April 22, 2019
Mark Newton CMT, Newton Advisors, LLC
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)
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.