June 24, 2019
Mark Newton CMT, Newton Advisors, LLC
S&P 500 Cash Index
Support: 2919, 2911-2, 2874, 2845-6
Resistance: 2963-4, 2971-2, 2985-8
Summary: Stocks remain in bullish short-term uptrends as part of intermediate-term uptrends but could be likely to stall out near former highs temporarily before additional strength happens into July. After 14 trading days from the bottom made on June 3, S&P has risen over 200 points, or 7.5%, at the rate of nearly +0.50% per trading day. Daily and weekly momentum are nearing overbought levels while intra-day momentum gauges are stretched and most certainly overbought. SPX was the lone US index to log a new all-time high last week, while DJIA, NASDAQ Composite fell short and are trading below highs made in April. Most of Europe shares this near-term challenge and has not yet risen back above April highs. Broader based gauges like the MXWO also seems to be near critical levels, and while over April highs, remains below those from last Fall. Overall, it's thought that US and European indices should push higher in July into August before any meaningful peak. However, at current levels, heading into this week's G-20 meeting and the upcoming OPEC meeting in early July, it looks right to hold off on initiating new longs here, as many sectors and indices are up against prior highs which might cause some temporary consolidation this week. The time of 6/24-6 is of key importance this month, as it's related to both the December 2018 lows and the September 2018 highs, so it's thought that if any consolidation is possible, it should start early in the week and likely conclude by end of week before a rally ahead of the July 4th holiday. Outside of Stocks, bonds furthered gains but look very close to reversing course and could do so as early as this week where yields bottom out at 1.90-5% before turning higher for 4-6 weeks. The Dollar meanwhile, has broken down sharply and moved quickly to its own key level of intermediate-term support. This bodes well for those looking for shorting opportunities in currencies like EURUSD or GBPUSD, and both could turn down into the month of July. Moreover, Emerging markets likely also might experience some temporary headwinds after their outperformance these past couple weeks. While near-term trends have been bullish for Crude, Gold and other commodities along with the EM space, including china,, these are all facing headwinds in the short run, and could consolidate recent gains. Bottom line, the trend in Stocks bonds , gold and oil might stall out temporarily this week , but it's thought that Treasuries stand the greatest chance of a larger trend reversal based on concepts like oversold conditions, momentum divergence and sentiment. We'll explain the thought process here and show some charts for illustration purposes below.
Important Developments of this past week (Shown in Bullet form)
US and European indices all pushed higher above near-term resistance and the breakout on Tuesday allowed Stocks to surge up to April highs, with SPX having finished briefly above to new all-time high territory
Breadth was constructive on last week's rally, and momentum remains bullish. Yet many indices and sectors now lie right at April highs which might cause some stalling out early in the week
Treasury yields remain negative but are now primed to reverse course, which should occur sometime in the next week. Any decline early in the week in US 10-year Yields down to 1.90-1.95% would be a very good risk/reward area to take profits and consider betting the other way for a meaningful bounce in Yields in July. This looks like an attractive technical risk/reward heading into July.
US Dollar gains reversed down sharply post FOMC meeting and trended down severely to right near key intermediate-term support. While the intermediate-term trend for USD remains neutral since May 2018, the short-term trend is bearish for USD but should hit support this coming week and turn back higher for a bounce into July.
Emerging markets were up sharply given USD weakness, and China, Taiwan, Korea all showed very good gains this last week. This looks to continue this final week, but many are getting stretched and near resistance to sell into by early July and likely will pullback if the US Dollar stabilizes.
Technology roared back to life with a big move higher out of the Semiconductor and Software groups as Trump announced that he would be meeting with President XI of China this coming week. This sector was higher by 3.32% and is thought to be heavily influenced by the prospects of a trade deal. Additional gains in Tech likely into August.
Healthcare extended its recent breakout and is now the 2nd best sector for the last month, higher by 5.36%. So despite this sector still being the worst performing group of the year, higher by just +8.36%, it's showing some definite signs of strengthening meaningfully into this seasonally bullish time for the group.
Crude oil spiked up sharply given the Iranian strike on the US Drone last week, and the move above $55 helped to reignite Crude's bounce as it broke out above the minor downtrend in place. It's likely that Crude fails to get above 60 before stalling and turning back lower, but for this coming week, additional gains look possible into the OPEC meeting in early July.
Precious metals rose sharply with Gold having finally managed to exceed its long-term consolidation highs at 1365 that have been in place since 2013. Momentum grew very overbought after Gold's rise of 100 points in the last month, but this is thought to be a significant intermediate-term bullish development for Gold and any pullbacks into July should provide attractive buying opportunities.
Small-caps and Mid-caps failed to strengthen vs the broader market this week, even on a push back to new highs for the SPX. Both extended losses relatively speaking. While a bounce in both looks likely in July, the extent of the dropoff in both groups is a concern for the months ahead.
Sentiment continued to improve over the prior week with the CBOE Put/call ratio for Equities dropping to 0.53 and AAII poll narrowing back to nearly even between bulls and bears
Key ETF High Conviction ideas heading into this week
Short SPY from a trading perspective at 294-296.30 for a move down to 290 or below that at 287. Above 296.30 its right to cover shorts and be long for move to 298
Short IYT now at 186-8 for a move back down to 180
Long US 10 Year Treasuries at 2.05 to 2.08, expecting move down to 1.95 which is an area to take profits and bet on yields reversing higher .
Long XLV (86.65-87.50) targeting 95-95.50
Value Line Arithmetic Avg is nowhere near April highs, still meaningfully below along with last Fall's peaks. This is important given that this Average is a far more broad-based average than the SPX, and dispels the notion that markets are really breaking back out to new highs.
SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:
Short-term (3-5 days): Early week Bearish with stops above 2964 on a close. Overall, trends remain bullish but just stretched and up against levels which could lead to a stallout this week, particularly on 6/24 which has time relationships to both last December's lows (180 calendar days) and to last September's highs (270 calendar days) Many indices and sectors have not shown the same degree of strength as SPX, and SPX showed a few signs of stalling and reversing late Friday which could lead to some early week carryover, to the downside. After a 200 point rally in 14 trading days, or nearly 7%, this looks to be a spot where prices can stall. However, getting back over last Friday's highs on a close would result in even further gains to 2980 and one should hold off on trying to sell if prices close above last Friday's highs.
Intermediate-term (3-5 months)- Bullish- Move higher to 3040-70 likely into September before any meaningful peak. 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 reached former peaks from April and upside might prove limited after 200 S&P points over the last 14 trading days. Counter-trend exhaustion remains premature however, and sentiment remains largely still subdued. Thus, any pullback this week likely should prove to be an attractive buying opportunity for a move up to 3040-70 which has a number of technically derived targets. Overall a brief move to new highs isn't necessarily all that bullish in this case only because it's happened before in this structure where prices attempted to break former highs in January and also in September of last year before failing. While momentum and breadth are still in relatively good shape, if one wants to pick spots to sell into this for a 3-5 day basis, this doesn't look bad in the near-term.
US 10-Year Yields are close to turning back higher and this could come about over the next 2 weeks. While trends are bearish and one can't rule out a move to 1.95%, both price and time targets look to be near. Momentum is oversold, while Demark exhaustion is present on both daily and weekly charts. Overall, it looks right to use any early week Treasury strength to take profits and start to bet the other way, for an above-average move higher in yields into July and August.
Dollar decline looks to be nearing its 1year trendline support, but this might offer a chance to sell into EURUSD, GBPUSD, while betting against Emerging markets and Commodities. At present, this still looks to have another few days of moving lower this coming week, but once this reaches trendline support, it will be right to consider a bounce.
Gold looks to have finally made an intermediate-term breakout in USD terms, after last week climbed above 1370, exceeding peaks going back since 2013. This is a very bullish intermediate-term move, though near-term could stall given the extent of the advance in the last month. Momentum has gotten very stretched, and it's likely that 1425 could hold the first move up and then some brief consolidation before the advance continues. Bottom line, Gold looks quite positive technically on a long-term basis for the first time in over five years. It's right to own in small size and use any pullback to add to positions.
Copper made its first meaningful breakout of the downtrend from earlier this year on a rise back up above 270. This is a positive development and suggests a Double bottom to the lows from early 2019 is at work. Movement over 275 should drive Copper up to 285 and then 300. Only on a move back under 260 would this rally be postponed.
Emerging markets have made a sharp rebound in recent weeks given the decline in the US Dollar. Ishares MSCI Emerging Markets ETF managed to climb back over $42.29, the 50% retracement level of the April decline that had held on the first rally. Targets at this point lie near $43.50-$44 but should be used to pare down longs, as the Dollar is nearing very important short-term support. Given that this rise, directly coincided with Dollar weakness, any signs of Dollar strength would now lead this back lower. For this week, gains look likely and important to highlight the snapback in the EM space.
Crude oil looks to have a bit more strength into the OPEC meeting but should be considered a "sale" if/when this can get back to 60, the area near former lows. Crude experienced its largest move of the year last week when it was learned that Iran had shot down a US Drone, escalating tensions and providing a meaningful rebound in WTI. Prices getting over $55 was thought to be bullish and stopped out shorts. Gains seem likely up to 58.50 this week, the 50% retracement of the prior decline. Additional targets are found near $60 whic marked the initial lows early in May and should represent strong resistance. Overall, unless prices can get over 60, this is thought to be a short-term bounce only and should present selling opportunities into the OPEC meeting in early July.
PutCall Ratio on equities has gotten near extreme levels on daily charts that argue for a possible stalling out to the Equity rally, as this has gotten compressed enough to show calls being bought over puts at a near 2/1 ratio. Often this can prove to be temporarily bearish for stocks as everyone is betting that stocks can rise via call options which ordinarily tends to be poorly timed at the extremes.
AAII, as one measure of individual investor sentiment, has gotten less bearish over the past two weeks, and now shows a near EVEN ratio between bulls and bears, a spread of just -2.6 as of last Thursday. This is important to show, because despite the gains in stocks over the past few weeks, investors still look to be guarded, given the lack of a trade deal and signs of global economic slowing. These are a larger bullish sign for the stock market for now, but as this starts to climb to the ohter side of the spectrum on further market gains in the next couple months, it will be important to monitor.
Russell 2000 vs SPX continues to fall to new lows, despite the broader market rally. Neither Small caps, nor Mid-caps have participated of late, and this seems to have the potential to be a larger problem for the market into the Fall if not erased. Counter-trend buy signals via Demark indicators have just arrived on daily ratio charts of RTY/SPX, so it's important to monitor whether this can bounce into July, or remains near lows.