July 1, 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: Gains back to new all-time highs for multiple US indices look likely sooner than later, as trade tensions seem to be easing at a time when technicals have improved based on June's strength, while sector rotation has made a number of very important positive moves in recent weeks. While it was just SPX that moved to new high territory lately, DJIA and NASDAQ remain within striking distance, and this past weekends G-20 news should serve as a bullish catalyst for Stocks to push back to new highs. Specifically the following seem important and positive developments: Financials and Transports both made outsized gains late last week, driving XLF up test a very important area of intermediate-term trend resistance (which after multiple retests, looks to be broken) Meanwhile the move in Transports carried this sector back up to the highest level since May. Moreover, Technology has slowly but surely recovered, with the Semiconductor gains helping Tech to regain about half of what it's lost since April. Additionally, defensive sectors like Utilities, Consumer Staples, and REITS all fared poorly, dropping greater than 1% on the week, and representing three of the four worst performing sectors. Thus this rotation back into "risk-on" type sectors while exiting Defensive groups was considered positive, particularly as no details of the G-20 had been released when this rotation was ongoing.
Additionally, indices like DJIA made new all-time high monthly closes, and breadth and momentum has been slowly improving given June's gains. It's also important to note that the NYSE "All stock" Advance/Decline has pushed back to new all-time high territory as of last week, on daily, weekly and monthly charts. Thus, structurally, US indices remain in good shape technically on daily and weekly charts and additional gains seem likely in the month of July, though likely could turn out to be a choppier rally than what was seen last month.
The negatives at this point have to do with Small-caps and Mid-caps continuing to move to new weekly and monthly lows vs the broader markets and it's really just Large-caps that have remained immune in recent months. Additionally, the number of NYSE new 52-week highs has bounced in recent weeks, though is well below levels seen back in 2015-7, and this is also a source of concern. Momentum on monthly charts seems to carry the loudest warning, and indicators like MACD remain negatively sloped and others like RSI have made lower highs since peaking out in very overbought territory back in January 2018. Thus, the negative momentum divergence looks to be an ongoing problem and won't disappear anytime soon, even with a move back to new highs in unison among the indices in the month ahead. However, until prices turn down sufficiently, it's right to stick with stocks
Outside of Stocks, both Treasuries and the US Dollar look to be on the verge of a larger turn back higher in the days and weeks ahead. This could take the form of a brief move to 1.90-5% for TNX and then turn higher to 2.25-2.30%, while DXY shouldn't spend too much time under 96 before turning higher to 97-97.50. This likely causes some stalling out in Emerging markets, which have proven strong over the last few weeks, but whose outperformance is thought to be temporary at this time.
Important Developments of this past week (Shown in Bullet form)
Given trade progress, electronic trading Sunday evening 6/30 shows Asia gaining ground while US equity futures are up sharply by +0.75-1.00% as the Yuan rallies. Meanwhile, Yields are bouncing, Crude has moved right under $60 while Gold has dropped back under 1400. (SUNDAY EVENING)
US indices remain within striking distance of all-time high territory heading into this past weekend's G-20. Momentum is bullish and not overbought, while Europe remains just below April highs and should get there this week.
Emerging markets have rallied given the recent decline in the US Dollar, but are likely to stall out this week given signs of Dollar nearing important support. China has been a laggard on the bounce back, barely recouping 38% of the prior decline from April
Breadth was constructive on last week's rally, but yet still meaningfully below levels hit back in February, according to McClellan's Summation index, a smoothed version of the Advance/Decline. The overall All-stocks Advance/Decline has successfully pushed back to all-time high territory
Treasury yields look close to turning back higher, which should occur within the next week. Downside targets on yields lie at 1.90-1.95% and further Treasury gains are thought to prove muted. Look to sell Treasuries on any decline ni yields this coming week, expecting a turn back higher to 2.25-2.35% into August.
US Dollar still shows a negative trend after last week's gains failed to exceed prior lows from early June. One can't rule out a final pullback to test Tuesday's lows at 95.84 in DXY but should be close to reversing course for a more meaningful rally in the weeks ahead.
Financials outperformed all other major sectors with gains of 1.47% in S&P GICS level 1 sectors last week, while Materials also showed strong performance thanks to MOS, BLL, AMCR, ECL, AVY, ALB, all higher by more than 3%. Financials are thought to be very close to a larger breakout
Defensive sectors underperformed badly which might seem odd given the lack of yields turning higher while a great amount of uncertainty remain in place ahead of this past weekend. However, outflows from Defensives is seen as a real positive for risk assets.
Crude oil stalled after reaching near-term resistance just under $60 ahead of this week's OPEC conference. It's thought that 60 should prove to be difficult to exceed, and Crude might consolidate its recent bounce following OPEC.
Precious metals began a much needed pullback given rampant overbought conditions with the US Dollar and Yield pullback, causing a giant breakout in Gold on an intermediate-term basis. Further near-term declines are possible for Gold as yields start to climb along with Dollar stabilization, but should represent an excellent buying opportunity into late July.
Small-caps and Mid-caps remain bearish, technically and relatively speaking remain at multi-week lows relative to Large-caps. While near-term stretched, the inability of Either of these groups to participate likely is a concern into Fall.
Sentiment has been fairly muted despite index gains of nearly 6% for June, with much of the uncertainty related to the FOMC meeting and Trade tension. On this latter part, easing tensions would create more optimism, which likely peaks in August with a possible market top.
SPX Cash index-
SPX overnight gains should carry this back to test and break out above April highs which should allow for a push up to over 3000 over the next 30-45 days. Near-term, this area at 2965 from last week should be important, but currently is being retested in Futures as of late Sunday evening. Given the level of uncertainty headed into this past weekend's G-20, S&P likely has a positive July, performance wise. Momentum and breadth have improved while structurally indices are still in good shape and sentiment will need to get far more bullish before thinking any sort of serious peak is near.
SHORT-TERM / INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION:
Short-term (3-5 days): Bullish- Overnight progress for US Equity futures likely should carry most US Indices back to new all-time highs early in this holiday shortened week. SPX targets above 2964 lie near 2983-5 and then up near 3000. While not expected, reversals back down under 2912 on a close would postpone the rally. For now, it's thought that overnight gains are right to follow, and its right to be long into the July 4 holiday
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 Financial space, Sector ETF's, Relative charts and 5 attractive Financials to consider here
XLF- Further gains likely given last week's progress, while Financials as a group lies near a very important long-term resistance area. Given the multiple retests of this long-term trend, this recent challenge from last week could very well mark an important breakout to this entire trend since last year. Technically it's thought that the move above the minor consolidation from 6/11 represented a very positive move. This should put this sector in position to begin a larger rally, just at a time when Treasury yields look to be able to bottom out technically. The area between $27.70 and 28.10 looks very important and i expect this area to be challenged in July. Movement over 28.07, the daily close from 5/3, would drive XLF up to at least 29.07, the highs from last September, very quickly, but likely result in a more broad-based rally in this entire group. For now, it looks right to position long, looking to buy dips and also add to longs on signs of a breakout.
Equal-weighted Financials vs the SPX shows a definite short-term breakout last week, given the rally above the recent downtrend (in Equal-weighted Financials ETF (RYF) vs the SPX.) This bodes well for outperformance in this group in the near-term. The daily chart in recent months shows two well defined lows followed by a higher low and then last week's breakout to turn back up towards the highs. This is a bullish development that suggests a rally back to former highs is possible as the pattern grows more constructive. Overall, this chart suggests Financials should start to outperform, and with a bit more progress, could be on the verge of a much larger move higher. For now, 4-6 week outperformance looks likely.
Equal-weighted Financials relative to the broader XLF shows progress since December, but overall still insufficient progress to expect broad-based strength out of this sector just yet. The last week's progress in KRE and XLF was not really matched by the equal-weighted space which shows this ratio having declined in the last couple weeks. Thus, for now, this remains some of the larger companies making up XLF that have performed better than the Equal-weighted group. When this changes, this would be an even better sign of Financials beginning to show more strength.
Regional banks have started to outperform the broader KBE, the bank ETF comprised of both money center banks, regional banks, and brokers. The daily chart of KRE to KBE shows a breakout of the intermediate-term downtrend from last Summer. This looks to be a significant development and warrants overweighting KRE, expecting Regional banks to show a bit more strength in the weeks and months to come.
European Financials have also begun to show some signs of life lately,with the Ishares MSCI European Financials ETF, or EUFN, rising up to test the downtrend from April. Thus far this group has lagged US Financials badly i the last couple years as part of a larger amount of relative deterioration which has been ongoing for the last decade. Until this group starts to show at least some minor signs of strengthening relative to US Financials, it should be right to sell into this groupk, and EUFN right at 18.15-.25 in the coming week. Breakouts above 18.25, however, would be constructive for absolute strength in this group, and should be watched carefully given that prices are up against this strong resistance level.
Ally Financial (ALLY- $30.99) Bullish, with last weeks breakout of the two month consolidation lifting this to right under last year's all-time high peak. Volume has expanded on this move, with 3 of the last 4 trading days showing totals greater than 5 million shares, which is the highest seen since mid-May. While the area at $31-31.65 could contain gains in the short run, the breakout in Financials likely helps this extend back to new all-time highs. Movement over 31.65 would represent a chance to add to longs, with targets up near $35. Overall, this is a bullish chart structure and momentum is not overbought given its consolidation. Thus, longs are favored, using any weakness as a chance to buy.
Federated Investors (FII- $32.50) Bullish, with gains over early June's $32.84 leading to a retest of all-time highs made last year of $36.76.Similar to other stocks within this space, FII has formed a bullish continuation triangle pattern from late April that now looks to be in the process of giving way to further gains. Last Friday's minor breakout pulled back a bit into the close, yet on a weekly basis, FII still made the highest weekly close since mid-April. Additional gains are likely up to test last year's highs as momentum is not too extended on either a daily or weekly basis, with the consolidation since April helping to relieve any temporary extended state. Overall, FII is attractive here technically and should be considered here or on any minor weakness. Only a pullback under $31.15 would change its technical picture.
PNC Financial Services (PNC- $137.28) Bullish with April's breakout of the 11 month downtrend likely paving the way for further gains in the weeks and months to come. Over the last month, PNC has consolidated its initial breakout but last Friday's push to 137.28 represented the highest weekly close since October 2018. Volume came in at 3.1 million on the day, the biggest volume day since early April. Thus, this move is seen as one to be followed which should lead prices up to $142.60 and then to test last Augusts highs just above $147. Former all-time high peaks lie near $163.58, and are considered a strong area of resistance, should this level be retested. For now, this stock looks very attractive to own, and one should give this serious consideration at current levels and on any minor pullback for the start of additional gains over the next couple months. Longs have important support near $126, which cannot be breached without postponing the advance.
United Community Banks Inc/GA (UCBI- $28.56) Bullish- Friday's breakout of the symmetrical triangle started in February is very encouraging for further gains and should lead this to test and exceed February highs at $29.79. The six month decline starting last June caused some real damage in UCBI, with losses of nearly 40%, but this has been steadily climbing since December and now looks to be ready to start the next leg higher. Given the four month consolidation from February, last week's breakout of resistance should help to jump-start this stock higher with targets back in the low to mid- $30's. Last June's highs were at $34.18, so this will be the logical first target when $29.79 is exceeded. Overall, it will pay to be bullish here, looking at buying dips , with only a weekly close under $26.81 postponing this advance.
T Rowe Price Group (TROW- $109.71) Bullish with expectations of an upcoming breakout of April highs that should lead back to last Summer's peak at $127.41. Looking at this stock's weekly chart we see TROW has recouped about 60% of what it lost since 2018 but remains still nearly 14% under all-time highs made around this time last year. The recent mild pullback from late April proved to be just five weeks in length before this pushed back in a series of higher highs and higher lows since early June. This has formed a nice 2 month base which is now being retested again. It's thought that a breakout of mid-June $110.50 should be imminent. Long positions are favored, technically, looking to add for a push higher as this continues up over the next 6-8 weeks. Momentum is not overbought on weekly charts and structurally this continues to improve. Only on a move back down under $105.56 would this rally be postponed.