More Downside For S&P and Gold | Mark Newton and Jimmy Connor

Key Concepts

• Technical Analysis: A methodology for forecasting the direction of prices through the study of past market data, primarily price and volume.
• Market Breadth: A technique used in technical analysis that examines the number of companies advancing versus declining to assess the overall market's health.
• Capitulation: A point in a market cycle where investors give up on previous gains or positions, often signaling a bottom.
• Retracement: A temporary reversal in the direction of an asset's price.
• Bifurcation: The division of a market or sector into two distinct parts (e.g., high-performing tech vs. struggling software).
• Mean Reversion: The theory that asset prices and historical returns eventually return to their long-term mean or average level.
• Elliott Wave Theory: A form of technical analysis that looks for recurrent long-term price patterns related to persistent changes in investor sentiment.

---

1. Market Outlook and Methodology

Mark Newton, Head of Technical Strategy at Fundstrat, emphasizes a technical lens for market analysis, focusing on price action, volume, seasonality, and sentiment. He argues that while fundamentals are important, technicals "take the blindfold off" to reveal immediate market trends.

• S&P 500 Forecast: Newton anticipates a "choppy" year of consolidation. He projects a potential decline to 6,200 (a 38% retracement of the move since last April) before finding a meaningful bottom between mid-April and mid-May.
• Historical Context: He notes that the second year of a second presidential term is historically difficult, citing data from the Truman, Eisenhower, Nixon, Reagan, Obama, and Clinton eras.
• Market Deterioration: He highlights that only 40% of stocks are currently trading above their 200-day moving averages, indicating significant internal weakness despite the resilience of "Magnificent 7" stocks.

2. Sector Analysis: Technology and Software

Newton expresses caution regarding the technology sector, suggesting it may face headwinds for the next 6–8 months.

• Semiconductors (SMH): He views the sector as "stretched" after a rapid ascent from 170 to 428. He warns that momentum is rolling over and advises investors to watch for exits if trends break down.
• Nvidia: While acknowledging it as a "wonderful company," he warns that a break below 171 would be technically damaging, potentially dragging the stock to the 155–160 range.
• Software (Microsoft): With Microsoft down 30% from its 560 high, Newton advises against "bottom-picking." He views it as a long-term "buy and hold" candidate for 2028, but warns that momentum is currently too negative for an immediate rally to new highs.

3. Bonds, Currencies, and Commodities

• Treasuries (TLT): Newton expects yields to peak within the next month. He identifies the 83–85 range as an attractive entry point for TLT. He expects yields to trend lower from April through the summer.
• US Dollar (DXY): He predicts minimal upside, expecting the index to roll over after hitting 102–103, which should provide relief for emerging markets and commodities.
• Gold and Silver: Newton describes the metals as being in a "transitional year."
  • Gold: He warns of a short-term peak and expects a decline toward 3,500–3,800 by summer.
  • Silver: He views it as high-beta and volatile, suggesting an entry point around 50.
• Crude Oil: Despite short-term volatility, he expects a meaningful decline in the second half of the year. He notes that energy stocks have begun to diverge from the commodity price, which is a bearish signal.

4. Cryptocurrency

• Bitcoin: Newton characterizes the current environment as a "crypto winter" that began last October. He expects a further decline to 52,000 over the next month, which he believes would represent a "real capitulation."
• Strategy: He advises against "dipping toes in" yet, suggesting that investors wait for evidence of downside volume and capitulation before entering long positions.

5. Synthesis and Conclusion

The overarching theme of the discussion is that the market is currently in a period of high volatility and structural transition. Newton’s primary advice is to avoid "buying the dip" in assets that are showing sharp negative momentum. Instead, he advocates for:

1. Diversification: Looking outside of US technology.
2. Patience: Waiting for the mid-April to mid-May window to identify potential bottoms in equities, crypto, and metals.
3. Risk Management: Recognizing that the current market environment is "sailing through a hurricane" with conflicting cycles, requiring a tactical, rather than a passive, approach.

Notable Quote: "It's almost better to do exactly the opposite [of buying dips]. You want to avoid extreme weakness. You want to be always in the areas that are showing strength." — Mark Newton