks ahead.

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Materials remains short-term bullish, but yet weekly trends have not yet given sufficient evidence that the trend has begun to turn higher. Thus, a neutral intermediate-term stance looks prudent, until this group can break existing downtrends vs SPX which is shown above. From a broader market perspective, the downturn in the US Dollar should be quite constructive for EM and Materials stocks. Yet, the downtrend in this group has not yet been exceeded. Thus, it remains a tough area to invest in overall just yet. However, evidence of weekly momentum strengthening should gradually help its trend to start turning back higher in the days/weeks to come. Gold and gold stocks in particular have begun to look more interesting given last week's Dollar decline and might be an area to consider for those wishing to get an early jumpstart in investing in this group while the larger relative trend is down.

Stocks might have limited Upside this week; Favor Energy given Crude's breakout

January 22, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2650-3, 2630-2, 2596-8, 2570, 2550-1, 2513-5

Resistance: 2675, 2683-5, 2700-5, 2709-10



Summary:  The near-term bullish uptrend in stocks continues, and last week's ability to have recaptured former lows from February, April, October/November in S&P is seen as a structural positive. While a 11% rally in four weeks makes for a tough environment to consider getting back into stocks for those that have been on the sidelines, pattern-wise this IS a definite positive to have reclaimed the former area of the breakdown. In the short run we've seen momentum get ever closer to overbought levels on daily charts while both weekly and monthly remain negatively sloped. The NASDAQ Composite managed to break out of the entire downtrend from October last week, while the SPX and DJIA now lie just fractionally below similar levels, which equates roughly with the 61.8% Fib retracement of our Oct-Dec downtrend in S&P just over 2700. Overall for stocks this remains a counter-trend rally given the downtrend remains very much intact, though the strength in recent weeks is starting to make any retracement less likely to completely retest lows. Meanwhile both WTI, Brent Crude managed their own breakout last week, adding strength to the argument about a possible move in Crude to the low to mid-$60's. (this also should help fuel the Energy trade a bit longer- More on this below) Treasury yields have also begun to turn higher, and what's interesting to note is that the recent positive correlation seems very much intact with regards to Crude, Treasury yields and Stocks. For now, the key takeaway heading into this week, is that the area near November lows which was though to be strong resistance on this recent rally has been surpassed. This has caused both short-covering and momentum buyers to begin chasing this rally, and the big structural area that many investors and the media had all been pointing to, myself included, has been surpassed. Given the long weekend now, earlier cycles had pinpointed 1/17-1/21 as having significance, with the next important area at 1/28. This latter would help Demark indicators to line up and might serve as a stronger area to consider fading this rally. Overall, it's thought that this rally likely comes to an end in the short run within the next week and should begin at least a minimal retracement. Yet it looks right to bet on stocks pushing higher into Spring, not lower. Technically, the call to flatten out thus far looks premature as this rally has continued unabated. While buying into this now looks ill-advised as meaningful resistance looks to be directly above, it's also tough to short this market near-term until tangible signs of reversing course have appeared. Thus, buying implied volatility makes more sense for those wishing to hedge long exposure. We kick things off with the weekly chart below, which shows the SPX having successfully recouped the levels of its prior breakdown- This is certainly positive and getting back above 2630 should have stopped out shorts. Now at 2670, SPX lies just below key Fib retracements, still part of the downtrend from last Fall, while weekly momentum is negatively sloped. A very tough call heading into this week on direction. Until one sees evidence of the downtrend reasserting itself, it's prudent to expect a possible further 3-5 day rally into 2700 or just above. Yet this seems to be a very poor risk/reward until this can be resolved after 10% in 4 weeks time while structurally still in tough shape. The next few weeks will speak volumes. Stay tuned.

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Overview: Last week's rally now brings the four-week total of gains up over 10% and in some cases nearly 15% for US indices, but at current levels, markets are at a very difficult juncture. SPX and DJIA remain in bearish downtrends from last Fall's highs, so this remains a counter-trend rally within a downtrend. Furthermore, momentum is negatively sloped on weekly and monthly charts, which carry more weight than daily charts. Meanwhile, prices have just gotten back OVER prior lows that many, including myself, thought would be important. Thus, structurally patterns have improved in the short run, yet look to be close to sell into on intermediate-term charts. (Monday evening Futures are down -.50%, yet have not even come close to undercutting last Friday's lows. Unless 2596 is broken, pullbacks should be used to buy dips)




A few relevant points worth making.




1) Positive correlation remains very much in place on Treasury yields, stocks and Crude oil. Given that these three have largely moved in tandem in recent months, the recent uptick and breakout in Crude and Yields, we still likely are a bit premature to sell into this stock rally




2) Counter-trend exhaustion signals (Demark) which had lined up in unison early last week on many sectors and indices, were not confirmed, and prices managed to continue higher, largely starting a new count. This is also problematic to the bearish case near-term, as near-term rallies might not prove imminent




3) Cycles had shown the area late last week into 1/21 as being important and while prices have extended above this level, there remains a high likelihood of some kind of change of trend between now and 1/28 near last year's January highs.




4) Over 94% of all SPX names are now over their 10-day moving average and more than 72% of stocks are above their 50-day ma. a far cry from a few weeks ago when these were both in Single digits.




5) Put-Call ratio for Equities has pulled back to 0.54, a level that's uncomfortably low given a 10% rally in four weeks as part of an ongoing downtrend.




6) Financials managed to turn back higher relatively speaking while Technology has broken out in Equal-weighted terms of the entire downtrend that's been in place since last June. This is a positive for both groups, and Financials now as a sector is close to its own relative breakout, which would happen on a move above November highs v SPX.




7) Breadth indicators were very strong during the latter part of December/early January, rallying sharply from very extreme low area to very extremely high, in a period of time that's been seldomly seen over the last 100 years. This is definitely seen as an intermediate-term positive.




8) Countering this argument above, breadth has begun to slow in the last week and most of the "up" days were accompanied by just fractionally positive breadth readings (though not negative while momentum has waned on intra-day charts. This last point is partly to blame for having a less than enthusiastic stance in the short run. However, breadth has not turned negative yet, but merely has slowed. This very well could have importance in the days ahead if this starts to turn back lower.




So the cumulative effect of these statements warrants a selective stance here. While shorting might seem premature, it's proper to recognize that our 10% rally has come as part of a downtrend that is still very much intact. Thus, it's important not to get too caught up in the markets ability to carry from low to high right away. This move in all likelihood will need to be digested, and areas of importance in both price and time are coming up in the near future which merits paying attention.




Sector Highlight: Energy

ENERGY SHOULD CONTINUE TO OUTPERFORM SHORT-TERM




This week we revisit our call for Energy outperformance from December and highlight a few charts that serve to reinforce this view, and cover some of the charts of Crude along with the sector itself on both an absolute and relative basis. Last week saw WTI and Brent Crude breakout, while charts of the OIH managed to exceed initial resistance in a manner that should allow this rally to extend.




LONGS to CONSIDER

USO-United States Oil Fund LP-$11.31-Rally to $12 likely, then $12.76

OIH- VanEck Vectors OIl Services ETF- $17.24- Rally up to $19.72 and potentially $21

Crude oil futures WTI- $53.80- Long here with targets at $60, then $63.45







SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:




Short-term (3-5 days): Mildly bullish into 1/28 and 2700-10, with pullbacks under 2630 reversing this call. Expect early week pullbacks should prove to be buying opportunities (Mon eve Futures -0.50%) and further rallies can happen over the next few days. Largely this optimism is justified given the extension late last week which served to reset the exhaustion indicators, while being short of upside targets. Given that 2630 was exceeded, this will need to be violated again to expect markets are turning down with areas near 2596 being important and would cause a trend violation of the rally from December.. Resistance should come in near 2700-2710 on rallies, and indices are entering a time when this rally could slow/reverse. For now ,the call for flattening out has been proven premature. Shorts cannot be attempted until 2630 is re-broken, and SPX gets back under 2596 on a close.




Intermediate-term (3-5 months)-  Bullish- While the trends have turned negative on an intermediate-term basis for many indices given our weakness, it's thought that a rally should be near that provides a bounce to this decline before any larger bear market continues. While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Momentum is a different story, as long-term momentum indicators like MACD have turned negative, while RSI has not reached oversold territory (and is nowhere near oversold on a monthly basis) This suggests that any spring rally should likely constitute an excellent time to cut down on risk, and diversify into dividend rich investments and avoid the Growth stocks and Small caps. Overall, we'll leave some of our larger thoughts for the 2019 Annual report, but suffice to say, this pullback doesn't suggest to me just yet that the next 3-5 months should be negative at a time when everyone is saying the economy should now turn down.

10 Charts to review- ENERGY- Crude, OIH, Relative charts, Seasonality and 5 stocks which still look like appealing risk/reward longs

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Crude oil (WTI- $53.80) Bullish for a continued rise given last week's ability to close at the highest levels since early December. While US inventory levels continue to lift, Crude is entering a bullish seasonal period and momentum has begun to turn sharply higher given the recent breakout. No evidence of any counter-trend signals are in place, and technically a further lift looks likely to levels near $59.50-$60 which represents the first meaningful upside area of importance. This coincides with the 50% retracement of Crude's two month decline, and should be an initial target, followed by the low $60's. USO and/or Crude futures look attractive to buy for the weeks/months ahead, technically with tight stops on a close back under last Friday's lows.

OIH- $17.08- Bullish for further gains to Vaneck Vectors Oil Services ETF broke out of its seven-day range last Friday, rising to the highest levels since early December. Technically speaking this is a bullish move and should be able to help OIH reach $19.72 or even 21 before stalling out. While an 11% gain in Energy thus far isn't normally something to chase, it's worthwhile noting that this sector is undergoing normal mean reversion after being last year's worst performing sector. Momentum turned up sharply early this year and Friday's move cleared a full week of highs, which is normally very positive in suggesting upside continuation. Counter-trend exhaustion signals are premature and momentum is not yet overbought given the consolidation that's taken place. So last Friday's close should still represent an attractive risk/reward to buy for gains in the days ahead.

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Relative Chart- OIH vs SPX (Daily) - Energy still bullish and further outperformance likely- Charts of OIH vs SPX in relative terms show the breakout which happened early this year in Energy, which consolidated over recent weeks before turning back higher again last week. This minor relative sector breakout which happened again last week coinciding with Crude's breakout bodes well for additional strength in this group and longs are favored for Energy expecting further outperformance in the months ahead.

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Relative Chart- OIH v SPX (Weekly) Energy on weekly relative charts shows a far more subdued picture with ongoing downtrends still very much in place after the breakdown last least year. However, near-term, this rising tide hasn't yet run its course, and technically it's anticipated that the next few months should prove strong for this group and outperformance can continue. While last year's negative January proved to be a harbinger of poor performance for the Energy sector in 2018, it's thought that 2019 could be exactly the opposite. Early strength in momentum coupled with mean reversion and bullish seasonality should be able to lift this sector higher in the short run, and Energy remains an overweight.

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Energy seasonality tends to be the strongest between February and June of any given year and Seasonality charts on the Energy Select SPDR ETF show that over the last 5 years this has certainly rung true. Thus, with Energy having pulled out of the gate quickest thus far in 2019, many might be wary about chasing this group. Yet, it still seems likely that Crude's recent strength might bode well for OIH, XLE, XOP and others to show decent outperformance during the winter months, and one should use minor weakness to buy, technically speaking.



5 Stocks to consider buying in Energy for intermediate-term Outperformance

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Cabot Oil & Gas (COG- $25.62) While the long-term chart on COG might not initially appear as a technical standout, it's worth noting that COG maintains one of the strongest Relative strength ratings of any of the stocks that make up Energy over the last 3 and 6 month periods. COG has been range-bound since 2016 after its decline from 2014 highs, yet has begun to show real signs of stabilization and minor strength in recent months. Its move from $22 up to $25.62 in recent weeks has helped momentum begin to strengthen, and its near-term progress should help COG make headway up to $29 in the short run, to test highs made back in early 2018. On an intermediate-term basis, this will be the level which needs to be surpassed to allow for a larger move back to test 2013/4 highs. At present, near-term strength looks likely and stops on longs would be placed near $21 which can't be broken without postponing any advance.

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Occidental Petroleum (OXY- $67.03) OXY is yet another stock which has faced severe weakness since last Spring, losing over 30% in value before bottoming out near former lows made in the Summer of 2017 which served as decent support. OXY made the list of the 9th best (or least worst) performing Energy name within the S&P 500 Energy index in the last 12 months, with a -11.09% loss and has dropped just 6.77% in the last 3 months. The stock's attractiveness come from last week's gains, which broke out above a downtrend from last Fall, helping this to begin what's thought to be a comeback from the decline from last Summer. At $67, this looks to move into the mid-$70s without too much resistance given this recent breakout, and initial levels come in at $72.25 which is a 50% retracement of the entire drawdown of last year. Additional levels of importance come in at $75.88 which is a 61.8% Fibonacci retracement level and lines up near the initial lows of September 2018. Stops on longs are placed at $62.75 under the lows from two weeks prior.

Phillips 66- (PSX- $95.30) Rally to $101 likely- PSX, likely many others in the space, broke down, severing long-term trends, but now is beginning its recovery which could result in above-average near-term outperformance. The stock has gained over 20% just since December 24, causing weekly momentum to begin to stabilize and try to turn higher. While the trendline break last Fall did cause some intermediate-term trend damage, in the short run, this likely should continue higher given Crude oil's breakout last week. The first meaningful upside target lies just above $101 which represents a 50% retracement of the entire decline. More meaningful resistance comes in at $106-$108.50, which represents its 61.8% Fibonacci retracement as well as former lows from July-September which should now be resistance on gains. Additionally the entire uptrend also intersects this area, so getting above would help the trend out substantially. For now, a long bias is prudent, looking to buy any dips into mid-week for continued gains.

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ConocoPhillips (COP- $67.90) COP is attractive given its trend breakout, and should push higher in the weeks ahead with initial targets found near 71.40. COP makes the list for one of the best performing stocks in the last 3 months within Energy, only losing -6.46% and structurally it remains in good shape, within striking distance of former highs. The downtrend from October was exceeded two weeks ago, and has enabled the stock to recoup nearly 50% of the entire decline from October very quickly. While being down 20% off its all-time highs seems substantial, COP is in better technical shape than many in the space and is far stronger technically. This looks like one of the better Energy stocks to own given the degree of strength this has shown of late along with bullish structure, and should result in this getting to $71.40 initially and then over to $74.85. Only a move back under $62 would postpone the advance.

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Marathon Petroleum (MPC- $66.09) MPC is likely to continue the recent snapback rally this began last month and should reach targets at $71 and above near $75 that both look important. MPC did suffer a long-term trend break late last year, so the recent bounce will have to be seen as counter-trend until it can get back above $71, which is the first target. Momentum is positive on daily charts but negative on a weekly basis, yet no counter-trend signals of exhaustion are present that would suggest this should be sold right away. Thus, further rallies in MPC look likely and should lead this higher by 5-10% on this Energy bounce in the months ahead. Stops for longs lie at $61

10 Technical Shorts to Consider after this bounce

January 14, 2019

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2400-2, 2376, 2355-7

Resistance: 2583, 2600-2, 2630-1, 2687



Summary:  Stocks remain trending higher in the short run, in what appears to be a bounce as part of an ongoing downtrend from last September and more recently, from December highs. While the breadth on our recent lift has been encouraging, indices are now approaching key areas of resistance at areas near where prices broke down that should represent strong overhead resistance to this initial bounce. Specifically for the S&P this is thought to intersect between 2630-50 and could be important this week. Bonds meanwhile have begun to turn back higher after just a few days of selling and the downtrend for Treasury yields remains intact and should bring about an upcoming decline in TNX down to 2.50-5% before any stabilization, but this area remains attractive to sell Treasuries into a move of this sort. The Dollar has begun to rollover and now nearing its own key support near a multi-month support trendline. Crude oil and Gold meanwhile are both showing some evidence of stalling out after their recent run-up, and given the close positive correlation between Crude, TNX and SPX, watching movement in Crude is increasingly more important. Overall, it doesn't appear like global assets have rebounded sufficiently to prevent the next wave down from unfolding and in fact this should be likely as markets approach mid-week for cyclical and Demark exhaustion reasons.

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Overview: To recap, in the last 12 trading days, S&P has risen 10.4%. My Weekly Technical Perspective from 12/24/18 reviewed some of the reasons why I thought indices might rally. They were as follows:



1) Bearish sentiment- Sentiment has turned quite negative lately. The Equity Put/call ratio is now as high as we've seen in two years' time, challenging the 2016 peaks, while many traditional sentiment polls have inverted their Bull/bear status



2) Oversold conditions- Daily charts show RSI to have pulled back under 25, as oversold as early October (which was actually lower) Yet the percentage of stocks trading above their 10 and 50-day moving averages have dropped to single digits



3) Counter-trend exhaustion (Demark)- The NASDAQ along with S&P is within 2 days of possibly recording the first evidence of exhaustion per TD Sequential and TD Combo signals since early December. These worked well in September at the top as Sells, and now they'll arrive this week on a bit more weakness. My thinking is they could signal a temporary low



4) Cycles- The peak in September is now at a key 90 day juncture to this time in December, along with being 45 days from early November peaks, and 315 calendar days from February 2018 lows. This likely should result in some type of pause to this decline



5) Bullish seasonal trends- We remain in a seasonally very positive time, so a -12% decline in December certainly hasn't lived up to this standard. But in general the period from now until next Spring should allow for a counter-trend rally in stocks before the seasonality turns negative again, and for now, it's still right to consider that January- May could be positive, not negative.



Now the easy part is done. and the Hard part awaits. As daily S&P charts show above, prices have rallied right back into this area which has been very strong as former support/current resistance to this rise. The lows from late November at 2630 up to 2650 which also lie just directly above the former lows from both February and April. S&P has in fact gotten back over this area at 2581-3 which marked the low close around this time last year. However, the key upside area of importance lies near this 2630-50 area which marks the bottom of the move down into late November right near the US Thanksgiving holiday. Getting above that would truly change the technical picture. For now though this is not expected, so upside should prove minor this next week and rallies should prove brief before turning lower for a retest.



The following are technical reasons to expect that prices peak out and turn down, with the greatest likelihood between 1/15-1/17, with 1/21 also having importance.



1) As mentioned, prices have bounced sharply but are now right near the area of the breakdown as part of the bearish downtrend from last September. Structurally the area at 2630-50 is very important over the next 1-2 weeks



2) Near-term momentum has neared overbought territory on daily charts while weekly and monthly are bearish. This is a concern towards thinking prices should extend given the negative intermediate-term momentum



3) Counter-trend signs of exhaustion on SPX, NDX, INDU, Crude Oil and other assets are within 3-5 days of lining up after this bounce. Given that these were important at former highs and at lows (as Buys) it's important to pay attention then they line up after a 10%+ rally.



4) Financials have begun to rollover technically when eyeing relative charts of XLF to SPX. this group still makes up 13% of the market and has decisively broken down in the last week after a mild bounce.



5) Cycles from both 12/3 and 10/17 highs in 2018 that project into this coming week, with others from 3/13/18 and 1/26/18 also being very prominent as the one-year anniversary of last year's late January peak.



6) Treasury yields, Crude and Equities have all shown a remarkable degree of positive correlation of late. Now Crude oil is showing signs of upside exhaustion after its rise , after hitting the highs of the daily Bollinger band while TNX is also near the edge of its downtrend after rallying from 1/3. In both cases, both look to peak out in the short run and turn lower in the next few days. It's thought that given the recent correlation, equities should also peak.




SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX



Short-term (3-5 days): Early week pullbacks likely are buyable until S&P can reach 2630, barring a close UNDER 2572. This would mean the pullback has begun. For now, first 2-3 days of this coming week are likely bullish technically as exhaustion signals per Demark are not complete and prices are shy of upside targets which stand out as resistance . However, an early week surge would likely drive money into markets at a time when it's right to be selling into this move. The risk/reward of taking down risk on this first bounce is quite appealing given the larger bearish structure. Entering this week, there hasn't been signs of early weakness persisting on a close that would matter.



Intermediate-term (3-5 months)-  Bullish- While the trends have turned negative on an intermediate-term basis for many indices given our weakness, it's thought that a rally should be near that provides a bounce to this decline before any larger bear market continues. While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Momentum is a different story, as long-term momentum indicators like MACD have turned negative, while RSI has not reached oversold territory (and is nowhere near oversold on a monthly basis) This suggests that any spring rally should likely constitute an excellent time to cut down on risk, and diversify into dividend rich investments and avoid the Growth stocks and Small caps. Overall, we'll leave some of our larger thoughts for the 2019 Annual report, but suffice to say, this pullback doesn't suggest to me just yet that the next 3-5 months should be negative at a time when everyone is saying the economy should now turn down.


10 Charts which offer attractive technical risk/reward opportunities for shorting

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Emerson Electric (EMR $62.02) Bearish, and recent bounce should prove to be a shorting opportunity for movement back to recent lows. The 12% bounce in EMR over the last few weeks has carried EMR up to near downtrend line resistance as well as getting this closer to an area of key resistance to sell into. As weekly charts show, EMR broke a two-year uptrend back in December, dropping down to its 61.8% retracement area of the 2-year rally. However, at $62, this has very little appeal technically as this rally has occurred completely within the framework of the existing downtrend. No evidence of exhaustion is present on weekly charts to suggest the recent low should have all that much credibility and rallies now should present opportunities to sell into. While EMR could trend higher on a 2-3 day basis early this coming week, the area at $63.50-$64 should be ideal from a risk/reward basis to sell into, expecting a pullback down to the mid- $50's. Key support lies near 12/26 lows at $55.38.


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American Airlines (AAL- $31.80) AAL looks ripe for stalling out and turning back down to lows after barely any rally in the recent market bounce. While NYSE ARCA Airline index XAL has rallied more than 10% off the lows from late December, AAL has shown precious little ability to follow suit. This has consolidated near recent lows while not giving much indication of any sort of meaningful low. Given that AAL has been one of the biggest laggard in this space, there needs to be more indication that this is ending before continuing to avoid and/or underweight this stock. An upcoming move back under $29.75 is likely in my view and this should be used to add to shorts for a move down to test 2016 lows in all likelihood which lie just above $25.

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Celanese Corp (CE- $94.76) Structurally this stock remains in poor shape and rallies should be used to sell, ideally at $98-$100 with pullbacks back lower to $82 likely in the weeks ahead. CE had a very bad break on an intermediate-term basis, with prices undercutting lows going back since the early part of 2017. Its snapback rally has temporarily gotten back over October lows, but yet this remains a giant reversal pattern from 18 months ago and it's thought that upside likely is minimal before turning back lower. Prices would require a move back up over $102 to change this thinking back to bullish, but for now, an $11 rally in recent weeks as part of a negative overall pattern is reason to sell into.


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Seagate Technology (STX- $40.67) Look to sell into strength this week for a move back lower. Most of the Disk drive makers have enjoyed sharp rallies as part of ongoing downtrends, and STX stands out as one continuing to show a very negative overall pattern and has rallied up to test the highs of its most recent Bollinger Band and Ichimoku cloud after a sharp counter-trend rally. Yet, the area from $40-$42 is important and likely represents an attractive area to sell into strength for movement back lower. Weekly and monthly momentum remain quite negative and STX has not broke out above the downtrend that's guided this stock lower over the last year. The next 2-3 days should represent an opportune time to consider selling into this for a move back lower.

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Roper Technologies (ROP- $273.16) ROP's 10% rally over the last 12 trading days has carried this back to appealing levels to sell into on this bounce. Trading patterns remain negatively sloped from September and the area at 279-81 would be ideal to consider shorting ROP for a move back to test and break recent lows near $245. The stock appeared to have broken out of a giant reversal pattern stretching back since early last year. It's recent bounce has helped daily momentum carry back to neutral territory while weekly and monthly remain negatively sloped. One should consider selling into gains given the ongoing negative structure, expecting a pullback in the weeks ahead.


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Overstock (OSTK- $15.27) OSTK's bounce over the last few weeks should represent an excellent opportunity to sell into gains for a move back lower in the weeks ahead. OSTK remains trending down over the last year, having lost nearly 85% in the last year. However, given the shape and structure of the bounce attempt from December, it looks unlikely that OSTK has truly bottomed out. No counter-trend evidence of exhaustion is present, and the move from December has been largely more sideways than a sharp rally of Five waves higher. Thus, it's likely that this stalls between $15.25-$16.50 and turns back lower to undercut $12.33 at least one more time before any serious low is at hand. Breaks of $14 on a daily close should likely lead to $12.33 and breaks of that could lead to a maximum near $10 before this starts to stabilize and then try a more serious rally. For now, buying here looks premature and right to sell into and use rallies to short in the days ahead.

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Vodafone (VOD- $19.70) VOD stabilization since October hasn't served to change the broader downtrend in place for VOD, and the small bounce attempt since December and from earlier last week is miniscule given the degree to which the market has rallied in recent weeks. This disappointing bounce should serve as an opportunity to sell into gains given the lack of any downside exhaustion in place on multiple timeframes and should allow for rallies to hold $20-$20.50 for a move back lower to $17.90-$18.25 . For now this looks like an appealing stock to consider fading in its consolidation attempt for another pullback to new lows before this has bottomed.


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Las Vegas Sands (LVS- $56.96) It looks right to sell into the bounce in LVS and other casino stocks in recent weeks as this group has been one of the weakest since last Summer when many peaked out in late June. LVS gave up nearly 70% of the rally from 2016 before reversing course and bouncing sharply in the last three weeks. However, prices still remain below highs from early December and counter-trend exhaustion on weekly charts remains premature. So after nearly a 20% bounce in three weeks, LVS is now up to prior highs from the last few months and maintains a larger downtrend. Even in a basing process, this will likely require some consolidation and additional base-building before this can start to trend higher. Near-term, shorting this rise looks prudent heading into this week technically at $56.96 up to $59, expecting a trend reversal and move back lower to under $50. Failure to break lows from three weeks ago might turn out to be an early warning sign about a possible bottom. For now, this is early and fading this rise looks like the right move.


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CBOE Global Markets (CBOE- 91.39) CBOE remains the weakest technically of the major exchanges, and given the recent drawdown in this group, the stock has fallen from $115 to near $91 over the last few months to test prior lows. While a bounce attempt happened into early January, this proved futile and the stock turned back lower. Overall, weekly exhaustion remains premature and momentum is negatively sloped. Last week's decline undercut all of last year's weekly closes putting this at the weakest since mid-2017. Additional drawdowns here look likely given the rollover in the Financials space and can get down to the mid 80s with idea targets near $78. Trends will remain bearish unless price gets back up over the highs from two weeks ago near $99.50 which looks unlikely in the near future but would be a stop for shorts.


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Apache (APA- $31.10) Bearish and the rally over the last few weeks has carried up to an attractive risk/reward area to sell into this bounce. Overall, the breakdown in APA into end of year managed to violate both March 2018 and also Jan 2016 lows. thus, the breakdown has taken this to the lowest levels since 2002 before the rally attempt in recent weeks. While a 23% rally over 12 days is nothing to sneeze at, structurally this remains in very poor shape. Prices remain under these prior lows and momentum is now nearing overbought levels while weekly and monthly momentum are negatively sloped. Additionally, counter-trend exhaustion is not in place at the lows of weekly or monthly charts to suggest a low of any magnitude. Meanwhile daily charts now show upside exhaustion of TD SELL SETUPS as of last Friday . (9 consecutive closes above the close from four days prior) This likely will allow for a slowdown in this stock and reversal this coming week. Shorting APA looks prudent technically on this rally, from $31 up to $33 with expectations of a pullback to test and break recent lows at $25.

Bounce near given sentiment/oversold extremes, but recouping 2630 is a must

December 24, 2018

Mark Newton CMT, Newton Advisors, LLC

Contact: info@newtonadvisor.com



S&P 500 Cash Index

Support: 2400-2, 2376, 2355-7

Resistance: 2583, 2600-2, 2630-1, 2687

Happy Holidays to all! Looking forward to a safe, happy and profitable 2019!



Summary:  Stocks remain trending strongly downward in a trend that's nearly erased 50% of the entire rally from 2016 in S&P. Last week's "Make-Or-Break" comment was decided by the nasty "Break" on Monday which resulted in severe acceleration and resulted in the worst week of performance in a decade. The decline has begun to take a toll on the broader structures, which now show long-term trend breaks on monthly logarithmic charts from the 2009 lows. Momentum has rolled over sharply with the year-to-date decline in US indices of anywhere from 8-15% in what has been seen as a real shock to many investors given the relative lack of deceleration in the economy, or in earnings. Overall, most near-term technicals point to an above-average chance of some stabilization and bounce starting this week. However, the intermediate-term trend has also turned bearish, given the breakdown under SPX 2580 and long-term trendline breaks on many indices. However, from a risk/reward perspective, despite the bearish trend, the chance of a rally into the Spring remains high given the combination of sentiment, seasonality and some cycles which pinpoint next Spring as having some importance. Near-term, a snapback rally is expected, though with weakness likely lingering into January. With regards to bonds, a selloff here also looks to be around the corner, with yields having pulled back sharply to near key support at 2.70-2% while the Dollar index could be on its last legs, with a selloff expected to begin in 2019. Commodities meanwhile might shape up if the Dollar decline gets underway, and both Crude and Gold could have better years next year than in 2018. Overall, the volatility looks to be here to stay. Below is a table, courtesy of @Oddstats, showing the percentage returns on the last 5 trading days of the year. As one can see the last four years have been lower during this time and since 2008 we've seen six of the last 10 final five days finish down. While a bounce looks very near given the oversold conditions, it's certainly no guarantee that Santa rally carries the market higher during this time.

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Overview:  Last week's severe decline has gone down in the record books as being the worst week since 2008 and with one more full week to go, markets could potentially record the worst December performance of all time. This current -12.45% decline already establishes December as having the worst run thus far since the 1930's with the NASDAQ now having fallen more than 22% from its peak, which many believe puts the NASDAQ in a bear market. Wilshire Associates tells us that US stocks lost over $2 trillion in value on the week, a staggering amount. Yet, this decline has been unusual to many non-Technicians as it's occurred during an economy that's healthy enough for the FOMC to have just raised rates again a fourth time this year while earnings remain sound. Thus, this decline truly calls into question the factors that many typically feel drives the market.




Technically speaking of course, there have been warning signs now since late August when Technology began to "nosedive" with the NASDAQ peaking out. Breadth fell off sharply throughout much of September, with many record closes happening on flat or even negative breadth. Markets showed classic signs of negative momentum divergence on the move back to new highs as well, as January proved to be the true peak in momentum, with RSI readings near 90. When markets reclaimed and exceeded those January peaks, it occurred on far lower RSI readings. However, it was the move in the Chinese Yuan following Trump's meeting with China's XI that truly caused the bond market to turn up sharply. Yields fell quickly starting in early December and stocks weren't far behind.



Now in trying to take stock of the damage done, it's important to look at a plethora of technical factors along with sentiment, seasonality and momentum to try to dissect the near-term and intermediate-term technical picture. My thinking is the following are important reasons why a bounce should be right around the corner:



1) Bearish sentiment- Sentiment has turned quite negative lately. The Equity Put/call ratio is now as high as we've seen in two years' time, challenging the 2016 peaks, while many traditional sentiment polls have inverted their Bull/bear status



2) Oversold conditions- Daily charts show RSI to have pulled back under 25, as oversold as early October (which was actually lower) Yet the percentage of stocks trading above their 10 and 50-day moving averages have dropped to single digits



3) Counter-trend exhaustion (Demark)- The NASDAQ along with S&P is within 2 days of possibly recording the first evidence of exhaustion per TD Sequential and TD Combo signals since early December. These worked well in September at the top as Sells, and now they'll arrive this week on a bit more weakness. My thinking is they could signal a temporary low



4) Cycles- The peak in September is now at a key 90 day juncture to this time in December, along with being 45 days from early November peaks, and 315 calendar days from February 2018 lows. This likely should result in some type of pause to this decline



5) Bullish seasonal trends- We remain in a seasonally very positive time, so a -12% decline in December certainly hasn't lived up to this standard. But in general the period from now until next Spring should allow for a counter-trend rally in stocks before the seasonality turns negative again, and for now, it's still right to consider that January- May could be positive, not negative.



From a non Technical perspective, we've heard countless opinions in the media that the economy should slow meaningfully in the years ahead. The fact that many seem to have jumped onboard with this line of thinking while economic growth has been strong enough for the FOMC to continue hiking rates seems overly bearish and might represent a time when US equities and the economy generally do the opposite of what the masses believe.



These are just a few reasons, but generally suggest this decline should be close to running out of steam as the market enters January.




SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:


Short-term (3-5 days): Expect a reversal in trend to this decline which could happen either during the shortened session Monday, or more likely Wednesday of this week which could kick off a bounce up to 2600-2630 in S&P before additional weakness happens into January. While the trend remains very bearish near-term, we've seen the presence of very oversold conditions in the short run, with just 1% of all stocks above their 10-day moving average and just 6% above their 50-day, equally as oversold as markets were back in February 2016. Demark indicators are 2 days from signaling exhaustion on S&P, & NASDAQ and hugely important stocks like AAPL are also showing the same exhaustion signs. Thus, given bearish sentiment while markets are oversold and nearing exhaustion, it makes sense to expect some stabilization this coming week and a bounce attempt. Further weakness would take markets to 2376, the 50% retracement of the entire move up from 2016, which is an important level. Thus, while markets remain under pressure, this doesn't look like the best time to sell stocks for those with a 3-6 month time horizon. This final full week of the year should provide some clues in this regard in the next couple days.



Intermediate-term (3-5 months)-  Bullish- While the trends have turned negative on an intermediate-term basis for many indices given our weakness, it's thought that a rally should be near that provides a bounce to this decline before any larger bear market continues. While the average stock is now officially in a bear market, most market indices are not, and many arithmetic charts still show the uptrends for market indices to be intact. Momentum is a different story, as long-term momentum indicators like MACD have turned negative, while RSI has not reached oversold territory (and is nowhere near oversold on a monthly basis) This suggests that any spring rally should likely constitute an excellent time to cut down on risk, and diversify into dividend rich investments and avoid the Growth stocks and Small caps. Overall, we'll leave some of our larger thoughts for the 2019 Annual report, but suffice to say, this pullback doesn't suggest to me just yet that the next 3-5 months should be negative at a time when everyone is saying the economy should now turn down.


10 Charts to review- 5 Index, & Sentiment charts, then 5 Stocks to buy following recent Weakness

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NASDAQ Composite- Searching for a tradable low- NASDAQ, which has just officially reached the 20% down mark, is now suddenly very close to its 50% mark of the 2016-8 rally while being 2 days away from recording Demark exhaustion for the first time on this decline. Additionally, momentum, while oversold, is actually at higher RSI levels than were recorded in early October. Thus a few reasons suggest that this decline is close to bottoming and turning back higher. While buying into a steep decline like this is often difficult to time accurately when stocks have been falling at a pace of 1% per day, the area from 6100-6300 is important for NASDAQ, and it's worth taking a stab at buying into this given the reasons above. 

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SPX nearing 50% retracement, but break of 2580 is bearish. SPX on weekly charts has now given up nearly 50% of the entire rally from 2016 and within 40 S&P points of this level at 2376. However, the pattern has grown quite bearish with the break of 2580-2600 area that most have been eyeing for weeks. Until/unless this area can be exceeded now on any snapback rally, the trend is bearish on an intermediate-term basis, with any minor bounce being used to sell. Near-term, charts have reached levels which make sense to cover shorts on any break of 2400, while traders should look at selling back into a bounce to 2600.

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SPX showing long-term trend break - SPX monthly charts show prices officially having broken long-term uptrends when viewing logarithmic charts, while traditional technical metrics like MACD have rolled as the signal line has been broken and MACD is diverging lower. Meanwhile, monthly RSI is not oversold. Thus, it's important to see how the rapid selling of late fits into the long-term model and as can be seen, prices certainly have gone a meaningful amount higher after having bottomed at 666 back in March of 2009. Interestingly enough, while recent selling has been dramatic in percentage terms, the decline has literally just scratched the surface in having begun to rollover. While a move back up above 2630 would cancel the breakdown, suggesting a possible move back to 3000-3060, for now the trend is bearish and bounces should be used to sell.

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Fear as high as early 2016- Equity put/call readings are now above 1.1, a level that hasn't been seen since early 2016 during the plunge from late 2015 into early 2016. Thus, while the selloff has proven orderly and not really shown evidence of real capitulation with regards to TRIN readings being excessive during the selloff, fear has slowly but surely returned to this market, and now we're seeing more puts being bought than calls, which is a rarity and normally signals that a bottom is near.

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Stocks above 10, 50-day MA hitting extremes- This chart showing the percentage of stocks trading above their 10 and 50-day moving average has gotten down to very extreme low levels as of last Friday, suggesting that lows should be near. The percentage of stocks above their 10-day has reached 1%, so 99% of all SPX names are under their 10-day, while only 7% of all stocks are trading above their 50-day m.a. Thus, the market based on this metric is as oversold as we saw back in early 2016, while traditional gauges of momentum like RSI are oversold now on daily charts. This rare level of oversold readings often will result in a very sharp bounce, and we seem to be near this time.




5 Stocks to consider buying after this Weakness

Many of these are in steep near-term downtrends, but have approached attractive intermediate-term trendline support which makes buying into this pullback appealing. The time-frame for bounces in these stocks is 3-6 months, and entries should be attempted gingerly given the extreme selling, buying in small size and adding as they start to work. Stops can be considered to limit losses to 5% in each. Charts and thoughts below.

Apple (AAPL- $150.73) For the first time since AAPL peaked at $232, we're seeing evidence of counter-trend exhaustion in AAPL on both a daily and weekly basis as of this coming week. Additionally, the stock has dropped 82 points in 82 calendar days, representing nearly a perfect 1x1 price/time area where this should be close to bottoming. Near-term momentum has gotten oversold, while the stock has nearly reached its 61.8% Fibonacci retracement of the rally from 2016 and has arrived at Ichimoku support as shown by the "lookback line" hitting the bottom of the Ichimoku cloud. Overall, while the decline has been very steep in recent months, the long-term pattern remains very much intact.

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FedEx Corp (FDX- $158.00) FDX has gotten down to an interesting level of support worth considering after falling 29% in the last month, the worst performing stock of all the 69 companies that make up the S&P 500 Industrials index. Prices lie right near trendline support while having given back 50% of the prior intermediate-term rally. Overall, this area has importance for a possible low. The area at $154.34 represents the key 50% area, and technically given the confluence, looks to be a low risk area to consider taking positions in FDX.

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Goldman Sachs (GS- $160.05) GS has arrived near formidable support that likely suggests this stock can finally bottom out after a very difficult year. GS has been one of the worst performing stocks in all of the 67 stocks that make up the S&P 500 Financials index, having dropped more than 37% YTD thus far. Demark weekly exhaustion is nearly complete, and could happen within the next two weeks. Meanwhile, GS is within striking distance of 2016 lows and currently sits right on a larger uptrend from 2008, which originated 10 years ago. While the weekly charts show this to need another couple weeks, this should be close to forming a low and the risk/reward to buy has gotten better in recent weeks on this pullback. Look to take initial longs in small size and add to positions as GS starts to stabilize.

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Lennar (LEN- $38.96) Homebuilders might very well take a breather after a very difficult 2018. LEN stands out as one to consider after losing over 38% this year, one of the worst performing stocks of all within Consumer Discretionary. However, as monthly charts show, this area just below $40 lines up with an attractive level of long-term trendline support while also hitting lows which were made near current levels back in 2016. Weekly charts show the trend from January of this past year to still be very much down, and last week's pullback looks to require another two weeks of possible weakness before this can bottom out. However, the stock is nearing its 50% absolute retracement level from those $72 highs made back in January, so at $38.96, the area at $36 should be a very strong level which causes this to stabilize and then turn back higher. Demark indicators also are within 2 weeks of showing TD exhaustion on a weekly basis for the first time since this decline started this year. This combination makes LEN very attractive to keep on the watch list and consider buying between $36-$38 on any further weakness heading into next year.

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Halliburton (HAL- $25.85) HAL looks attractive from an intermediate-term basis after having lost nearly half its value this year. This stock peaked initially back in 2014 near $75 a share, so at $25.85, it's given back quite a bit in recent years and much of this has just happened in the last 10 months. Monthly charts going back since 2008 show this area near $25 to have some importance technically in adjoining a long-term support trend. TD Buy Setups will be in place by next month, and makes this interesting to consider as one to buy during a seasonally bullish time for Crude oil which typically gets underway in February. In the short run, while a bottom might take 3-5 days, this area looks appealing to initiate buys in small size and add to this as it starts to stabilize more. The first meaningful upside target lies at $38, or near the lows from August of last year which should now be important on any rise as resistance.