Morning Notes – Friday December 7, 2018

Directional Bias For The Day:

  • S&P Futures are lower to unchanged; drifting mostly up since 3:00 AM
  • Odds are for an up day with choppiness and elevated volatility
  • Key economic data due:
    • Non-Farm Employment Change (155K; 198K est.;  237K prev.) at 8:30 AM
    • Unemployment Rate (3.7%; 3.7% est.; 3.7% prev. ) at 8:30 AM
    • Average Hourly Earnings (0.2%; 0.3% est.; 0.1% prev.) at 8:30 AM

Markets Around The World

  • Markets in the East closed mostly higher – Hong Kong and Singapore were down
  • European markets are higher
  • Currencies:
    Up Down
    • EUR/USD
    • USD/JPY
    • USD/CHF
    • AUD/USD
    • USD/INR
    • Dollar index
    • GBP/USD
    • USD/CAD
    • NZD/USD
  • Commodities:
    Up Down
    • Crude Oil
    • NatGas
    • Gold
    • Silver
    • Copper
    • Platinum
    • Palladium
    • Sugar
    • Cocoa
    • Cotton
    • Coffee
  • Bonds
    • 10-yrs yield is at 2.903%, up from December 6 close of 2.867%;
    • 30-years is at 3.174%, up from 3.136%
    • 2-years yield is at 2.762%, down from 2.766%
    • The 10-Year-&-2-Year spread is at 0.141, down from 0.110

Key Levels:

  • Critical support levels for S&P 500 are 2670.99, 2644.75 and 2621.53
  • Critical resistance levels for S&P 500 are 2695.22, 2711.29 and 2730.90
  • Key levels for eMini futures: break above 2699.25 the high of 4:00 PM on Thursday and break below 2673.75, the low of 7:00 AM

Pre-Open

  • On Thursday, at 4:00 PM, S&P future (December contract) closed at 2696.75 and the index closed at 2695.95 – a spread of about +0.75 points; futures closed at 2691.00 for the day; the fair value is +5.75
  • Pre-NYSE session open, futures price action is unchanged – at 9:00 AM, S&P 500 futures were down by -0.25; Dow up by +15; and NASDAQ down by -10.00

Directional Bias Before Open

  • Weekly: Uptrend Under Pressure
  • Daily: In Correction
  • 120-Min: Down-Side
  • 30-Min: Down-Side
  • 15-Min: Side
  • 6-Min: Side-Up

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; November was a harami spinning top near the lower end of October
  • 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 30 was a large green candle with almost no upper and lower shadows; gapped up on Monday and the gap was not filled; closed above previous weeks high
    • Stochastics (9,1, 3) and RSI (14) turning up – %K crossed above %D from just below 10; RSI also turned up from just below 40
    • During the week of October 22, Stochastics reached the lowest since the week of October 31, 2016 and RSI the lowest since the week on Jan 11, 2016
  • Last week was up by +127.61 or +4.8% and ATR is 110.91
  • Last week’s pivot point=2723.67, R1=2797.38 R2=2834.58; S1=2686.47, S2=2612.76; R1 pivot level was breached;
  • An up week; third in last five weeks and fourth 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 green candle with a real body almost equal to the lower shadow and with almost no upper shadows; gapped down at the open but turned around midday
    • %K is below %D after almost touching 100
    • Did not break above previous high of 2815.15 and thus sustaining the sequence of lower highs and lower lows since October 3 2018
  • Below 20-day EMA , 50-day EMA, below 100-day SMA and 200-day SMA
  • Uptrend Under Pressure
2-Hour (e-mini future)
  • Futures are below a downtrend line from December 3 high but rising since 10:00 AM on December 6; futures retreated from 4:00 PM on Thursday to 6:00 AM and rising since then with a bullish ABCD pattern emerging
  • RSI-9 rising since midnight of December 6 and after making a bullish divergence at 10:00 AM on Thursday
  • Above 20-bar EMA but below EMA10 of EMA50;
  • Bias: Down-Side
30-Minute (e-mini future)
  • Moving sideways since 4:00 Pm on Thursday
  • RSI-9 is between 40 and 65 since 11:30 AM on Thursday; near 65
  • Above 20-bar EMA , which is at/above EMA10 of EMA50
  • Bias: Down-Side
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is mostly moving sideways from 4:00 PM on Thursday
  • The band was narrow from 0:00 AM to 2:15 AM; expanding since then; price moved along the lower band briefly and not touching the upper band
  • RSI-9 rising since 2:45 AM from near 40; above 65
  • Stochastic (9, 1, 3): %K crisscrossed above %D near 0; now above 90
  • Bias: Side

Previous Session

Most major U.S. indices closed lower on Thursday December 6.  The volume was also higher for most. NASDAQ Composite closed up and Dow Jones Transportation Average traded in lower volume.

Indices gapped down at the op and then traded lower in the morning session. They turned around by mid-day and the traded higher for rest of the day. Some closed the gap and some were not able toc lose the gap. A break above yesterday’s high will make it a turn-around day.

From Briefing.com:

The S&P 500 lost 0.2%, but was able to fight back after being down as much as 2.9% earlier in the session. The Dow Jones Industrial Average lost 0.3% after being down as many as 785 points or 3.1%. The Nasdaq Composite added 0.4%, yet it had been down as many as 174 points or 2.4%.

The major indices suffered steep losses in the early going after news of the arrest of Huawei Technologies’ CFO fueled concerns about U.S.-China trade negotiations. Investor sentiment reversed course after European markets closed, however, and kicked into overdrive late in the day following a Wall Street Journal report that suggested the Federal Reserve might be more cautious-minded about raising interest rates following its December FOMC meeting.

[…]

Those concerns, and the sharp selling in the stock market off the open, fueled a flight-to-safety in the Treasury market that pushed yields noticeably lower across the curve. The 2-yr yield dropped three basis points to 2.77% after hitting 2.68% intraday. The 10-yr yield dropped five basis points to 2.87% after hitting 2.82% intraday. The backtracking in the Treasury market also coincided with the close of European markets and the rebound effort in the stock market.

[…]

WTI crude was able to finish off session lows, though, as the weekly crude inventory report from the Energy Information Administration showed a decline in crude stockpiles for the first time since September. Crude oil inventories had a draw of 7.3 million barrels. Also, Saudi Arabia is reportedly waiting to hear from Russia before advancing any formal production cut agreement. An official communique from OPEC is expected sometime on Friday.

[…]

  • Initial jobless claims for the week ending December 1 decreased by 4,000 to 231,000 (Briefing.com consensus 225,000). Continuing claims for the week ending Nov. 24 decreased by 74,000 to 1.631 million.
  • The key takeaway from the report is that initial claims, while down in the latest week, are starting to pick up in a move that suggests the low for this cycle has been reached.

[…]

  • The ISM Non-Manufacturing Index rose to 60.7% in November (Briefing.com consensus 59.0%) from 60.3% in October. The November reading was the second-highest reading this year.

[…]

  • According to the ISM, the past relationship between the Non-Manufacturing PMI and the overall economy indicates the November reading corresponds to a 4.3% increase in real GDP on an annualized basis.

[…]

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