Mark Newton Looks for a Bottom

Earlier this week, Mark Newton of Newton Advisors appeared on Real Vision to gives his take on whether we are close to finding a reversal point from this recent correction.

Mark begins by pointing out that sentiment was pretty high for a majority of 2019, but those bullish feelings have come down quite a bit recently, mainly due to the ongoing trade tensions. But is this the time to walk away, coming off one of the best four-month periods we have seen in 20 years? While sentiment is bearish, stocks still aren't much off their all-time highs.

Interestingly, Mark notes, that Equities, Crude, and Treasury yields all seemed to peak at the same time in late April before the tariff worries picked up again.

"Typically, when all these assets begin to correlate very positive, all at the same time, it really pays to watch all of them to watch for evidence that they could be bottoming out. Yes, technically momentum is negative and trends are certainly down from the early part of May. However, the combination, in my view, of near-term oversold conditions, combined with the bearish sentiment, it makes sense to consider buying into this dip."

He also brings to our attention just how bearish sentiment has become, pointing out that the most recent AAII survey shows a roughly 15% spread between bulls and bears:

Further, as we enter June, pessimism is certainly growing. Only about 15% of all stocks are above their respective 10-day moving averages. Also, traditional technical analysis metrics, such as RSI, have returned to where they were in the middle part of May, but the S&P 500 is nearly 60 points lower. Thus, it seems that momentum has held up.

The final piece, according to Mark, is that the Technology sector, after being "taken out to the woodshed" is starting to act relatively better. This has been led by the recent bounce in Semiconductors.

"The bottom line, when I look across the spectrum, Crude oil, Treasury yields, and Equities are all getting down to levels that I think are attractive to play for a bounce. I'm pinpointing the period between June 3rd to June 13th for a bottom in all three. And then we can rally up into the early part of September without much trouble."

As for worries around Treasury yields and what they're suggesting regarding how investors feel about economic growth, Mark feels that 10-year yields down around 2.00-2.06% is a prime area to sell Treasuries and consider going the other way. As far as equities, he is looking for a bottom between 2722 and 2735. His target is 3070 over the next 4 months. An area to watch for a bounce in Crude would be $52-53.

Mark believes that the correlation between yields and equities was mainly due to a pullback in the yield curve itself. The most important level for him to feel comfortable about stocks would be 2800 on the S&P 500 but isn't willing to give up that upside potential before getting in. If the S&P breaks below 2700, that would signal a cautionary environment. He also believes yields can rally 30 basis points, which is notes isn't a big move, but if we do get back over 2.40, Mark has more conviction in a longer-term uptrend. He does believe that equities are closer to a meaningful bottom than yields, but it's unlikely that we would see one move higher and the other not, given how they've moved in tandem recently. As always, feel free to contact us with any questions!