June 17, 2019
Mark Newton CMT, Newton Advisors, LLC
S&P 500 Cash Index
Support: 2874, 2841-2, 2820
Resistance: 2910-1, 2930-2, 2945-6
Summary: Near-term trends began their much needed consolidation last week after running up nearly 6% in the prior 6 trading days. S&P still lies 140 points higher than levels hit less than two weeks ago back on June 3, and there's no saying that this consolidation has completely run its course. The past few days managed little to no real progress for Bulls nor bears, and by Friday's close, S&P was less than a half point away from were prices had closed Monday. This coming week brings about the much anticipated June FOMC meeting, and while a lowering of Rates has not been priced in by the market for Tuesday, such a move IS expected by July, and failure to do so would be a surprise to markets (Based on current positioning). Bottom line, with regards to Equity price direction this week, trends have not turned down sufficiently to warrant a bearish stance, but any daily close under 2874 certainly would argue for at least 3-5 days of weakness before a low, and the time period following this week's Fed meeting certainly stands out as having a higher than average probability. On the upside, above 2910 would bring about a quick test of 2930-45 before stalling. Outside of Equities, the recent volatility in both Treasury yields and the US Dollar gives more conviction about price action to start this coming week. Treasury yields have been trending lower, and still look likely to trend lower in the next 1-2 weeks before bottoming, with 2.00% a definite possibility, along with 1.95%. However, yield reversals look likely in the month of June. Meanwhile, the US Dollar has begun to turn back higher after the initial falloff into early June. Additional near-term strength here is likely this week. Overall, it's tough to have a lot of conviction about the near-term, as a few bearish developments have surfaced (which will be discussed below) while the broader trend remains in good shape and is likely to result in a push back to new highs in July and early August before a fall peak. Any selloff should provide opportunities for Dip buyers for a better risk/reward than at current levels, and it's thought that the next 4-6 weeks is certainly still bullish.
Important Developments of this past week (Shown in Bullet form)
US and European indices stalled out, but yet no meaningful higher nor lower prices and it's tough to have a lot of conviction heading into this week. One should "follow" price on a move above 2910 or below 2874
Sideways consolidation has allowed intra-day overbought conditions to ease, and the Percentage of stocks over 10-day moving average (m.a.) has gone from 90 % back on 6/10 to now at 78% and dropping. This is thought to be constructive.
Treasury yields have continued to drop, and still not at targets to Sell Treasuries, but the next 1-2 weeks should bring about lows in yield and it would be right to take profits and sell into a further Yield decline, as the upcoming FOMC meeting should coincide with a low in yields which could lead yields back higher in July. For the next 1-2 weeks, Yield trends are negative.
US Dollar turned up sharply late last week, and additional Dollar gains look likely in the short run, which could prove to be near-term negative for Emerging markets and commodities.
Emerging markets turned down last week given the Dollar bounce, and this still looks to be an area that should weaken into late June with a bounce in USD.
Defensive sectors rebounded with Utilities, Staples and Real Estate all in the top tier of sector performance and outperforming Financials, Technology and Industrials.
Technology proved to be a laggard last week, with negative performance of -0.20% for the week vs a mild gain for the S&P. This weakness looks to persist into 6/20-5 before bouncing and could put pressure on markets given its size.
Crude oil failed to turn up sufficiently to think the worst is over, but is trying to stabilize ahead of the OPEC meeting later this month. The news regarding the Tanker hit did provide a minor bounce, but as charts will show below, not enough to negate the ongoing downtrend.
Precious metals strengthened further last week, with Gold having pressed up to very important resistance at 1360-5 while Silver also gained ground. When viewed in multi-currency form (and not just US Dollar), Gold did manage to achieve a multi-year breakout last week. Thus, any near-term weakness over the next 2-3 weeks given Dollar gains likely do translate into a chance to buy Gold at better levels. Above 1365 would be a very positive sign on intermediate-term strength to come.
Small-caps and Mid-caps have broken down in the last few weeks despite an above-average Equity bounce this last week. This is a bit discouraging, and definitely something to keep an eye on. As relayed last week, Mid-caps vs SPX in relative terms has hit the lowest levels since 2010.
Sentiment has improved slightly in the last week, both with Equity Put/call easing to 0.63 from prior 0.77 and with AAII polls narrowing the negative spread between Bears to bulls to just 7 points above.
Key ETF High Conviction ideas heading into this week
Short SPY from a trading perspective under 287 for a move down to 284. And longs recommended over 291.4 for a move up to 294
Short IYT now at 185-7 for a move back down under 180
Long US 10 Year Treasuries this coming week, with expectations of TNX getting down under 2.06 to a maximum of 2.00% which should be used to sell
Long XLV (86.65-87.50) for a move to 90 initially- Above 90 should bring 97
Short EEM (40.71-41.50) for a move back to 39
Short FXI (40.49) for a move back lower to 38-38.50
S&P futures hourly charts show the ongoing Triangle pattern that has been created by early week highs last week and minor consolidation throughout the week, with one higher low and one lower high since last week's minor peak. As of Sunday evening, highs were exceeded with the advance above Friday's highs which bodes well for additional upside into FOMC and after. 2884 is area of support which cannot be broken in this scenario.
SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:
Short-term (3-5 days): Early week Bullish with stops at 2884- Minor consolidation last week within ongoing uptrend, but trends have not turned lower and still looks right to favor additional strength. If weakness is going to happen in June, it's likely to take place over the next 2-3 weeks, with a key timeframe between 6/18-6/25 with 6/24-625 being important. If prices trend higher into this time period, it could very well end up being a minor high which leads to a pullback into end of Quarter. At present, trends have not turned negative but the consolidation has helped momentum become less overdone on intra-day timeframes. One should look to follow either strength or weakness this coming week, with the early week bias being bullish.
Intermediate-term (3-5 months)- Bullish- May's pullback, has not been sufficient to turn intermediate-term trends negative. 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 and SPX remains just 6.5% off all-time highs. The one important 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. Weekly momentum, has just joined Monthly in being negative, so at present, we have Daily, weekly and monthly MACD all negative. However, for now, price weakness has proven fairly benign, and we'll need to see some evidence of more serious breadth deterioration and more bullishness to have concern on an intermediate-term basis. Advance/Decline for Equities did peak out with indices in early May, while the Summation index has been negative since February. 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. However, the time period from mid-September into November could set the tone for 2020. Stay tuned.
10 Charts of Equity indices, commodities, currencies and Treasury yields
SPX- Near-term prices have stalled out, but as daily charts show, we've seen no meaningful deterioration. Momentum is positively sloped and not overbought, and prices have gone nowhere in the last week. Any decline in the next 1-2 weeks should be buyable for a push back to new highs. For now, it looks right to follow the price action. Above 2910 can lead back to former highs, while under last week's lows should lead to a max move to near 2845 which should be buyable. (Late Sunday night positive follow-through seems to be a bullish factor for Monday, exceeding the minor triangle consolidation. Longs still recommended, though with trading stops at 2884.
US 10-Year Yields remain bearish and pullbacks to test and breach former lows likely before an intermediate-term bottom. Last week saw yields turn down early in the week and not much relief as both Treasuries and Stocks both gained ground. As said last week, both daily and weekly charts are on the verge of the first confluence of downside exhaustion in over a year. This could allow for some stabilization and a trend reversal back higher in yields, though it will take another 2 weeks for this to materialize. The area at 2.00-2.06% looks important as this is not only a 61.8% Fibonacci retracement, but also lies right near March lows. Bottom line, further near-term weakness in Treasury yields likely into FOMC and the week thereafter. Yet Yields should be very close to an area which would allow for a counter-trend rally in Yields
Dollar breakout of the trend from late May is encouraging for additional gains in the next 1-2 weeks before the next big test. Last Friday's breakout of the downtrend is a good sign technically that a bounce is underway, and it's expected that Emerging markets likely lag in the weeks ahead on dollar gains. If USD stalls out before taking out prior highs and turns back down, this would be a potential sign that Commodities and Emerging markets could begin to turn higher. At present, it's expected that the Dollar strengthens further into end of month before any peak.
Gold looks to have made a very meaningful breakout last week when viewing this move in multi-currency form, as opposed to just US Dollars. When utilizng Elliott-waves Stable currency benchmark index which is composed of four currencies and not just US Dollars, we see that Gold has made a stronger move than what has been seen on regular $-dominated weekly charts which still require a move above 1360. This is bullish for Gold and on any backing off given the Dollar strength near-term, this should provide an excellent buying opportunity for a further push higher. It's expected that Gold should eventually turn back higher and take out 1360 which should turn the intermediate-term charts bullish.
China turning back lower when viewing FXI on a daily basis. The decline from late last week looks to have further to go, and could test and break recent lows before any sort of meaningful bottom is in place. Technically the act of violating 6/12 lows on a close is a negative as price has reentered the base that was broken last week. This can allow for weakness now back down to new low territory before any low is at hand. Downside targets are found near $38.50 or even $38 but should prove to be buyable.
China vs US- Relatively speaking, China v SPX in ratio form (GXC vs SPY) remains quite weak near-term, and as weekly charts show above, this relative relationship broke down under the lows from 2018 last week.
Counter-trend buys however are now at hand and could offer some stability into the end of June for a big counter-trend bounce. At present, however, it looks right to avoid China until end of month as nothing is in place yet, and this ratio chart has continued to drop. On a weekly basis, the technicals have shown some improvement over the last few years starting with the strength into 2017 and early this year, which managed to exceed the entire downtrend from 2010/2011. However, we'll need to see some signs of this starting to hold and turn higher in July. For now, it remains a near-term laggard.
Crude oil looks to weaken further given last week's deterioration and might trend lower into OPEC meeting before finding a low and turning higher. Trends and momentum are lower, and not all that oversold after the recent churning near the lows which has had the effect of taking momentum back out of oversold territory. Overall, it looks early to be long and movement down to test and undercut $50.72 looks likely which could take Crude to 48-49 area which should be good support to buy. Counter-trend exhaustion remains early for Crude but interestingly enough looks to line up right near the OPEC meeting. Thus, it's thought that the path of least resistance remains down, but should be close to bottoming and turning back higher. The Tanker strikes looked to have resulted in insufficient bounce in Crude to change the structure to bullish.
Technology's minor rally in June now looks to be stalling and rolling over again. Technology's underperformance last week was one reason to have concern given its 21% weighting in the SPX. While SPX held up in resilient fashion, it was the action of other sectors like Discretionary and Industrials along with Healthcare that successfully held the market up. Last week's performance was -0.20% the third worst performing sector of the week. Now relative charts of the Equal-weighted Technology ETF vs broader market has begun to turn back lower, as the daily chart shows above. This could put further near-term pressure on markets and looks to be weak into late June before a bounce.
Equal-weighted Consumer Discretionary ETF vs Consumer Staples ETF looks to be stabilizing and turning back higher after persistent weakness in the last two months. This peaked back in April but the pullback in relative form has held where it needed to and now turned back higher last week. This chart looks to be bottoming and could allow for outperformance in Discretionary vs Staples in the upcoming 1-2 months. Overall this would support the notion that stocks likely can rally further without any larger peak, and any near-term weakness likely is buyable.
Financials are holding up much better than expected given yields having dropped to the lowest closing levels since mid-2017. This sector started to turn up in March and now has been churning right near the longer-term downtrend line when eyeing XLF v SPX. While this looked to have been potentially broken a few weeks ago on daily charts, it was never confirmed on a weekly basis, and more needs to happen to think this group can have a meaningful move. Yet, it's thought that the path of least resistance, is in fact higher with Financials having held up very well in the face of yields being as low as they are and overall economic uncertainty.