October 2, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2939-42, 2900-1, 2875-2880
Resistance: 2988-9, 2999-3000, 3008
Tuesday Technical Video, 10/1/19- discussing SPX, TNX, Gold
Thursday Technical Webinar 09/26/19 discussing SPX, TNX, XLK, Crude
Scheduled for CNBC Trading Nation, today, Wednesday 10/2/19 at 2:20-30pm EST
SPX - (3-5 Days)- Bullish- The reversal was swift and severe but brought prices down to the lows of the trend channel and it looks right to play for a bounce from 2940- Under this level on Wednesdsay would turn the trend bearish ASAP for a move to 2900
EuroSTOXX 50- (3-5 days) Bearish- Drawdowns should prove minor and 1-2 days in scope before a push higher to 3675
Trading Longs: AAPL, JCOM, TSM, TOL, LEN, TTEK, UUP, ACGL, MSFT, JPM, KL, AEM, NEM,VNQ, XLU, HOLX, DGX, IPHI, YUMC, TMUS
Trading Shorts: GDX, AGQ, NUGT, MJ, HUBS, WUBA, FXE, FXB, LVS, MAR, SUI, PYPL
A pretty violent About-face to say the least yesterday and a bit concerning for the thoughts of a push back to new highs right away. Stocks largely followed the move in Treasuries which spiked shortly following some dismal Manufacturing data which has now reached the lowest level in a decade. Yields fell over 10 bps very quickly yesterday which resulted in S&P breaking our 2980 support. Given that stocks have been taking clues from the bond market lately, a severe pullback in yields is thought to be a potential short-term negative for stocks until TNX can stabilize. However, with the extent of the decline yesterday, one can make a case for a tactical long into Wednesday given S&P having reached the lows of the near-term trend channel along with being above the prior August highs.
However, breaching this would be a negative for the short run, resulting in a quick decline down to 2900. Given that October historically has been a potentially volatile month, we have to be on guard for the potential for weakness and particularly if this pullback from mid-September materializes into a deep retracement, which would make the larger chart of the last 6 months in spx look far more "top-like" For now, it's a bit premature to make any such call and recent weakness is thought to be buyable, either from current levels, or if 2940 is broken, then down near 2900. Most cycles pinpoint the latter half of October as potentially being more important with regards to having the potential for downside, as my colleague Andy Pancholi has reminded me, with the confluence of 10, 20, 30, 60, 90 and 100 year cycles shown as a overlay. In this regard, US stock indices have had the propensity to peak mid month. For now, I'm advising to treat 2940 as the line in the sand, with a "bullish over", "bearish under" type stance.
In the bigger scheme of things, the larger area of "concern" for the SPX lies near August lows. This area cannot be taken out on any October weakness going forward without turning the trend down pretty violently. While im not forecasting an immediate break of this level, it's always worth knowing where the larger trend could give way in October, and in this case, that level is August lows. Any hint of this level being broken on a failed bounce that revisits lows, would be big concern for acceleration in the back half of October. Lots of cycles pinpoint 10/26-7 as having significance, which doesn't have to be a high per se, and for now, we'll put most of this talk on the back burner and just watch the extent to which stock indices can stabilize and turn higher.
Internally, we saw a pickup in bearish breadth to the tune of nearly 3/1 negative, while volume flowed at a near 5/1 pace into Down stocks vs Up, producing a TRIN reading just under 2, which is bordering on breadth capitulation. However most other gauges remain pretty subdued and stocks like AAPL (I own) remain technically healthy. While Financials were weak yesterday, and particularly the Brokers, this group has had some good success of late, while many Hardware and Semi stocks have also shown some technical improvement. Keeping a close eye on Tech and on Financials will be important in the days ahead. As to the action plan, as seen below, it's still right to favor strength in the Defensive sectors.
Long VNQ with targets at 95 and stops under 91.24
Long XLU with target at 64.50 and stop under 62
Long XLV with targets at 94.40 and stops under 88 ( This is being lowered from 89, as its thought 88 has a bit more importance)
Additional charts and thoughts below.
S&P's push to trendline resistance, in retrospect, was one to sell into, not paying too much attention to the early success Tuesday in climbing above this channel high. Now, prices are back down near the lows of this channel and it should be right to buy into this for a bounce. One has to be concerned with two things. First, any immediate break of 2940 without a bounce would lead to acceleration lower and create a much more bearish looking daily chart on SPX since April. Second, any bounce up to 2970-80 which fails to get above and then turns back down to break 2940, particularly towards the middle part of October, would be a big negative. At present, the thoughts are that a bounce Wednesday should happen, and we'll wait and see on the extent of the move and breadth. Seasonality tends to bring about a weaker first few days of October normally before a rally, so one cannot rule out a bit more weakness this week. However, stabilization sooner than later and a turn higher quickly is going to be necessary to prevent the larger chart from turning more negative. Given that October can present difficulties in Pre-election years, these next few weeks will be a time to pay close attention, stay heavily diversified and not put on big bets of any sort.
US 10-Year Treasury yields reversed violently yesterday post Economic data early yesterday which showed a further decline in Manufacturing activity. Yields at one point were down more than 13 bps, which led to Equities following suit lower. Given that both yields and Equities have been trending lower since Sept 13, it's necessary for TNX to hold 1.63 and turn higher. However, the extent of the Yield decline yesterday argues that we could see additional pressure near-term, and technical targets lie down near 1.53-5%. If this happens over the next few days, it should drive a chance to sell Treasuries ahead of a yield bounce into mid-month.
NASDAQ 100 index's trend intersects right at current levels from late May 2019 lows, making this a key area to hold in the days ahead. Failure to remain above 7600 would argue for additional weakness in October and bring August lows into play. Given the importance of Technology and Biotech within the NASDAQ, this will be one to put on the radar for the ability to stabilize in the days ahead.