Reuters Insider - Stocks range-bound until the Fed meets

Value Line

29/08/2019 09:49

Click the following link to watch video: https://share.insider.thomsonreuters.com/link?entryId=0_zdavze0g&referenceId=tag:reuters.com,2019:newsml_OVAU51NYJ_930&pageId=ReutersNews
Source: Reuters Insider

Description: Technical analyst Mark Newton of Newton Advisors also tells
Reuters' Fred Katayama the S&P 500 could face a bear market if it breaks below
2735 near its June low.
Short Link: https://tmsnrt.rs/2MGQpz5

Video Transcript:

Stocks on Wall Street rebounding Wednesday afternoon from morning losses. Time
to get a technical view of where the markets are headed. We’re joined by
Mark Newton of Newton Advisors. Welcome back, Mark. A bounce in some of the
month’s weakest performers today – energy and financials. But
looking back, the S&P 500 has been down four of the last five sessions and we
didn’t really get a big bounce off that Friday drop. In your view and
looking at the charts, should investors bet on gains or losses in the weeks
ahead?

Well, we’re still very much in a seasonally-bearish period. From August
through October, I would argue that it’s difficult to be too constructive
just yet only because trends and momentum are still very much
bearishly-sloped. Trends are to the downside. Since the latter part of July,
we’ve seen a real drop-off from small caps and mid caps of late. And so
that’s a little bit of a concern. There’s still very much a
defensive trade at work really over the last month. And so to look at sectors
that have appeal, I would argue that’s still sort of an interesting area.
So seasonality is negative. Sentiment has gotten also a little bit negative.
So from a contrarian viewpoint, that’s actually somewhat constructive.
When you look at the very real issues such as the policy uncertainty and
Chinese trade war or concerns about a slowing economy globally, and those are
all causing investors really a lot of concern for a lot of the right reasons.
But that also means that any pullback likely is going to prove subdued because
concern will turn to fear that much more quickly on a selloff.

So don’t buy on pullbacks just yet. We’ve seen the S&P 500 bounce
off the 200-day moving average in early March and again in early June. And
I’m wondering it’s three months again fast forward, hitting early
September. Do you foresee a repeat of that pattern happening?

I think the main area is going to be right down to your June lows for the S&P.
And so that’s right down near 2,735, I think. If that’s broken, that
gives me a lot greater concern that we have actually begun a larger bear
market for stocks. It could persist over the next couple of years. So
that’s really the key area I’m watching. The 200-day sometimes
works, sometimes doesn’t. It’s tough to give that too much credit.
But I think the more times and areas we visited, the greater the likelihood
that it eventually breaks. So I can argue that we’ve been in a decent
bull market for the last 10 years. That seems to have shifted as of last
January. We saw some of the highest overbought readings we’ve seen in a
dozen years. Since then, the market’s largely gone range-bound. Of course
we had the selloff last fall and we’ve rebounded in pretty spectacular
fashion from last December. But yeah, the broader trend and the larger
benchmark indices such as the value line or even look at the world index is
very much sideways for the last year-and-a-half. So I would argue the trend
has really gone from bearish to neutral. And we’re really awaiting this
big catalyst.

And last thing, Mark, the Dow Transports hit the intraday low today. It was
lower than its low back in early June. Is that another indicator of a leg
down?

That’s part of the process that happened back in the early part of the
year that suggested that stocks could start to face some weakness. Whenever
you see transports lagging substantially along with the semi-conductor sector,
it always gives concern that the market might be due to pullback a little bit.
You normally want to see the transports lead and they certainly have not been
doing so really since April. I believe they made their highest peak this year,
back in April and even move into July. They failed to reach that peak. So
it’s really been small cap, mid cap weakness along with transports
underperforming. Technology has been shaky but that trend is still intact. So
if you start to see greater weakness in technology, I would have greater
concerns because that is 20% of the market. So for now, it’s really a
difficult period. You have to be very, very selective and everybody is
concerned about a lot of very real concerns. But with regards technically, the
market’s been pretty range-bound since the beginning of August. So you
look at a level right near 2,810 in the S&P for support and, on the upside,
right near 2,940. Until we get out of that range, things potentially could be
range-bound until the Fed meeting. I’m not saying that it’s going to
happen, but that’s certainly the area for people to concentrate on, that
are more trend-watching with regards to the S&P 500.

The upcoming Fed meeting in September. Alright. Well, thanks a lot, Mark, for
sharing your thoughts.

My pleasure.

Our thanks to Mark Newton of Newton Advisors. I’m Fred Katayama, and this
is Reuters