April 23, 2018
S&P JUN FUTURES (SPM8)
2654-6, 2638-40, 2584-5, 2549-53, 2524-5, 2474-6 Support
2697, 2739-40, 2753-5, 2781-2 Resistance
NASDAQ Comp- Increasing signs of rolling over as indices break to multi-day lows, violating uptrend from late March
Foreword: NASDAQ looks increasingly weak given the rollover in recent days, which makes the pattern from early year start to resemble a possible giant Head and shoulders pattern. This won't be confirmed until/unless prices violate the lows at 6800, but this would also violate the entire uptrend from 2016 and something to watch for in the event prices near early month lows. Note the extent that momentum began to diverge negatively at the peak in mid-March, failing to reach late January peaks despite prices being higher. Patterns overall have turned sloppy to say the least and volatility has begun to pick up. Overall, 2018 is shaping up to be quite different than 2017 or 2016, and more volatility looks likely in the months ahead. Breaks of the intermediate-term trend would go a long ways towards suggesting this entire rally from 2009 is beginning to peak out, which for now, can't be said based on declining breadth and momentum alone. One should watch for indices breaking February lows as a key to a greater than average likelihood of weakness in July-September.
Summary: Bottom line, it's looking increasingly likely that this rally from early April is coming to an end, and its right to be defensive again, thinking that last week's crack was the start of a pullback to test late March/early April lows and even February lows before any sort of counter-trend rally can continue.
The following are concerns at current levels, which argue against this recent rally continuing into May:
1) Uptrend from April lows broken last week for SPX, NASDAQ and DJIA
2) Semiconductor weakness which threatens to take down Technology as a whole after very weak performance last week
3) Financials underperforming dramatically over the last week and month, despite last Thursday, Friday rally
4) Low levels of breadth compared to prior peaks in March, or in January or last October
5) Pattern from late January still negative with lower highs from late January into mid-March highs
6) Weekly Momentum still negative per MACD while RSI has gotten cut in half from late January, the extent of the drop is troubling
7) Equal-weighted SPX and Mid-caps, Small-caps continue to drop relatively vs the Capw-eighted SPX
8) Longer-term Demark sells are now present (but not confirmed) on monthly charts and quarterly charts of DJIA, SPX and NASDAQ
While it was right to enter the month of April on a positive note, the downturn in Semiconductors which has turned many within that sector's charts back to bearish, is a concern. Semis have violated relative trends vs other parts of Technology and now have begun to reverse the recent Tech sectors bounce attempts vs SPX relatively. Given this sectors leading qualities, it's always important to keep a close eye on the Semis. However, it was thought that above-average earnings out of the Financials could help to lift this sector, but exactly the opposite happened, with the Banks weakening in recent weeks. While some might pin the blame on Special charges, the lagging in this sector is a concern when the market is in sore need of leadership after Semiconductors start to waver. The rally in Energy stocks unfortunately doesn't do a whole lot of good in terms of helping to lift the SPX.
SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:
Short-term (3-5 days): Bearish - (Use rallies into 4/25-4/27 to sell) The market looks to have shown its hand during last week's 4/17-4/19 window, coinciding with both two year anniversaries of minor highs and five year anniversaries of former lows. While markets might bounce early in the week, similar to last week- Monday/Tuesday, I expect that last week's breach of its uptrend line from early April is important, and upside should prove limited. Pullbacks to test early April lows look possible given the current structure and ongoing Downtrends from late January intersect just above current levels, while weekly momentum remains negative. The action in Semiconductors last week was a concern as markets head into the 90 day cycle from late January. Minor trends were broken on Fridayin SPX, and its thought that equities might yet again be vulnerable heading into May.
Intermediate-term (3-5 months)- Bearish- Markets very well might have completed their run-up from early April, and the low volume rally with Financials not participating is a particular concern for this move, while Semiconductors have now shown evidence of also beginning to turn lower, violating trends vs Technology and forming a very ominous near-term pattern since last October. While breadth and momentum did improve a bit from late March, prices remain structurally challenged when eyeing the ongoing pattern from late January and will require far more evidence of upward thrust to expect gains during this seasonally challenging time for stocks between now and October.
Technical longs to consider: SQ, TWTR, NDAQ, SPLK, WYNN, GMED, TWLO
Technical Shorts to consider: XRT, IBM, BBBY, GPS, EXPE, SIG, LUV,
SPX - Trend slowly but surely looks to be turning back lower- SPX had a sufficient enough reversal from Wednesday morning last week to breach the minor trend from early April, and while this daily SPX cash chart looks to have held ever so slightly, the trend was in fact violated when considering Futures contracts. Sunday evening trading shows mild bounces ongoing for US Equity futures and it looks likely that a small rebound might occur Monday-Tuesday before reversing back lower later in the week. I suspect this past week was in fact important given the Technology weakness, and prices should not get back up above 2750 before turning lower to test late March lows.
SOX- Philadelphia Semiconductor Index-Weakness becoming more pronounced- Last week's decline proved to be much deeper than desired for this daily chart and while prices thus far have held where they've needed to, momentum has rolled over to negative per MACD and the chart is growing increasingly more bearish structurally speaking. To think this is mere consolidation, SOX will need to hold 1260 and turn up sharply to get back over 1360 and exceed 1400. At present, exactly the opposite looks like its playing out, and a break of 1260 looks likely in the weeks ahead which should lead down to more important support near 1200, which lines up with quite a few former lows. Relatively speaking, Semis have broken trends vs Hardware and Software ETF's, and vs the broader market have pulled back to the lowest levels since mid-2017 relatively. Any violation of 1260 would breach the uptrend from 2016 and argue for a lengthier decline most likely to at least 1070, but finding temporary support near 1200 in the process.
Financials have gotten worse not better in the last month and this underperformance is a concern given their weighting in SPX- The Financials managed a brief two-day snapback late last week which undoubtedly helped the market to hold up in much better fashion than it would have otherwise, given the group's representation in SPX. However, Financials now have underperformed all but two major SPX GICS Level 1 sectors in the rolling 30 days, even considering the degree of last week's snapback rally. As relative charts vs the SPX show, Financials broke down in March and still remain bearish even with the minor gains from last Thursday/Friday. Monthly charts of XLF to SPX show recently confirmed TD Combo sell signals on the group vs SPX , making this group not all that attractive after the breakdown of its six-month uptrend line. Within the sector, Regionals have outperformed the Commercial banks and still look to show better relative strength. Additionally, many of the Exchanges and E-brokers also appear technically sound. However, the failure of this group to show more strength and resilience during a time of market shakiness is not comforting when trying to see what sector might have the ability to lead in the weeks ahead.
US 10-Year Treasuries- Yields closer to resistance, than thinking a larger breakout is happening- Treasuries look to have resumed the selloff that began late last year and yields managed to push to new highs for 2018 last week, rising to the highest levels since early January 2014 intra-day highs at 3.05%. Structurally this chart remains bullish on a short-term basis, but the monthly chart tells a whole different picture given the 20+ year trendline channel which remains in place for 10-Year Yields. Additionally, there remain a high level of Treasury Spec shorts given CFTC Futures data. This might limit the amount of further gains in yield as many continue to bet that yields have to go higher. Finally, Daily TD Sell setups will trigger as of early this week, so counter-trend measures suggest this recent bump in yields might present chances to buy Treasuries as well as Sell German Bunds while Buying Treasuries, expecting the spread to contract.
Equal-weight Technology ETF by PowerShares for Technology, the RYT, looks to be in far worse shape than most other Tech gauges which have a higher weight in the large cap sector. Daily charts of RYT look more negative, with prices having made a definite reversal last week which now could extend lower. The Daily chart has taken the shape of a large reversal pattern that would be confirmed on movement down under 145, and would argue for the start of more Technology weakness, which would be a concern for the market. Bottom line, the extent of last week's selloff is a negative in the short run, so for tech bulls, its a must that near-term weakness be contained near March lows.
Consumer Discretionary quite weak over last few years in Equal-weight terms. Consumer Discretionary looks very different when eyed in Equal-weighted form, and in relative terms to the SPX. When stripping out Home Depot, Netflix, and Amazon, this group has been weaker relative to the market for nearly three years, and peaked out nearly around the same time as many European indices in May of 2015. It goes without saying that this chart represents a far weaker picture of Discretionary than many would believe is happening in recent years, and given some of the Retail woes, is definitely a more accurate portrayal.
Growth vs Value: The start of weakening- When looking over relative charts of IVW to IVE, (or the S&P Growth ETF vs S&P Value), we see the runup into this year looks to have reversed fairly sharply in the last few months. Uptrends from early this year have reversed course, and momentum has begun to rollover. While the uptrend from the US Election remains in place for Growth vs Value, this pullback over the last couple months looks important. In the coming 4-6 weeks, Value likely should outperform Growth and this uptrend line could be tested, if not broken.
Developed markets look to be breaking out vs Emerging for the first time since early last year. Weekly charts of MXEF index vs MXWO show confirmed TD Buy signals in the last few weeks, which has been the first time these have appeared in over a year's time. Downtrend lines look to have been exceeded in recent weeks, which bodes well for Developed markets to outperform the Emerging. Given that the Dollar has consolidated and has not really fallen of late, but has shown mild gains vs many of the Major and emerging market economies, a sliding Emerging market picture makes sense, particularly when volatility seems to be returning to asset markets.
CCI- Continuous Commodity index- Breakout in Commodities still looks very near- Prices have now rebounded sufficiently to test the highs of this two-year base, and argue for long positions in DBC, the Powershares Commodity ETF, expecting strength in the weeks ahead. Many of the Energy markets and Base metals have rebounded, while the Precious metals have also begun to perk up. The multiple peaks in price since early this year right near the "Neckline" of this pattern are encouraging for the bullish case, arguing for an upcoming breakout and higher prices.
CBOE Volatility index- Some firming in implied vol is evident after reaching former lows, and technically this turn up late last week argues for considering owning implied volatility after. This VIX chart appears like a good risk/reward after vol has nearly been cut in half over the last month. the area near former highs just below 15 appears like attractive support to buy the VIX, thinking the next couple months offer the chance for above-average volatility. After Friday's VOL spike lifted this up to 16.88, it's right to own/buy VIX here with stops at 14.88 and upside targets in the low to mid-$20's making this a good risk/reward.