In this briefing:
- Global Markets Deteriorating…Except EM
- This Is the Chart that Would Cause a Mini Crash in the US
- Core US Sectors Leading an S&P Major Support Break
- S&P 500 Revisiting 2,600 Support
- Idemitsu Kosan Tactical Support with Macro Cycle Drag
1. Global Markets Deteriorating…Except EM
With U.S. markets stumbling, the MSCI ACWI index is breaking down to new lows: defensive Sectors remain attractive. Relative to MSCI ACWI however, emerging markets are the place to be. China, Brazil, Hungary, Qatar, India, Poland, and Indonesia all display positive price and/or RS trends. In this report we recap technical important levels on all major indexes and highlight attractive stocks within Real Estate, Health Care/Pharma, Precious Metals Mining, and Utilities.
2. This Is the Chart that Would Cause a Mini Crash in the US
Our insight Core US Sectors Leading an S&P Major Support Break outlined the lead breaks in small caps, financials and transports that signals a break lower in the S&P.
We now turn to the last bastion of strength that would induce a high momentum decline below SPX 2,550. Defensive sectors in the US now face late cycle selling now that core lead sectors are breaking lower.
US healthcare and consumer staples have been a core outperform pair over being short the S&P and has served us well with ominous peak signals in the making.
US healthcare ETF (XLV) chart is used as the safe haven proxy that would induce a big inflection point for US equities.
3. Core US Sectors Leading an S&P Major Support Break
We see increasing evidence of a failed December risk on phase as core sectors break below supports and early 2018 lows in a lead fashion.
Our underperform/bear call for banks, small caps, tech and transports to lead a bigger market spiral is taking shape. Small caps, banks and transports are now breaking early 2018 lows, signaling a broader S&P break below 2,600 may in fact be unfolding now rather than in January/Q1.
Fed speak will dominate a break/bounce next week but a break down is in the cards, regardless in 2019.
Breadth remains bearish.
USD/JPY teetering on a pattern breakout. Gold is not trading well given it has decoupled from traditional correlations.
Big net outflows recorded in key sectors/markets last week.
4. S&P 500 Revisiting 2,600 Support
The S&P 500 was not able to break through the 2,817 and 100-day moving average resistance levels last week, and has now fallen abruptly back to test 2,600 support. For now our outlook remains cautious and we continue to expect heightened volatility and horizontal consolidation between the aforementioned support and resistance levels. Absent any real clarity in regards to Fed policy or U.S.-China trade relations, the S&P 500 is vulnerable to a breakdown. We highlight opportunities within Pharmaceuticals and Waste Services, two areas of the market with defensive characteristics that currently exhibit timely technicals.
5. Idemitsu Kosan Tactical Support with Macro Cycle Drag
Idemitsu Kosan (5019 JP) decline is nearing exhaustion support and sets up a tactical trade higher.
MACD breach of floor support now turns this key pivot level into a cap resistance on a recovery cycle. It also calls for a new and lower trading range.
Macro support breaks must be mended to turn the cycle from bearish back to neutral and will require a series of positive rally cycles for basing to unfold.
Tactical buy supports are outlined along with our tactical rally target, macro pivot resistance and the stop level.
