Morning Notes – Monday November 5, 2018

Directional Bias For The Day:

  • S&P Futures are lower; moving sideways since 2:00 PM on Friday
  • Odds are for a sideways to an up day with choppiness and elevated volatility – watch for break above 2729.50 and below 2714.00 for clarity
  • Key economic data due:
    • ISM Non-Manufacturing PMI (60.3 vs. 59.3 est. and 61.6 prev. ) at 10:00 AM

Markets Around The World

  • Markets in the East closed lower
  • European markets are mixed – U.K., France, Spain and Switzerland are up; Germany, Italy and STOX 600 are down
  • Currencies:
    Up Down
    • EUR/USD
    • GBP/USD
    • USD/CHF
    • AUD/USD
    • NZD/USD
    • USD/INR
    • Dollar index
    • USD/JPY
    • USD/CAD
  • Commodities:
    Up Down
    • Crude Oil
    • NatGas
    • Gold
    • Palladium
    • Cotton
    • Cocoa
    • Silver
    • Copper
    • Platinum
    • Sugar
    • Coffee
  • Bonds
    • 10-yrs yield is at 3.189%, down from November 2 close of 3.214%;
    • 30-years is at 3.427%, down from 3.453%
    • 2-years yield is at 2.899%, down from 2.919%
    • The 10-Year-&-2-Year spread is at 0.290, down from 0.295

Key Levels:

  • Critical support levels for S&P 500 are 2712.86, 2700.44 and 2685.43
  • Critical resistance levels for S&P 500 are 2733.78, 2748.10 and 2756.55
  • Key levels for eMini futures: break above 2729.50, the high of 7:00 AM and break below 2714.00, the low of 4:00 AM

Pre-Open

  • On Friday, at 4:00 PM, S&P future (December contract) closed at 2721.75 and the index closed at 2723.06 – a spread of about +1.25 points; futures closed at 2724.25 for the day; the fair value is -2.50
  • Pre-NYSE session open, futures price action is to the downside – at 8:30 AM, S&P 500 futures were down by -1.75; Dow by -21; and NASDAQ by -17.25

Directional Bias Before Open

  • Weekly: In Correction
  • Daily: In Correction
  • 120-Min: Up-Side
  • 30-Min: Side
  • 15-Min: Side
  • 6-Min: Side

The trend and patterns on various time frames for S&P 500 are:

Monthly
  • Under Pressure
  • October 2018 closed sharply lower; broke below previous four months’ lows; only third down month since October 2016
  • Uptrend resumption since Feb 08, 2016 after a pull back of -15.2% – continues; higher highs and higher lows
Weekly:
  • The week ending on November 2 was a green harami candle within a large red candle with larger lower shadow – almost twice the size of  the real body and the upper shadow – that broke below previous week’s lows
    • Stochastics (9,1, 3) and RSI (14) turning up – %K crossed above %D from below 10 and RSI turned up from 36.35
    • In previous week, Stochastics reached the lowest since the week of October 31, 2016 and RSI the lowest since the week on Jan 11, 2016
  • Last week’s pivot point=2694.38, R1=2785.23 R2=2847.39; S1=2632.22, S2=2541.37; R1 pivot levels was breached;
  • First down week in a row; fourth in last five weeks and fifth in last ten weeks
  • Broke above an ascending triangle but retraced back to its upper limit; 100% extension target is near 3070.00 level; retraced back to the lower trend line of triangle
  • Broke above a down sloping flag on April 24 2017;
    • flag-low was 2322.25 during 27-Mar-17 week; shorter flag-pole length is 317.19 and longer flag-pole length is 590.88;
    • 100% extension target of shorter flag-pole near 2639.44 and the 161.8% extension target near 2835.46 are achieved; the 261.8% extension target is near 3013.72
    • 61.8% extension target of longer flag-pole near 2687.41 is achieved; the 100% extension target near 2913.13 is achieved; the 161.8% extension target is near 3138.85
  • Broke above a down-sloping flag on November 14, 2016;
    • the flag low was 2083.79 during 31-Oct-16 week; the shorter flag-pole length is 202.13 and the longer flag-pole length is 383.71;
    • 261.8% extension target of shorter flag-pole near 2612.97 is achieved
    • the 161.8% extension target of longer flag-pole near 2704.63 is achieved; the 261.8% extension target is near 3088.34
  • Last swing low, 2532.69, was the low on February 5, 2018; Last swing high, 2940.91, was during the week of September 17, 2018;
  • Below 10-week EMA and 39-week SMA; above 89-week SMA
  • Uptrend Under Pressure
Daily
  • A red Dark Cloud Cover candle that breached the high and low of Thursday
    • %K is above %D after making a bullish divergence on October 23, 2018 and another on October 29
    • Lower highs and lower lows since October 3
  • Below 20-day EMA, 50-day EMA, 100-day SMA and 200-day SMA
  • In Correction
2-Hour (e-mini future)
  • Declined to the broken downtrend line from the high on October 3; broken the sequence of lower highs and lower lows; broken above EMA 50;
  • RSI-9 declined to below 40 from a 78.28 after making a bearish divergence
  • Below 20-bar EMA, but at/above EMA10 of EMA50
  • Bias: Up-Side
30-Minute (e-mini future)
  • Moving sideways since 2:00 PM on November 2 near 2720.00 after declining from 2766.252 at 7:30 AM to a low of 2699.50 on Friday
  • Broke below the uptrend line from the low of 2603.00 at3:30 PM on October 29; sequence of higher highs and higher lows since 3:30 PM on October 29
  • RSI-9 from near 20 at 12;00 PM on November 2 to just above 50
  • Above 20-bar EMA, which is above 20-bar EMA; both rising
  • Bias: Side
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is mostly moving sideways since 6:00 PM on November 4
  • The band narrow since 10:45 PM
  • RSI-9 moved around 50 from 2:15 PM on November 2 to 4:30 AM; moving up since
  • The Stochastic (9, 1, 3): %K above %D above 75
  • Bias: Side

Previous Session

Major U.S. indices closed mostly down on Friday November 2. The volume was mostly higher from previous day. Russell 2000 closed higher in lower volume and other indices closed down in higher volume. Only two S&P sectors – Consumer Discretionary and Telecom – closed up on Friday.

For the, major indices closed higher but in lower volume than previous week. Only one S&P sector – Utility – closed lower for the week.

From Briefing.com:

Stocks fell on Friday following conflicting U.S.-China trade reports and softer-than-expected sales guidance from Apple (AAPL 207.48, -14.74, -6.6%).

[…]

The S&P 500 lost 0.6%, the Dow Jones Industrial Average lost 0.4%, and the Nasdaq Composite lost 1.0%. Small caps outperformed, with the Russell 2000 adding 0.2%. All four major indices closed solidly higher for the week, adding between 2.4% and 4.3% apiece.

[…]

In short, the strong jobs report validated labor market trends that will keep the Federal Reserve on a tightening path. The CME FedWatch Tool indicated a 80.7% chance of another Fed rate hike in December, up from a 74.5% chance the previous day. The Fed will meet next week, but no rate hike is expected.

Treasuries sold-off with equities on Friday, pushing yields notably higher across the curve. The Fed-sensitive 2-yr yield and benchmark 10-yr yield spiked seven basis points each to 2.91% and 3.21%, respectively, compared to 2.81% and 3.08% yields last week. Also, the U.S. Dollar Index added 0.2% to 96.48.

[…]

The key takeaway from the October employment report is that it is consistent with labor market trends that will keep the Federal Reserve on a tightening path
[…]

Cyclical sectors were largely the best-performing groups this week, with the lightly-weighted materials sector (+6.1%) and the heavily-weighted financials (+4.4%) sectors leading the advance. The consumer discretionary sector (+4.0%) also had a notable gain. On the downside, utilities was the only group to settle in the red, losing 0.6%.
[…]

Overseas, European and Asian stocks rose with Wall Street this week. In Germany, Chancellor Angela Merkel announced that she won’t be seeking re-election as head of the CDU, following disappointing results for her party in a regional election.

[…]

Meanwhile, the Bank of England and the Bank of Japan released their latest policy decisions, keeping interest rates unchanged.

  • S&P 500 Sectors
Sector Daily Trend (Visual) Relative Strength (Last Month – October) Relative Strength (Current) %K vs. %D
Consumer Discretionary Down SPY SPY Below
Consumer Staples Under Pressure XLP XLP Above
Energy Down SPY SPY Below
Materials Down XLB XLB Cross – Over
Industrials Down SPY SPY Below
Finance Down XLF XLF Cross – Over
Technology Down SPY SPY Below
Utility Under Pressure XLU XLU Cross-Down
Heath Care Under Pressure SPY XLV Below
Real Estate Down (Turning Up) XLRE XLRE Below
Telecom Down SPY XTL Below

 

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