Morning Notes – Wednesday January 16, 2019

Directional Bias For The Day:

  • S&P Futures are higher; moving mostly sideways since 3:30 PM on Tuesday
  • Daily and weekly trends are down
  • Odds are for an up day with elevated volatility – watch for break below 2602.50 for change of fortunes
  • Key economic data due:
    • Import Prices (est. -1.3%; -1.% prev.) at 8:30 AM
    • NAHB Housing Market Index  (est. 56; 56 prev. ) at 10:00 AM

Markets Around The World

  • Markets in the East closed mostly up – Tokyo closed down
  • European markets are mostly higher – U.K and Germany are down
  • Currencies:
    Up Down
    • Dollar index
    • USD/JPY
    • USD/CHF
    • USD/CAD
    • USD/INR
    • EUR/USD
    • GBP/USD
    • AUD/USD
    • NZD/USD
  • Commodities:
    Up Down
    • NatGas
    • Copper
    • Platinum
    • Palladium
    • Sugar
    • Cotton
    • Cocoa
    • Crude Oil
    • Gold
    • Silver
    • Coffee
  • Bonds
    • 10-yrs yield is at 2.742%, up from January 15 close of 2.711%;
    • 30-years is at 3.103%, up from 3.071%
    • 2-years yield is at 2.562%, up from 2.533%
    • The 10-Year-&-2-Year spread is at 0.180, up from 0.178

Key Levels:

  • Critical support levels for S&P 500 are 2593.96, 2578.22 and 2570.41
  • Critical resistance levels for S&P 500 are 2613.08, 2635.07 and 2655.51
  • Key levels for eMini futures: break above 2617.00, the high of 2:00 AM and break below 2602.50, the low of 8:00 PM on Tuesday

Pre-Open

  • On Tuesday, at 4:00 PM, S&P future (January contract) closed at 2610.50 and the index closed at 2610.30 – a spread of about +0.25 points; futures closed at 2605.50 for the day; the fair value is +5.00
  • Pre-NYSE session open, futures price action is to the upside – at 7:45 AM, S&P 500 futures were up by +6.75; Dow by +92; and NASDAQ by +11.50

Directional Bias Before Open

  • Weekly: Down
  • Daily: Down
  • 120-Min: Side-Up
  • 30-Min: Up
  • 15-Min: Up-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; 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 January 11 was a relatively large green candle with almost no upper shadow and small lower shadow; the high is near a resistance level – the low of October 2018, which was support earlier
    • Stochastics (9,1, 3) and RSI (14) moving up – %K is above %D; RSI is moving above 40
    • The index has retraced 38.2% of the decline from the high in early October 2018
    • The index reached below the 50% Fibonacci retracement level – at 2374.98 – from the rally from February 2016 low and reached a low of 2346.58; the 61.8% Fibonacci retracement is near 2251.86
    • During the week of October 22, Stochastics reached the lowest since the week of October 31, 2016; last week RSI reached the lowest since the week on August 15, 2011;
  • Last week was up +64.32 or +2.5% and ATR is 73.26
  • Last week’s pivot point=2572.88, R1=2621.20, R2=2646.4; S1=2547.94, S2=2499.62; R1 pivot level was breached;
  • An up week; third in last five weeks and fifth in last ten weeks
  • The break above an ascending triangle in May 2018 is nullified as the price has fallen below its low
  • The break above a down sloping flag on April 24 2017 is also nullified; the 161.8% extension target near 2835.46 was achieved; 100% extension target of a longer flag-pole near 2913.13 is achieved
  • Last swing low, 2532.69, was the low on February 5, 2018 and breached in December 2018
  • Below 10-week EMA and 39-week SMA; below 89-week SMA (first since June 27, 2016)
  • Downtrend
Daily
  • A relatively large green candle with almost no lower shadow and very small upper shadow; breaking above the resistance created by October 29, 2018 low of 2603.54 and 50-day EMA
    • ABCD pattern emerged on January 4th; the 61.8% extension target near 2551.00 is achieved; the 100% extension target is near 2617.00
    • %K again crossed above %D over 90;
    • RSI-14 is just above 50
    • Sequence of lower highs and lower lows since October 3, 2018
  • Above 20-day EMA; below 50-day EMA, below 100-day SMA and 200-day SMA
  • Downtrend
2-Hour (e-mini future)
  • Futures are mostly moving sideways to up since 2:00 PM on January 8; bias since 6:00 PM on December 25 is up; higher highs and higher lows since then
  • RSI-9 rising from just below 40 at 4:00 AM on Monday to above 65 at 2:00 AM on Wednesday; now just below 65
  • Above 20-BAR EMA, which is above EMA10 of EMA50
  • Bias: Side-Up
30-Minute (e-mini future)
  • Moving up since 8:30 AM on Tuesday; moving up in steps since January 7
  • RSI-9 declined from above 65 at 12:00 PM on January 15; moving between 50 and 65 since then; just above 50
  • At/below 20-bar EMA but above EMA10 of EMA50; both are trending up
  • Bias: Up
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is moving sideways to up since 3:00 PM on Tuesday
  • The band was relatively narrow from 9:00 PM to 5:15 AM; expanding since with price mostly moving along lower band
  • RSI-9 moving between 40 and 65 since 1:00 PM on Tuesday; bouncing from near 40 to just below 50
  • Stochastic (9, 1, 3): %K is crisscrossing below %D from just over 90 at 00:15 AM to below 20; now near 30
  • Bias: Up-Side

Previous Session

Major U.S. indices closed mostly higher on Tuesday January 15. Dow Jones Transportation Average closed down. The volume was mostly higher than that on Monday but lower than the 10-day average. Russell 2000 traded in lower volume.

The indices are breaking above a resistance zone near the lows of October 2018. Indices are still in downtrend and below a downtrend line from the all time highs made in early October 2018. NASDAQ Composite and Russell 2000 are approaching their downtrend lines.

From Briefing.com:

The S&P 500 gained 1.1% on Tuesday, as a shift to high-growth stocks helped the market rally past several earnings disappointments. The ability of the market to rally on bad news fed into a belief that the bad news was priced in already during the December rout, which in turn fueled hope that bargain-hunting efforts will keep the 2019 rally try going.

The Dow Jones Industrial Average gained 0.7%, the Nasdaq Composite gained 1.7%, and the Russell 2000 gained 0.9%.

The S&P 500 health care (+1.7%), communication services (+1.7%), and information technology (+1.5%) sectors led the advance. Conversely, the industrials (-0.3%) and material (-0.7%) sectors underperformed.

[…]

The bond market was quiet despite the gains in the stock market. The 2-yr yield and 10-yr yield were unchanged at 2.52% and 2.71%. The U.S. Dollar Index rose 0.3% to 95.92. WTI crude rose 2.6% to $51.92/bbl.

[…]

• The Producer Price Index for final demand declined 0.2% (Briefing.com consensus -0.1%) while the index for final demand, less food and energy, declined 0.1% (Briefing.com consensus +0.2%). The monthly changes left the index for final demand up 2.5% year-over-year, unchanged from November, and the index for final demand, less food and energy, up 2.7%, also unchanged from November.

o The key takeaway from this report is that producer price inflation is moderating, which will suggest in the market’s mind that consumer price inflation is going to as well.

• The Empire State Manufacturing Survey General Business Conditions Index fell to 3.9 in January (Briefing.com consensus 12.2) from 11.5 in December, led by a deceleration in new orders, inventories, and the number of employees. The six-month outlook also dropped, falling to 17.8 from 30.6.

o The key takeaway from the report is that it fits the view that there is a slowdown in manufacturing activity, which has piqued concerns about a broader slowdown in economic activity unfolding in 2019.

  • S&P 500 Sectors
Sector Daily Trend (Visual) Relative Strength (Last Month – December) Relative Strength (January) %K vs. %D (January)
Consumer Discretionary Down XLY (X-Over) XLY Cross-Over
Consumer Staples Down XLP SPY (Cross-Under) Below
Energy Down SPY XLE (Cross-Over) Cross-Over
Materials Down XLB SPY (Cross-Under) Cross-Over
Industrials Down SPY (X-Under) XLI (Cross-Over) Cross-Over
Finance Down SPY (X-Under) XLF (Cross-Over) Cross-Over
Technology Down SPY SPY Cross-Over
Utility Under Pressure SPY (X-Under) SPY Below
Heath Care Down XLV SPY (Cross-Under) Below
Real Estate Down SPY (X-Under) SPY Below
Telecom Down SPY XTL (Cross-Over) Cross-Over
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