Please enable javascript in your browser to view this site!

TNX

Top Stocks to Consider Technically

 

February 6, 2017

S&P MAR FUTURES (SPH7)
Contact: info@newtonadvisor.com

2280-2, 2273-4, 2264-5               Support
2300, 2310-2, 2318-20                Resistance

 

SPX's surge back to recent highs managed to help the index close positive for the week and eliminated the short-term concern about this recent consolidation experiencing a downward break.  The ability to close back over the prior week's highs should help S&P push up to at least 2315-20 in the short run, and pullbacks should be used as buying opportunities.

 

What a difference a week makes
Last week's ability to push back to make new all-time weekly closing highs confirms the prior week's breakout as being "legit" and gives much conviction towards the thinking that a rally back up to 2315-2320 is underway.  While volume came in less than prior sessions on the latest Breakout, we did see breadth expand to nearly 4/1 positive.  Financials showed very strong performance, which despite the early Bond strength, still managed to move back to multi-day highs (and by end of day, Rates had moved back higher) Healthcare also managed to further its recent outperformance, and despite the ongoing rhetoric on Drug pricing, sub-sectors like Biotech, & Pharma still have managed to stabilize and turn up sharply.  Meanwhile the US Dollar index's decline still looks to be ongoing, while yields have also continued their recent upward trend.

While there were notable negative reasons of late to think this recent consolidation could in fact lead lower, and many were betting that the low Vol levels coupled with this stallout should in fact lead prices lower, the combination of the structural positives in terms of the pattern improvement coupled with the heightened tension and uncertainty which the Inauguration has brought about, still seems to favor being long for a move back up over 2300. 

When considering the possible negatives, the lower number of stocks trading above their 10 and 50-day moving averages (m.a.) seems to be something that merits attention, as these gauges were at/near yearly highs back in early January and even last March-July while being quite a bit lower of late (2/3/17) value of 65% of stocks trading above their 50-day ma vs 85% back last year.  Additionally, the fact that Small caps have been declining in relative terms since December of last year is also worth mentioning as a concern.    Additionally the Summation index remains lower than it was in late January, and still well off the highs seen last Summer.  What this means is that the momentum of the breadth has slackened off severely in recent months, and despite the Advance/Decline near all-time high territory, the dropoff in participation in some sectors seems to have hurt the recovery effort to some extent.  Despite the fact that indices are at or near all-time highs, we still have fewer stocks participating, which will need to be monitored closely in the weeks ahead.

For now though, last week's breakout looks solid, backed by good breadth numbers while Demark exhaustion counts still remain premature to form on daily charts.  Therefore, movement back to new highs represents a better time to consider selling into this rally than now.  Given that Healthcare has begun to join the fray and Financials are showing some evidence of trying to break out again of the recent consolidation, the combination of these along with a noted lack of weakness out of Tech are definite near-term positives. 

Given that yields continue to be resilient, the key message should be to favor the Financials, Healthcare, Tech, while being more selective on what to own in Industrials and Materials.   The US Dollar index's decline still looks to have a bit more to go on the downside, so this should favor Metals and Mining stocks still showing more outperformance in the near-term. 



SHORT-TERM/ INTERMEDIATE-TERM TECHNICAL THOUGHTS ON SPX DIRECTION

Short-term Thoughts (3-5 days) : Bullish- Push up over 2300 likely in the near future given last week's surge to exceed the highs of the recent consolidation.  Breadth expanded on the push, and indices improved their near-term structure in a manner that makes rallies much more likely than declines in the next 1-2 weeks.  Use pullbacks to buy with initial targets near 2315-2320. 


Intermediate-term Thoughts (2-3 months): Neutral-  No change- Buy pullbacks for rallies into late Spring-  Overbought conditions combined with counter-trend sells and waning participation all look to be important in signaling that this year might turn out far differently than the Bulls expect.  For February, Equities definitely appear like more of a poor risk/reward given the degree of lift since the Election that has carried prices well above the Bollinger band 2% Standard Deviation on weekly charts.  Yet the longer-term structure for Equity indices certainly remains structurally bullish, and until there is evidence of some type of technical deterioration, it's difficult to go against the trend outside of making a short-term tactical call based on seasonality, sentiment and overbought conditions.  Overall, selloffs should prove muted and bottom into early March before a rally back to highs which could produce no net change over the next 2-3 months.  Thus, the trend for now is neutral on an intermediate-term basis, with the prospects for further rallies looking increasingly dim, despite the breakouts to new highs.

 


Charts of 10 Technically attractive stocks to consider following last week's breakout
 

 


Bank of America (BAC- $23.29) BAC has quickly gone from one of the worst Financial stocks in its sector to one of the best in the last few months, and currently is primed to break back out to new highs in the months ahead.  Financials leapt higher post FOMC this past week, helping BAC to close back near the highs of the range that's dominated since the middle part of December.   BAC's 40%+ gains from Election time into last December look to have been fully consolidated, with momentum pulling back to less overbought levels, while the stock's "flag" consolidation is likely to be resolved by a quick move back to new highs (which could have begun late last week)  Long positions are favored, looking to press longs over $23.55 which should allow BAC to move to at least $25.  Only a move back down under $22.50 would negate this rally potential, which for now, looks to be an alternate and less preferred scenario.
 


Citrix Systems (CTXS- $76.70)  Another interesting risk/reward from within the Infrastructure Software space is Citrix Systems which has just broken out above highs that have held since 2011.  This brings CTXS up to the highest levels since 2000, and should allow $CTXS to move back to the low $80's at a minimum, with intermediate-term targets back near all-time highs in the high $90s from March 2000.   In the short run, momentum has neared overbought levels given the recent surge over the last couple months, and CTXS maintains a steep uptrend from last year's lows.  While many might be concentrating simply on the last few months, it's important to put this move into context of the stock's long-term structure.  Quite often, breakouts of this sort allow for additional follow-through sooner than later, and it's wise to stick with this, rather than holding out for pullbacks.  At any rate, longs are favored and any weakness back to the low $70's should constitute an excellent buying opportunity.

 

 


Norfolk Southern (NSC- $120.46) NSC's ability to weather just a minor pullback attempt since late January and push immediately back to highs bodes well for this to continue its recent acceleration since November, and push higher up to $125 in the near-term with intermediate-term targets at $135.   While the Industrials sector has stalled a bit in the last month, the Rails have consistently shown very good outperformance and structurally remain one of the better parts of this group.  NSC exceeding late 2014 highs looks important, and despite being overbought, should help this continue higher in the short run.  The act of getting back above a former high from 2+ years ago often can serve as a source of near-term acceleration for a stock, and in this case, longs are favored with thoughts that little resistance lies in the way now that NSC is back at new all-time highs. 

 


Union Pacific (UNP- $108.51)  UNP has been a consistent leader since early 2016 but remains still roughly 13% under all-time highs from early 2015.   Its pattern is not unlike other Rail stocks like NSC, but the trend of higher highs and lows has begun to take a steeper rate of ascent of late, and should help this get back to new all-time highs in the weeks ahead.   Initial resistance lies near $111 with movement over leading this up to near $120.   Stops for longs lie near $101, but the path of least resistance for now remains to the upside, and longs are favored.
 


Fluor (FLR- $55.66) The near-term pattern of FLR is more bullish technically than the long-term, but the stock's recent basing following the late 2016 breakout is positive and should let this trend up sooner than later to test and exceed late December highs at $57.77.  Momentum remains positively sloped, and the fact that FLR moved up to the highest weekly closing level since mid-2015 creates an attractive risk/reward situation in a stock which is not terribly overbought.  FLR remains nearly 50% off its all-time highs from 2008 and over 30% off highs made just three years ago in 2014.  Overall, the combination of the near-term pickup in momentum coupled with the lack of overbought conditions bodes well for further gains in the months ahead.  Upside technical targets lie near $61.70 initially with intermediate-term targets between $65-$67.  This represents a 50% retracement of the stock's 2008 high to low range, along with a 61.8% retrace of the stock's decline from 2014.  Overall, FLR looks attractive to buy here and pullbacks to the low $50's would afford better risk/reward opportunities as part of this near-term uptrend from 2015.

 

 


Newmont Mining (NEM- $36.76) NEM looks attractive as a Gold mining stock given the combination of its recent breakout of the range since early January coupled with the fact that it's been such a dramatic underperformer during this recent Gold runup.   While the top-tier of the S&P Metals and Mining ETF constituents are up 24% or more in the last six months, stocks like NEM are down more than 18% during this same time span.  However the jumpstart in momentum of late is noticeable and bodes well for additional gains in the weeks/months ahead.  Its close last Friday finished at the highest levels since November, breaking out of a minor pattern as well as having already exceeded the downtrend from last Summer.  Momentum is not overbought and NEM looks like an excellent risk/reward to continue this recent surge in momentum considering Gold could rally to near 1245-55 before any bounce is complete.  For now this looks appealing.

 

 


AmerisourceBergen Corp (ABC-$89.28) ABC looks appealing technically given the recent improvement in structure and momentum following its breakout of long-term downtrend line resistance coinciding with the gradual improvement in Healthcare in the last couple months.  ABC successfully bottomed out right near its 50% retracement of the runup from 2008/9 into early 2015.  While monthly momentum gauges like MACD remain still slightly negative, they're improving rapidly given this recent breakout and are on the verge of turning back positive.  Given that ABC remains more than $30 off its all-time highs, the stock looks like an excellent technical long for a 3-5 month basis given the jumpstart in momentum of late.  Longs preferred here, looking to buy any dips given the chance, down in the mid-$80s for a move up to $95, then $100.70 which represents a 61.8% retracement of the prior pullback from two years ago. 

 


Merck & Co. Inc. (MRK- $64.29) Yet again, MRK finds itself back up towards recent highs after a recent stalling out on the retest from 2014 levels.  The stock remains quite attractive technically, having formed a massive long base which began over 15 years ago.   The pattern since the late 2007 highs alone represents a massive intermediate-term Cup and Handle pattern and movement over $65 on a monthly close should help MRK to accelerate up to near-term targets in the low $70's.  While many might look at MRK as being still largely range-bound, the near-term improvement in momentum on last week's gains should help the stock to break-out of this pattern sooner than later, given that its made its way back to highs in just a relatively short period of time following the recent stallout.

 


Halliburton (HAL- $56.58) HAL looks well positioned to continue higher in the months ahead following WTI Crude's ability to stabilize during a time of traditional seasonal weakness.  Given that Oil typically tends to turn up into the Summer months, a move higher in Crude should help Energy to continue its recent gains, with targets on HAL up near $70 with July 2014 highs near $74 being important.  The uptrend in HAL has not shown any signs of wavering in the last 12 months, and this remains a solid technical risk/reward within the Oil Service space.  Pullbacks to the low $50s would offer attractive opportunities to buy HAL, and only a move under prior months lows on a close would represent a cautionary sign that could lead to possible weakness.  For now, additional gains look likely, despite some recent signs of waning momentum as the monthly charts still look quite attractive.

 

 


Valero Energy (VLO- $65.51) VLO's minor weakness of late represents a likely good opportunity to buy dips, given the ongoing strengthening in the Refiners in general since last Fall.  This stock's weakness has failed to severe meaningful Ichimoku Cloud support, and the decline looks to be stalling out.  This should represent an attractive opportunity to buy with targets up near $71.40 and then $73.88, the highs from late 2015.  What most weekly charts don't show, however, is the presence of a large Cup and Handle pattern, when going back since 2007 highs, so any move back up through $73.88 would be extremely bullish, and not necessarily the opportunity to sell into the move which investors wouldn't notice who haven't scanned the long-term charts.  Gains back to the low $70s look likely, with a keen eye on 2015 highs.
 

 

Disclaimer:

This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein, and may be subject to change without notice.   Newton Advisors, LLC has no duty or obligation to update the information contained herein.   Further, Newton Advisors, LLC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.  The information provided in this report is based on technical analysis. Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer. The investments discussed or recommended in this report may not be suitable for all investors.  This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction.  Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.  

Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.  Newton Advisors, LLC believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.  From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report: HAS, INTU, AMT, and LRCX.  This report, including the information contained herein, has been prepared exclusively for the use of Newton Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Newton Advisors, LLC.

 

 

NEWTON ADVISORS WEBSITE

 

 

Newton Advisors, LLC. info@newtonadvisor.com 203-339-2944

 

Any early week pullbacks should be used to buy- Newton's Notes Weekly Technical Perspective 070516

July 5, 2016

S&P SEPT FUTURES (SPU6)
Contact: info@newtonadvisor.com

2084-6, 2073, 2057-8, 2043      Support
2104-5, 2119-21, 2131-3                Resistance

 

V-shaped recoveries are notoriously difficult to profit from, as investors take down risk during declines only to miss the subsequent rally, which in this case has completely recouped the decline

 

Key Takeaways

Near-term pullback likely, but should be used to buy for move back to new highs.  S&P's complete recovery has been nothing short of astounding as the post BREXIT rally managed to recoup all of the losses seen in those two days (6%) causing a V-shaped pattern that typically is very difficult to profit from.  The four-day (5%) rally has left prices at the highest weekly closing levels since last July while putting prices yet again within striking distance of all-time high territory in the US.  While near-term overbought conditions are present on intra-day charts of SPX,  Advance/Decline on NYSE "All-Stocks" has moved back to new all-time highs, creating a difficult decision for those wishing to consider selling into this move to take anything more than short-term profits.   Bottom line, the near-term view (3-5 days) suggests selling into this rally and allowing for consolidation, while the intermediate-term view (2-3 months) suggests holding longs for a move back to new all-time highs. 

The bond market has largely ignored the equity move and plummeting rates in the US have followed Japan, Germany, Switzerland and others to new multi-month lows while the Economic situation hasn't changed too dramatically for the US.  The 10-Year and German Bund yield both look to be close to bottoming, which could happen as early as this week given counter-trend signals based on Demark indicators.  Moreover, any uptick in yields likely serves as a further positive force for equities given the tailwind for the Financial sector.  For now, the near-term Treasury and Bund trends remain positive, but downside for yields here looks limited.

Gold and Silver broke back out to new weekly closing highs last week, while Sentiment in Silver has reached climactic levels of bullishness per Daily Sentiment index (DSI) that could allow for some backing and filing in this move in the metals starting mid-week.   Technicals have turned more bullish on the Precious metals of late following the failed breakdown from 6/16-24 that immediately reversed back to highs.  Yet CFTC data shows Speculative longs reaching levels that have coincided with peaks in price in the past.  Near-term, the advance is extended, but might not peak out until end of week.  Moreover, given the positive technical improvements, we'll need more evidence of technical damage before turning too bearish on an intermediate-term basis.

Utilities and Telecom showed better performance than all other sectors this week despite a sharp 3%+ rally, and given the ongoing Yield decline, still look to be able to make progress in moving higher this week.  Once we have greater evidence of yields starting to turn up along with US Stock indices breaking back out to new high territory, it will be right to fade both of these groups.




Short-term Thoughts (3-5 days) :  Upside should prove limited after S&P's 5%+ push in the last four days, with strong overhead resistance at 2119-20 in Futures and Cash index which remains an important area.  However, the improvement in Healthcare and Industrials in the last week could help markets start to trend better, as NYSE "All stocks" advance/decline has moved back to new high territory.


Intermediate-term Thoughts (2-3 months): Bullish- (No change) -A move back to new high territory is expected before indices turn down to begin any larger correction.  The BREXIT decision caused meaningful declines in most of the world, yet US indices failed to show much, if any structural deterioration, and the pickup in Bearish sentiment as seen by VIX move, Equity put/call spike to pessimistic levels while TRIN spiked over 2% and indices remain within 3.7% of all-time highs looks to be an important factor arguing that further selloffs could prove muted for the time being.  From a fundamental and macro standpoint, factors like ongoing revenue concerns, FOMC uncertainty, China & Emerging market growth, along with Election year angst have all served to fuel bearish sentiment steadily for months.  Now the BREXIT decision and plummeting interest rates have all but guaranteed that the FED will be on hold, despite any meaningful downshift in US Economic growth.  The Advance/decline recently moved to new all-time highs and breadth and momentum remain on solid footing, all which suggest any decline in the near-term should be used to buy selectively, and with the start of positive sector rotation towards Technology Healthcare with any sign in yields holding and turning up being a real positive for Financials.

 

Last week's push back above 2100 helped the SPX close at the highest level since June of last year, and just barely a stone's throw from all-time high territory.  For now, more reasons are bullish than bearish as to why stocks should move back to new all-time high territory, and pullbacks this coming week should be used to buy for movement to new highs into August.

 

 

US 10-Year Yields have now pulled back to test areas last hit back in mid-2012, which should be strong support to buy for a snapback rally in the weeks ahead.  3 reasons stand out as being important for why yields should bottom out, the first being this former area of key lows from four years ago.  Second, signs of positive divergence are now present on daily charts, with the recent pullback to new lows in yield not being followed by a similar move in momentum.  Third, sentiment is once again approaching Bullish levels, per DSI (Daily Sentiment index) as most investors have accepted as common fact that US Treasuries should be a common safehaven to own as global yields move rapidly towards negative territory.   While intermediate-term trends remain firmly negative for yields, the near-term pattern suggests a greater than average trading bounce should be "right around the corner"

 

 

Junk bonds certainly haven't reflected any of this fear seen by most of the globe and very little sign of anything other than just a flattening out in JNK in the last few months.  Given that prior selloffs in the past year were led down by High Yield, this resilience could lead up to near $36 before any peak arises.

 

 

Europe remains much worse than US Equity markets as viewed by the continued failure of SXXP to be able to mount any kind of rally that helps SXXP regain the trend which was broken while most European equity indices are trading 17+% off all-time highs vs just 1% for the US.  For now, no meaningful signs of any kind of mean reversion that would suggest US should begin to trend lower, and the divergence seems to be widening of late. 

 

 

Utilities have gotten stretched, but we still have insufficient reasons to sell into this trend, outside  this trend, outside of 2-3 day overbought conditions that could lead to minor weakening in price.  For now, prices are halfway home to the target near $54 which was talked about last month in the Weekly Technical Perspective, and it's likely that higher prices can happen , with pullbacks proving temporary this week.

 

WTI Crude oil's peak in early June led to some flattening out in the bull trend from early May, but really hasn't done much in terms of altering the bullish trend since January of this year and if anything this consolidation is beginning to look very choppy and overlapping in nature.  Any move back over $50 should lead to new monthly highs, and allow for this uptrend in Crude to likely continue higher into mid-September before any real peak.  Bottom line, it's tough fighting this uptrend in Crude and its increasingly looking like a challenge of this year's highs could be in store in the weeks ahead.

 

Gold, when viewed in multi-currency form, has broken out of the flag consolidation form that's been in place since February of this year.  While prices are stretched near-term while sentiment is growing increasingly more bullish, the move in Gold and precious metals in general has been a real positive of late after a shakeout decline into mid-June failed to gain much traction.  Gains to 1400 could occur, but would be used to sell and buy pullbacks over the next month.

 

 

Brazil's ETF, the Ishares MSCI Brazil Capped ETF, has broken out back to the highest levels since mid-2015.  While prices are stretched after hitting new highs, any pullback in the days ahead should be buyable for continued strength given these technical improvements.

 

 

NYSE "All-Stocks" Advance/Decline, has moved back up to new all-time high territory on a weekly closing basis after testing initially into mid-June.  This has bullish implications for Stocks given historical precedent, and breadth and momentum remain strong right now.

 

The Net number of New highs vs New lows has moved back to the highest levels since mid-2014 over two years ago as of last Friday's close.  Given the ongoing uncertainty coupled with bullish breadth and momentum, it's likely that stocks move higher into August back to new all-time highs before any real pullback.

 

 

Disclaimer:

This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein, and may be subject to change without notice.   Newton Advisors, LLC has no duty or obligation to update the information contained herein.   Further, Newton Advisors, LLC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.  The information provided in this report is based on technical analysis. Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer. The investments discussed or recommended in this report may not be suitable for all investors.  This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction.  Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.  

Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.  Newton Advisors, LLC believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.  From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report: HAS, INTU, AMT, and LRCX.  This report, including the information contained herein, has been prepared exclusively for the use of Newton Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Newton Advisors, LLC.

 

Dips should be used to buy ahead of BREXIT vote

June 20, 2016

S&P SEPT FUTURES (SPU6)
Contact: info@newtonadvisor.com

2050-1, 2040-1, 2022-4                              Support
2071-2, 2083-5, 2100, 2112-3, 2130-2       Resistance

 

 

 

Key Takeaways

1) Mild stabilization doesn't equate to LOWS in equities-S&P trend has begun to try to stabilize a bit, though remains down from 6/8 and insufficient proof of a low is in just yet to justify a bullish stance.  Above 2085 would suggest the lows for this move are likely in place and give confidence for a move back up to new highs.  For now, given that indices closed down on the week and Treasury yields still look to have additional downside, it's important to wait for more proof before trying to buy SPX at 2071.  The near-term trend suggests one final pullback under last week's lows could materialize early in the week ahead of the BREXIT vote, and this might be better to buy, before assuming prices can simply lift up to highs in absence of any news/vote.

2)  Bond surge still looks to have more to go- Friday's bounce in yields should prove short-lived, and give way to additional pullbacks over the next few weeks into early July before a meaningful low in Bond yields is in place.   The move has gotten stretched ahead of the BREXIT vote, and appears to be solely on the basis of Global yields selling off, more so than any judgement as to lack of US economic growth.

3) Seasonality suggests next week could prove negative, based on historical trends.   Stock Trader's Almanac data states that the period after the Triple(Quad) Witching expiration in June has been "DOWN" the last 22 of 25 years. Also, since 1991, of 31 down Triple Witching Weeks, 22 following weeks were also down.  Last week in the S&P was lower by 1.2%, so given the negative momentum and lack of sufficient bullish price action thus far, this week could very well also be lower.  Getting past the BREXIT vote should eliminate some uncertainty, and allow for stocks to rise.

4) Volatility has begun to rise in a strange manner with a flattening of the VIX term structure very early on in this recent decline from early June.  The Total Put/call ratio hit the highest levels since January last week, while the 5-day moving average was up over 1, near early May highs.  Credit Suisse's Fear Barometer hit the highest levels ever last week, which is based on Out of the Money options, and 5 different volatility ETN's which are based on the CBOE VIX traded high enough volume to make up over 4% of total volume.   Much of this could represent hedging given little underlying selling in the indices, but for now, an interesting phenomenon, and something to keep watch of.

5) Currencies will be front and center this week with both the Pound Sterling and EUR/USD lying near key levels ahead of the BREXIT vote.  Any breakdown in either Sterling or Euro vs USD that causes a move in the US Dollar index back over 96 is thought to be quite bearish for Commodities, and could accelerate the Earnings shortfall in future quarters.  1.11 is a key level for EUR/USD and a breakdown of this would suggest a move down to Par vs the US Dollar.

6)  Sector-wise, Telecom and Utilities managed to beat out all other eight sectors, as the yield decline caused a rush towards high yielding stocks while Financials lagged, as might be expected.  Furthermore, the three worst sectors last week (Healthcare, Technology, and Financials) were also the three weakest for the year as a whole after the first five months of the year.  In one interesting shift, Consumer Discretionary managed to outperform Consumer Staples despite a "down" week for the market. 

7) Divergences remain abundant with the SPX trading well above where EuroSTOXX 50 and most of Asia has trended in the last month, and SPX also has held up better than what the traditional relationship of how stocks and bond yields, USDJPY have shown.  For now, this doesn't suggest that SPX needs to necessarily pullback and join the others, but it is a concern given how tight the correlation has been with SPX to others, and important for SPX to remain above May lows.



S&P 500

Short-term Thoughts (3-5 days) : Bearish for a move back down to new weekly lows- Above 2085 would turn the trend bullish.   If a surge back above 2085 happens at this point, given of the recent bearishness, it would be right to trust this move and think that a move to new highs is possible.  For now, Most of the structure, while indicating some minor consolidation in place, can still allow for a bit more weakness before any bigger low in place, and very difficult to see a real rally given the amount of seriousness that the market and financial media have made this upcoming BREXIT vote.  Given that the market still largely expects a "STAY" vote, according to polls and UK betting sites, where real money is placed on the outcome, getting past next week should be a real positive, helping to clear up some uncertainty.  A "Leave' vote, would likely result in a huge decline in GBP and Euro vs the USD which would have bearish implications for Gold.  With regards to equities, dips should be used to buy


Intermediate-term Thoughts (2-3 months): Bullish-  (No change) - A move back to new high territory is expected before indices turn down to begin any larger correction.  The uptick in bearish sentiment given that indices are within 3.7% of all-time highs looks to be an important factor arguing that further selloffs could prove muted for the time being.  From a fundamental and macro standpoint, factors like ongoing revenue concerns, FOMC uncertainty, China & Emerging market growth, along with Election year angst have all served to fuel bearish sentiment steadily.  Meanwhile technically, despite the short term churning, there remains precious little to be all that concerned about given the medium-term picture.  The A/D-Advance/Decline for the NYSEhas recently moved back to new all-time high territory while weekly momentum remains bullish.   The 5-day Put/call ratio meanwhile has hit the highest levels since mid-February while AAII polls show a greater number of Bears than Bulls for the second straight week.  In addition, the total Put/call ratio has hit the highest level in over three months.  Sector-wise, the start of Technology outperformance in the last week could be telling, as the NASDAQ has begun to act a bit better after a lackluster few months.  While this six-month period remains seasonally weak and daily and monthly MACD are negative, gains should be able to hold indices up into late August before any pullback into the end of Q3. 


Technical review and What to expect

Combination of the poor seasonal cycle in place for 2Q post expiration with ongoing negative short-term momentum and insufficient proof of a low in place, the odds still favor that a bit more weakness is possible this week ahead of the BREXIT vote.  Given that this year as a whole has proven very choppy, with constant outflows out of Equities over a majority of the last 25 weeks, it's difficult to see how markets would suddenly gain conviction with the urge to position ahead of this week's upcoming vote.  Better to stay selective on what to buy, and await some evidence that stocks have begun to trend back higher, (which would take a move back over 2085 (2078 for Sept S&P Futures)  Dips back down in S&P Futures to 2030-40 though should be good to buy into this week, and expect some push back higher.

Bond yields remain the source of much anxiety with yields plummeting around the globe, and it's thought that some evidence of stabilization is required to have some confidence that stocks can begin to turn back towards highs, as it's been difficult in the past for stocks and bonds to trend sharply in unison over the last few years, and both tend to trade opposite in low yield environments.  When scanning Demark indicators for confluence as to signals across German Bund yields, UK Gilts, JGB's and US TY yields along with TLT, TBT signals, it looks premature on a weekly chart to make the case that yields have bottomed just yet, despite last Friday's sharp yield bounce.  Most argue for another 2-3 weeks of yield decline which might mean stocks might fail to accelerate as sharply higher until yields can truly stabilize.

The US Dollar will also be quite important to watch this week, as a sharp rise or pullback post BREXIT vote would have huge implications for Growth vs Value, Emerging Markets, commodities, and whether the Energy, Materials and Industrials sectors can continue some of the recent gains.  Some charts of the major indices along with commodities, currencies and Fixed income charts are below.
 

 


Charts & Writeups- SPX, TNX, DXY, NKY, Ratio charts, & overlays, with a few key sector stocks
 

 

SPX- 120 min chart-  Insufficient proof of a low in just yet, but should be close within the next couple weeks, with BREXIT this coming week potentially serving as a catalyst.  Look to buy dips in the week ahead on any retest of lows, with the area at 2030-40 being important as support, while movement back over 2082 should be bullish. Technically it's likely that this entire consolidation should give way to a move back to new high territory into July, so it's wise not to get too cute in trying to time the exact low, but its likely we could "back and fill" a bit early in the week before a late week rally.  Looking back. this three-month chart of SPX shows the brief move above April highs that ended up failing right away, giving way to a 60% pullback of the progress since mid-May.  In the last few days, we've seen a few attempts at bouncing which thus far have failed, but we've now seen two of the last three days close well up off the lows.  Overall, the choppiness of this pattern suggests buying dips for a move back to highs, as the degree of pessimism of late and extreme volatility surge should limit damage under May lows.

 

 

10-Year Treasury yields, Daily-  Bottom line-  Friday's bounce in yields was encouraging, but there remains few signs that this is anything more than a bounce at this point, and yields still look vulnerable to a possible move down under 1.40 before any real low is in place.  Yield charts of German Bund yields and JGB's look similar, along with UK Gilts after a global bond surge that's brought about an understandable amount of concern.  Looking at this daily chart, the breakdown in Yields got almost down to February lows before bouncing, but given a two-month consolidation that broke down, it's probably unlikely given no meaningful economic reports due right away that Bonds show any type of serious selloff which would take yields right up over 1.70.  However, this is what to look for in the weeks ahead.  For now, another 2-3 weeks of Yield weakness look possible.

 

 

OVERLAY with SPX, TNX, USDJPY-  SPX when shown on a chart with US 10yr Bond yields and USDJPY, shows the extent of the divergence that's been present since Equities took off in mid-February, while bond yields showed no similar move off the lows.  While the 12-month chart had shown a fairly tight correlation in the past, it's diverged of late, and only in the last week have equities begun to selloff once Bond yields showed a more meaningful breakdown.  There's no saying that Equities have to be the asset class that follows yields all the way down, and if anything in the next week, some stabilization in the US Dollar vs Yen and in Bond yields should give way to a bounce in these latter two in July which would be conducive to Equities bouncing back to highs.

 

 

SPX, and STOXX 600 index, and Bloomberg World index-  Just as SPX has diverged from Treasury yields of late, the real divergence has occurred with SPX vs global stock markets as a whole, as both Europe and Asia have been far weaker, and this remains something to pay close attention to in the months ahead.  Until we see evidence of mean reversion, there's no saying that US Equities should join the weakness in the other indices, but May lows will represent a key area of support that has to hold.  This can't be undercut without expecting a bigger pullback for SPX, which for now, seems unlikely.

 

 

US Dollar index-  This daily chart of the US Dollar index shows the attempted rally holding right where it needed to at 96 before failing and then retesting just in the last two weeks. Unless May lows are violated, there's no saying that the US Dollar has to move lower, and if anything, this recent stabilization and improvement in momentum since April has to be watched carefully in the weeks ahead. Movement back over 96 should cause a meltdown in commodities, with Gold falling back down under 1200.  For now, the BREXIT meeting this coming week should likely answer some hard questions about this recent churning.

 

 

NKY-  NIKKEI 225 index-  This breakdown of four-month trendline support for Japanese stocks this past week coincided with a meltdown in the US Dollar vs Yen, which got down to near 103.70 before rallying briefly.  For now, this pattern remains bearish, and suggestive of further technical selling, as rally attempts into early 2016 failed right near former lows from late 2015 and now have given way again to the downside.  Movement down to 14544, or even 13000  looks definitely possible before any meaningful rally, and Japanese stocks right now are weaker than either European, or US stocks, with prices well off all-time highs which were made in 2015.

 

 

EUR/USD-  Ahead of this week's BREXIT vote, the Euro has sold off down to key make-or-break support vs the US Dollar, which will have important implications in the weeks ahead.  Violations of 1.11 in EUR/USD would likely coincide with a sharp intermediate-term decline in EUR/USD which could end up testing last November's lows and lower.  Sharp pullbacks in the Euro likely also would coincide with commodity weakness as the US Dollar index as a whole would exceed 96 and begin a sharp move back up towards former highs.  While many are concentrating solely on Pound Sterling and its relationship to the US Dollar, the Euro seems to be equally important to watch for evidence of breakdowns or snapback rallies in the weeks ahead.

 

 

Gold, when looked at utilizing the BEWI index, to strip out the effects of the US Dollar, looks a bit more bullish than when scrutinizing the Daily chart of Gold in USD terms.  This base over the last few months is having its highs tested, and the upcoming BREXIT vote likely will have serious implications for either helping gold breakout, or fade and pullback to the lows and lower in the months ahead.  For now this pattern is more bullish than bearish, but prices will need to get up above recent highs to have a shot at real upside acceleration.

 

 

Consumer Discretionary vs Consumer Staples (as shown on this ratio chart of the S&P 500 Consumer Discretrionary index, vs S&P 500 Consumer Staples index)  remains bearish after this long-term uptrend broke early this year.  The rally attempt looks to have failed while Discretionary pulled back hard relatively speaking in the last month.  Overall, this pattern since 2013 has shown evidence of peaking out, but the top last year definitely gives some larger hints about the broader deterioration that's been seen in US stocks, as well as addressing the defensiveness of the market as a whole.

 

 

Financials have neared an area where they could stabilize after a sharp drawdown from recent highs.  However, this four-year weekly chart still shows a very weak picture for the sector.   The early year weakness violated a multi-year base in Financials vs SPX and now the recent bounce failed to get back above where it needed to, thus far.  Until Treasury yields can stabilize and start to rally off recent lows, it's unlikely this group will be able to make much progress, as recent relative strength has definitely been positively correlated with rates moving higher.  For now, it's a work in progress, but looks to be closer to trading lows after its sharp decline.

 

 

UTILITIES vs SPX- Weekly- Utilities have improved, relatively speaking after the breakout early this year caused this group to outperform all other nine sectors in the month of January.  That could have been a forewarning of what to come, as the year thus far has still seen the Utes outperform all other sectors, which has occurred both for defensive reasons, and given the yield decline.  For now, this seven-year downtrend was exceeded and relatively speaking, the group is headed back rapidly towards prior highs early in the year.  While this might not be broken just yet (as doing so would suggest a much larger Equity decline most likely) the group remains quite bullish, and relatively has just begun to show meaningful strength relative to the SPX after nearly seven years of underperformance.   Technical targets for XLU, as suggested a few weeks ago in the Weekly Technical Perspective, lie near $54.



 

Disclaimer:

This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein, and may be subject to change without notice.   Newton Advisors, LLC has no duty or obligation to update the information contained herein.   Further, Newton Advisors, LLC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.  The information provided in this report is based on technical analysis. Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer. The investments discussed or recommended in this report may not be suitable for all investors.  This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction.  Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.  

Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.  Newton Advisors, LLC believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.  From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report:  This report, including the information contained herein, has been prepared exclusively for the use of Newton Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Newton Advisors, LLC.