Morning Notes – Friday February 1, 2019

Directional Bias For The Day:

  • S&P Futures are drifting down since 4:30 PM on Thursday
  • Odds are for a sideways to down day – watch for break above 2708.25 for change of fortunes
  • Key economic data due:
    • Non Farm Employment Change (est. 165K; 312K prev.) at 8:30 AM
    • Average Hourly Earnings (est. 0.3%; 0.4% prev.) at 8:30 AM
    • Unemployment Rate (est. 3.9%; prev. 3.9%) at 8:30 AM
    • ISM Manufacturing PMI (est. 54.1; prev. 54.1) at 10:00 AM
    • Revised UoM Consumer Sentiment (est. 90.8; prev. 90.7) at 10:00 AM

Markets Around The World

  • Markets in the East closed mixed – Shanghai, Tokyo and Mumbai closed up; Sydney, Seoul and Singapore were down
  • European markets are mostly lower – U.K. is up
  • Currencies:
    Up Down
    • EUR/USD
    • USD/JPY
    • NZD/USD
    • USD/CAD
    • USD/INR
    • Dollar index
    • GBP/USD
    • USD/CHF
    • AUD/USD
  • Commodities:
    Up Down
    • Gold
    • Platinum
    • Palladium
    • Coffee
    • Cocoa
    • Crude Oil
    • NatGas
    • Silver
    • Copper
    • Sugar
    • Cotton
  • Bonds
    • 10-yrs yield is at 2.632%, down from January 31 close of 2.635%;
    • 30-years is at 2.994%, down from 3.005%
    • 2-years yield is at 2.459%, up from 2.455%
    • The 10-Year-&-2-Year spread is at 0.173, down from 0.180

Key Levels:

  • Critical support levels for S&P 500 are 2694.69, 2675.79 and 2658.65
  • Critical resistance levels for S&P 500 are 2708.25, 2721.37 and 2730.90
  • Key levels for eMini futures: break above 2708.25, the high of 2:30 AM and break below 2693.25, the low of 3:00 PM on Thursday

Pre-Open

  • On Thursday, at 4:00 PM, S&P future (January contract) closed at 2702.75 and the index closed at 2704.10 – a spread of about -1.25 points; futures closed at 2704.50 for the day; the fair value is -1.75
  • Pre-NYSE session open, futures price action is lower – at 7:45 AM, S&P 500 futures were down by -4.00; Dow by -10; and NASDAQ by -35.25

Directional Bias Before Open

  • Weekly: Down
  • Daily: Bouncing off in a Downtrend
  • 120-Min: Up-Side
  • 30-Min: Up-Side
  • 15-Min: Side
  • 6-Min: Down

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 25 was a small green candle with long lower shadow and small upper shadow; the high was below previous week’s high and week’s low reached near previous week’s middle; approaching the downtrend line, which may act as a resistance
    • Stochastics (9,1, 3) and RSI (14) moving up – %K is above %D; RSI is moving up and is near 50
    • The index is nearing the 61.8% retracement 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 down -5.95 or -0.2% and ATR is 59.52
  • Last week’s pivot point=2650.00, R1=2687.14, R2=2709.52; S1=2627.62, S2=2590.48; no pivot levels were breached;
  • A down week; first after four up weeks; first 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 green candle with small upper and lower shadows; staying above the downtrend line from October 2018 high
    • %K is above %D; above 90;
    • RSI-14 is turned up again from near 60;
    • RSI-9 is turning up from near 55; showing a failure swing top and needs to rise above 71.46 to nullify it
    • Sequence of lower highs and lower lows since October 3, 2018; need to rise above 2800.18 to break it
  • Above 20-day EMA and 50-day EMA, below 100-day SMA and 200-day SMA
  • Bouncing off in a Downtrend
2-Hour (e-mini future)
  • Moving sideways since 10:00 AM on January 31; continue the break above a symmetrical triangle at the high, which resembles a pennant;
    • The symmetrical triangle targets – the 61.8% extension target near 2707.00 is achieved and 100% extension target is near 2732.00
    • The Flag-Pennant targets – the 38.2% extension target is near 2758.00, the 61.8% extension target is near 2815.00 and the 100% extension target is near 2906.00
  • RSI-9 is again drifting lower after making a near double top at 80.77, which has a potential to become bearish divergence
  • Above 20-bar EMA; which is above EMA10 of EMA50
  • Bias: Up-Side
30-Minute (e-mini future)
  • Drifting mostly sideways since 11:30 AM on January 31 near the high;
    • broke above an ascending triangle is emerging since 8:00 AM on January 28; the 161.8% extension target near 2712.00 is achieved
  • RSI-9 is declining from a high of 73 at 4:30 PM on Thursday; potential bearish divergence; near 40
  • A/above flattening 20-bar EMA, which is above a rising EMA10 of EMA50
  • Bias: Up-Side
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is mostly drifting sideways to down 10:45 PM on Thursday
  • The band is relatively narrow since 1:30 AM; price moving along the lower band
  • RSI-9 is drifting lower since 11:45 AM on Thursday; made a bearish divergence at 4:45 PM; below 50 since 3.45 AM
  • Stochastic (9, 1, 3): %K crisscrossing %D below 50
  • Bias: Side

Previous Session

Major U.S. indices closed mostly higher on Thursday January 31 in mostly higher volume. Dow Jones Industrial Average and Dow Jones Transportation Average closed lower and NASDAQ Composite traded in lower volume

Major indices remain either near or breaking above downtrend line from October 2018 highs. NASDAQ Composite and Russell 200 broke above their respective downtrend lines on January 18 and are staying above after a brief pullback to them. S&P 500, NYSE Composite and Wilshire 5000 Total Market index are breaking above their respective downtrend lines. Dow Jones Industrial Average is just below its downtrend line and the Dow Jones Transportation Average is much below its.

From Briefing.com:

The S&P 500 gained 0.9% on Thursday, as another batch of better-than-feared earnings added to the optimism surrounding U.S.-China trade relations and a dovish-minded Federal Reserve. The Nasdaq Composite gained 1.4%, and the Russell 2000 gained 0.8%.

The Dow Jones Industrial Average, however, lost 0.1% due in large part to negative price action in Microsoft (MSFT 104.43, -1.95, -1.8%), Visa (V 135.01, -2.59, -1.9%), and DowDuPont (DWDP 53.81, -5.47, -9.2%) following their earnings reports.

The S&P 500 communication services sector was easily the best-performing group on Thursday, rising 3.7% on the strength of Facebook (FB 166.69, +16.27, +10.8%) and Charter Communications (CHTR 331.05, +41.14, +14.2%). The utilities (+2.1%) and consumer staples (+1.8%) sectors also outperformed the broader market.

[…]

The Treasury market seems to be pricing in a softer economic outlook, which has been reflected in the sharp drop in yields following Wednesday’s FOMC decision and Fed Chair Powell’s press conference.

After both the 2-yr yield and the 10-yr yield decreased four basis points Wednesday, the 2-yr yield fell seven basis points to 2.46% today while the 10-yr yield fell six basis points to 2.64%. The U.S. Dollar Index increased 0.2% to 95.57.

[…]

• New home sales, which are counted when a contract is signed, jumped 16.9% month-over-month in November to a seasonally adjusted annual rate of 657,000 (Briefing.com consensus 555,000).
o The key takeaway from the report is that the surge in new home sales, which are counted when a contract is signed, coincided with a noticeable drop in both median and average selling prices.
• The Employment Cost Index showed compensation costs for civilian workers increased 0.7% (Briefing.com consensus +0.8%), seasonally adjusted, in the fourth quarter, down from 0.8% in the third quarter. Wages and salaries, which comprise about 70% of compensation costs, increased 0.6%, while benefit costs jumped 0.7%.
o The key takeaway from the report is that it showed an acceleration in the growth of wages and salaries for civilian workers, which increased 3.1% for the 12 months ending in December 2018, versus 2.5% for the 12-month period ending in December 2017.
• The MNI Chicago Business Barometer, also known as the Chicago PMI, dropped to 56.7 in January (Briefing.com consensus 58.0) from a downwardly revised 63.8 (from 65.4) in December. The dividing line between expansion and contraction is 50.0, so the January reading is to be interpreted as a deceleration in growth and not an actual decline in growth.
o The key takeaway from the report was the indication that the New Orders Index fell to a two-year low of 53.2 and that manufacturers’ inability to absorb cost pressures was a reason customers were deterred from placing orders in January.
• Initial claims for the week ending January 26 increased by 53,000 to 253,000 (Briefing.com consensus 220,000). Continuing claims for the week ending January 19 increased by 69,000 to 1.782 million.
o The headline increase is notable, yet the key takeaway is that the large increase in initial claims is apt to be dismissed at this juncture as some typical volatility in a series that saw initial claims hit their lowest level last week in nearly 50 years.

[…]

  • 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) XLRE (Cross-Over) Cross-Over
Telecom Down SPY XLT (Cross-Over) Cross-Over
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