The FANG index consisting of Facebook (FB), Amazon (AMZN) Netflix (NFLX) & Google (GOOGL), concluded the week on a very bearish tone, reversing all the gains made earlier in the week. With the market finishing at the lows of the week and back below support of 2,575 level. Based on how the index finished on Friday I’m expecting a move towards its 2,500 support in the week ahead.
 
The FANG index which in 2018 outperformed all of the US stock indices, is actually now under performing in 2019. The FANG’s has failed to reach or make a new all time high level from the Jan - April 2019 rally, unlike the S&P 500, Nasdaq index.

More importantly based on the price action that occurred over the last few weeks, saw the FANG index make a new lower low and lower high pattern on the failed rally attempt this week. This indicates that the FANG index is now firmly in a bearish position, with the sellers in control of the index and sitting below the 52 day moving average. This contrasts strongly with the DOW, Nasdaq & S&P 500 which have all failed to confirm a lower high as of yet.

Moving forward, depending on whether the index is able to hold the 2,500 level in the short term, will decide on whether the index moves straight pass 2,500 support level and make its way towards the 2,360 level over the next few weeks. Given where the current price action is relative to the distance from the 52 day moving average line, suggests the FANG index can easily reach the 2,360 on the next down leg move.

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This week saw a sell off in US stocks, as Trump once again via his tweets decided to rattle the markets, telling the world that China has breached the trade negotiations. With higher tariffs coming for China on Friday. This caused havoc in the markets as they immediately gaped lower
 
Fast forward to Friday where Trump confirms that tariff increases for China and we experience another weak trading day. Only to see something different from the previous 4 trading days. On Friday the markets were down over 1.5% and suddenly the markets stopped falling and began to climb for the remainder of the day, closing in the green and more importantly above the highs of the previous trading day. This was significant as it signaled at least in the short term for US stocks that we have likely reached a bottom.
 
Friday's trading session also showed us that since the S&P 500 made a new all time intraday record high two weeks ago, to the lows reached on Friday trading session the market has only fallen -4.3% peak to trough.
 
The price falls on Friday also happened to fill the gap that was recorded back on the 1st April went it gaped higher (see chart). The price action for Thursday & Friday also touched the 52 day moving average and then proceeded to close higher, indicating the overall market still remains in a bullish trend despite the pullback.
 
Based on Friday’s intraday reversal move higher, if the lows recorded hold in the short term and we move higher this week, the market will also have confirmed a higher low, indicating the market despite the mild sell off has experienced a pullback within a bullish trend move. This also means at least for now its not time to be bearish of the markets. But rather take this selloff as a much needed pullback in a bull trend.

So What Happens Next?

If the lows from Friday hold this week and the market continues to move higher, the potential next target for the S&P 500 is the prior support now resistance level at 2,930. However what we see unfold over this week and the next few weeks are key in determining if US stocks remain in a bullish trend, or whether we need to move towards a bearish stance going forward, especially as I expect volatility to remain for the next few weeks as the markets digests the new tariff increases.
 
If the S&P 500 fails over the coming weeks or months to make a new higher high, but instead begins to reverse and move lower towards the most recent lows creating a lower high, this would be the start to preparing to become bearish.  If a lower high was to occur and we followed this with a clear close below the most recent lows experienced on Friday, then the bullish trend would be over and we would need to look at bearish positions for the S&P 500. This would be because the index would have reversed trend with lower prices likely to occur now that the bears would be back in control. So we have to be open to staying flexible and fluid to what the price action tells us the next few weeks.

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The barrage of negative news flow, week after week has finally taken its toll on the stock price. With just a few trading days left until the end of the month it looks like TSLA has broken a key support level of $266 on above average volume. The price action this month with a breakout lower than support is a rather big warning to Tesla bulls that the party is over and it’s time to look at their options going forward.

Based on the monthly price action this month, together with the price relatively close to the long term moving average (green line), the next two levels of support are within reach over the second half of 2019. The next initial support level which was also a major level previously is around $188 - $189 or a $45 drop from current levels. This could easily be achieved in the next month or two. Beyond the first level of support, the next area to watch is between $126 - $128.

The daily chart for Tesla is looking just as bearish as the monthly chart price action. With the last two trading days breaching its $250 support level of extremely high volume and negative news flow including a large miss on already revised lower earnings this week.

Going forward this week, we are likely to see soon a short-term reversal / consolidation phase take place, with a possible target of its old $250 support level, which is now its resistance area. Given the daily chart has been experiencing a series of lower highs and lower lows, leading up to this week we could see a breakout for Tesla. I'm expecting any rally in share price when it does occur to be short lived.

Once we have seen a consolidation take place, I'm expecting a move to the next level of support on the daily chart of $205 over the coming weeks and months. Especially given the company itself requires a capital raising soon, has high debt levels and has negative cash flow within its current business plan.

For Tesla bulls this month price action on both the daily and monthly chart is an early warning on further weakness ahead for this “Auto Tech” stock for the remainder of 2019.

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This week was a monumental moment for U.S tech stocks, as they reached their previous all time high resistance / mountain peak around 7700, and for a brief moment surpassed this level making a new all-time intraday high around 7715. The week finished off with the highs at around $7690.

This week was also interesting as the index reached prior resistance area, while also hitting the bottom of the long term uptrend line that had been established in early 2016 on the weekly chart, signaling it hit two different resistance areas that have come together. This is significant as I'm expecting some volatility ahead with a pullback coming soon as a consequence of reaching these levels.

The other reason why I believe this, is that the weekly moving averages are quite stretched from the current price action. The current distance shown by the arrows is roughly the same distance as the previous separation before we saw the index pull lower.

Unlike the previous time this occurred, we saw a significant drop of close to 20% off the peak. I'm not expecting as big a fall to occur with the upcoming consolidation period ahead. One of the main reasons for the difference is that the FED has now completely performed a 180 turn on its monetary policy to appease the markets.

Based on the assumption of the continuation of global central banks to pump liquidity in the global markets, I'm looking for a more mild pullback and an eventual move soon to either the first support level area of 7375, or potentially a bigger move towards 7100 support area.

After we have seen several weeks of consolidation and the moving averages have had a chance to catch up to the price action, I would be looking to see the markets begin to attempt to move back to the prior resistance area of 7700, before it then makes another attempt to march towards a new all time high, with an eventual higher highs created.

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The S&P 500 index ( SPX ) gaped on the open with a positive lead from China on a bigger than expected trade surplus earlier in the day. Along with bullish tone set by JP Morgan( JPM ) with a beat on earnings on the pre-open.

The last week or two had shown low volumes as the blackout period grew for buybacks shutting out most companies from engaging in pushing their stock higher.

Despite this, the market moved higher albeit at lower volumes. However, the bright spot on Friday was a gap open with follow through buying on an above average volume day. Given that the buybacks black out is right at or close to the peak, this is a bullish sign that up until recently had been lacking in the current rally on the S&P 500.

Time For Caution Ahead

Although Friday’s move was welcomed by the bulls, caution is required this week as we move closer to the previous resistance level of 2,930 and prior all time high area. I'm expecting that this area will be challenging for the market to break clear of with conviction, given the strong rally leading up to this area. Given the bullish momentum from Friday we may even see the market move above the resistance level temporarily, (one or two trading days) before pulling back to this level or back below it for some much needed consolidation.

Since the U.S. is at the start of the earnings season and the bar is set low for EPS expectations, we could see significant volatility over the next 2 weeks including a surprise pullback in the market.

However, as previously stated, I'm not suggesting we are close to seeing a crash in the market. The main reason for this is the series of higher lows within the uptrend, along with the price action clearly above the 52 day moving average. Until this trend reverses with a fresh lower low, followed by a lower high on the daily chart, the bulls will continue to lead the market higher over time.

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The tech heavy Nasdaq index has led the 3 major indices with the surprising V shaped recovery off the Dec 24th lows. This week the Nasdaq 100 is set to hit the old all time high resistance level of 7,655 as well as the original long term uptrend line on the weekly chart (shown with green rectangle box).

The reason this is important is because the market is facing two major resistance areas simultaneously which could cause disruption to the current uptrend for 2019. When the long term uptrend was breached in late Oct 18, the market gave the signal that something was wrong and to pay attention.

Given the bullishness of the market lately, it's likely we will retest the old resistance level this trading week. The key question once this has been achieved is what happens next?

With the steepness of the rally in 2019 and the uptrend line shown, we can only tolerate a minor pullback / consolidation period otherwise we could see the market break the uptrend line into the red circle area.

If this occurs we would have to review any bullish positions on the Nasdaq 100 index and show caution to potential short term volatility and draw-down period ahead.

Given the price action is currently sitting comfortably above the weekly chart moving averages, I'm suggesting that we could see a number of weeks of volatility and consolidation ahead, rather than a suggestion it's time to look at potential shorts for the Nasdaq index.

My switch to an overall bearish stance for the Nasdaq 100 will occur when I see the price action form a lower high and lower low pattern on the daily chart. Until then, I'm only highlighting caution ahead for the major inflection point above.

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US Macro Data

The chart below shows the last 2 years of US economic data summarized under 'soft data' which comprises of various surveys on the US economy, 'hard data' which comprises of all actual macro economic data as a whole. 'Hope' which is survey's based data on sentiment on the economy.

From mid 2017 you can see clearly all 3 categories peaked and have been making lower highs and lower lows since then, as the macro data continues to weaken further. This is a trend that has been occurring in most countries around the world. Because of this increasing trend of weak economic data overall, I've been bearish on the US economy for some time now.

This has also let me to suggest there is a high probability of a US recession occurring either in 2019 or early 2020 based on these trend. In fact if you strip out the increase in US Government spending in the last GDP quarter the US would of already reached a negative GDP print.

S&P 500 Chart = Bullish Stocks

Please note: Chart was taken from close 22nd March

Since I'm a trader as well as an investor, I have had to learn to sometimes hold an opposing view that contradicts each other when viewing charts as a trader. Taking the close of the S&P500 chart from Friday, we can see the current trend of US stocks as an index since the end of December, looks a whole lot different to the economic data chart shown on the above chart.

The current trend is moving higher with successive higher lows (green circles) with the green lines highlighting this overall strength. If you look at left side of the chart below from Oct 2018 - Dec 2018 period you can see a different weak down trend, with the market giving clues and warnings (black circles forming lower highs) for US stocks before the sharp declines in late Nov & Dec 18.

Once we broke support in Mid Dec (red circle) we saw a sharp decline for the next 2 weeks. Coming back to current trend in March 19, as a trader I have to keep a bullish stance overall even with the strong selloff we experienced on Friday 22nd March. The bullish stance will hold unless I see the S&P500 close below its most recent higher low around 2740 level. Followed by a confirmed lower high on the charts.

If this doesn't occur then as a trader I need to view any subsequent pullback in stocks, which is likely to continue this week as a healthy consolidation within an uptrend. This explains my reasoning why as a trader I'm bullish US stocks overall, while as an investor I'm bearish the US economy.

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With the release of this week's Gurhaven newsletter, we cover some of the top posts from Guruhaven.com from last week. I review just what's going on with Silver, with the likely levels to look out for. Plus our traders and investors from Guruhaven discuss US markets, NASDAQ, Forex, China and more. To view the Silver review and for the round up of great content Click here for the latest newsletter

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Guest Article Written By  - Trader, Pete Armstrong - Twitter: @PeteArmstrong

2018 is drawing to a close although the markets show no sign of going into holiday mode until the
machines are switched off and forced to take a break for a few days.

As a trader in the southern hemisphere it’s our annual summer holiday period for at least 2 weeks.
I always use this time to reflect back on the last 12months, draw a line in the sand and consider
the new game starting in January……It can be a satisfying time or very depressing period.

A traders life is not anything close to what society deems as “normal”, and as such no one but us
traders can really relate to what we actually go through.
This isn’t a story about how lonely trading is because I’m one of the weird ones who trades best
in total isolation. It’s just a fact we can go through things that no other career can throw at you
and a lot of the time we bring it upon ourselves due to the nature of this business and how us
humans are wired……I brought it all upon myself this year. Here is a story of a period I went
through.

It is amazing how easily you can lead yourself off course, down a path you know isn’t going to
end well, but at the time, in the moment, you honestly think you are making intelligent decisions.

The last few years have been hard in this game.
• Volatility contraction but now expanding dramatically forced me to alter my approach and
mindset towards the market (I struggled with the mindset aspect),
• Algo’s exacerbating “chop” in price action due to a number of factors made tight entries harder
than previous years,
• Politicians ramping up their desire to have public feuds,
• Geopolitical issues seem to be piling up, adding another risk to manage daily,
• Fake headlines from “Sources” that Algos react to with sudden bursts of price action that will
fade sometimes and not other times.

The list could go on, but markets are always evolving and we have to evolve with them, however I
found myself fighting these factors when in-fact I thought I was just working hard to adjust and
get on top of them.

This year I found myself so determined and focused on getting on top of this market that I worked
around the clock; sleep was optional and only when the body forced me or on weekends.

Down the Rabbit Hole I Go.

In my mind it was a case of; “Yes I know this isn’t sustainable or smart but if I can push through
this period, get on top of it, then I can rest, do all the right things and get back to a sustainable
balanced approach/lifestyle of making returns”

I would tell myself daily - “It’s just a phase the market is going through, this isn’t your first rodeo
you have been here before, you just need to grit your teeth and work through it.”

Telling myself to back off a little, ride it out with lower performance expectations whilst working
through fine tuning my approach would have been the intelligent thing, but with pressures of
performance and life etc, I was always feeling like my back was against the wall and I needed to
go harder at it not back off. Cue the Anxiety.
That last paragraph I think was the root cause of this stupid behaviour

Obviously my day to day trading thought process are extremely clouded in this exhausted state,
more errors were being made than normal, frustration builds and everything is second guessed.
Confidence evaporates.

The harder I tried the worse it become!

[ Side Story - I used to be a golf pro, and pros will play their best when they let themselves be free
of pressure and they believe in their ability to execute. The harder a golfer tries to “ steer” a shot
under pressure down the fairway the more they spray the ball all over the course. I was trying to
steer every trade instead of letting it just happen]

All this leads to crippling depression periods and constant anxiety.
The dark times are dark. Very Dark!

It takes rock bottom to snap me out of it.

Tired, exhausted, mentally drained, angry at myself, constantly sick, no confidence and for the
first time I truly can’t wait to step away from the markets.

I knew better, I made it all harder than it needed to be and I’m feeling to consequences of it.

I think I got stuck down the rabbit hole due to the pressures that I have on me. Some your typical
life pressure we all have, and likely some others all manifested in my head. Thats something to
explore during the time off.

When I return it will be fresh, back to basics, structure and discipline. Focus hard on not losing my
way again.

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Stellar Run

Netflix has been on a tear over the last 12 months as investors continue to focus on the rampant rise of subscriber growth especially in the international market. From the image below you can see that domestic growth has been steadily rising in the US, however the real star has been international growth as Netflix has been introducing its content into several new countries.

Even more surprising has been the record surge in the stock from the start of this year now having risen 30% year to date.

Netflix stock jumped higher today in the futures market after the stock closed for trading as the market digested the earnings report. I have added the latest jump taken from CNBC.com where the stock has moved a further 8% after a strong day leading up to the earnings release. It seems the company cant do no wrong.

What Investors Are Ignoring

One of the key reasons why Netflix subscriber growth has been so spectacular has been due to the fact that Netflix pricing for its streaming services is extremely low. This is even more evident when you compare it to traditional cable / pay TV companies.

By keeping the pricing low its placed a huge strain on its cash flows, as the company has been spending record amounts of its cash as its business model clearly inst sustainable even though company is growing so quickly. With the chart below you can see its latest cash burn was staggering at $523 million for the most recent quarter.

Whats even more worrying is the company is forecasting to burn through a total of $4 Billion in 2018.

Original Content Is Its Achilles Heel

The other key reason for the massive cash burn for Netflix is its huge budgets spent on generating its own original content. Not only has it been rising every year for the last five years, but its expected to hit $7.5 + Billion based on forecasts. (See Below)

The company's historical content spending is as follows:

2018: $7.5-$8 billion (forecast)
2017: $6 billion
2016: $5 billion
2015: $4 billion
2014: $3 billion
2013: $2 billion

Netflix content also outpaces its competitors own content budgets by a significant amount with a spend of approximately double its closest competitors content budget.

The end result of Netflix business model is the company is knowingly placing huge strains on its balance sheet with the loss of billions in cash each year and rising debt which is sitting around $20 Billion to fund its yearly cash burn.

For the moment none of this matters as stock investors cheer the company on by bidding it higher and higher rewarding the company for such reckless spending that it clearly cannot sustain.

Why Low Rates Are Important?

Netflix like many companies listed in the US are more reliant than ever on low interest rates to fund their business model. If US Government 10 year bond yields continue to move higher it will spell disaster for Netflix and other companies who continue to accelerate their debt levels to fund their losses.

If yields move beyond 3% it will mean significantly higher interest payments and accelerate already high cash burn levels which could ultimately lead to bankruptcy under their large debt levels. However until that day its celebrations all round for investors as the fundamentals don't matter at all.

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