Mark Newton on the S&P 500, Emerging Markets, and Commodities

Each Thursday, Mark Newton, founder of Newton Advisors, gives us his current outlook on different aspects of the market. Mark provides a very consistent, level-headed approach and that is one of the main reasons I believe there is so much value in these videos.

Coming off the December lows, we have seen a very strong rally in US equities. However, according to traditional momentum gauges, as strong as this upward move has been, we still have not reached "overbought" territory, which we did see last August. Further, the S&P 500 has put in a successful breakout of the down trendline, going back to the late September peak. According to Mark, these are constructive events and should be deemed "bullish" over the near-term. He goes on to point out that most technicians, including himself, felt the move was sustainable as long as 2,630 held. This proved to be take case, and we eventually saw more upside through the previously mentioned trendline. Not only have we seen an improving structure on Daily charts, but we have seen these same developments on Weekly charts as well. Another point in favor of the bulls has been the bullish cross on the Weekly MACD, an additional sign of improving momentum.

One aspect of concern Mark points out is the "skiddish" behavior from market participants around Trump and the lack of a deal coming to fruition with China. But according to multiple sentiment gauges, nothing seems stretched one way or the other.

And what about the Technology sector, which remains the highest weighted area of the S&P? Mark says that the strong moves in this area are a big positive for the market as a whole. This sector had peaked last June, which was a warning sign that further deterioration could be on the horizon. Now that we have seen Technology make a robust move upward over the last few weeks, the opposite mindset should be taken.

So where are the negatives? One aspect that Mark points out has been the weakness we have seen in the Financial Services sector. In general, we want to see this area show improving strength. Unfortunately, that has not been the case so far. With a 13% weighting in the S&P 500, I think this is the proper mindset to have. Have we seen a short-term peak? It could be possible, as we never really traded above the previous highs we saw back in November. 

Another point of concern is that stocks and rates have not been moving in tandem lately. Both peaked in early October, and while they each bottomed in late December, rates have actually rolled over since then. This could mean that equities soon follow suit.

With all this being said, how are stocks outside of the US looking? Mark bring to our attention that Emerging Markets have seen their first counter-trend move, which would be in-line with the move lower we have experienced in Commodities. 

From a broad perspective, Mark says he is skeptical of a large correction coming in US equities. He feels that current rally we are in should continue higher, but breadth has indeed waned a little in recent days. Another important note he makes is that we are nearing the large bottom we saw almost a year ago in the S&P 500, following the big move we experienced in January 2018. We are also 90 days removed from the top we saw this past November. These are a few pieces of evidence that could point to equities stalling out in the coming weeks. However, in order to get a major correction, Mark feels we have to see a break of the 2,600 level. Right now, we are simply in a holding pattern and until that changes, there isn't anything to push sentiment one way or the other.