Morning Notes – Friday May 10, 2019

Directional Bias For The Day:

  • S&P Futures are lower; fresh leg down since 6:30 AM; break below a horizontal channel; 100% extension target almost achieved
  • The odds are for a down day with elevated volatility – watch for break above 2861.75 for change of fortune
  • China trade and tariff news is still impacting the sentiments
  • Key economic data due:
    • CPI (0.3% vs. 0.4% est.; prev. 0.4%) at 8:30 AM
    • Core CPI ((0.1% vs. 0.2% est.; prev. 0.1%) at 8:30 AM

Markets Around The World

  • Markets in the East closed mostly up – Tokyo and Mumbai were down
  • European markets are higher
  • Currencies:
    Up Down
    • EUR/USD
    • GBP/USD
    • AUD/USD
    • NZD/USD
    • Dollar index
    • USD/JPY
    • USD/CHF
    • USD/CAD
    • USD/INR
  • Commodities:
    Up Down
    • Crude Oil
    • Gold
    • Silver
    • Platinum
    • Palladium
    • Sugar
    • NatGas
    • Copper
    • Cocoa
    • Coffee
    • Cotton
  • Bonds
    • 10-yrs yield closed at 2.442%, down from May 8 close of 2.482%;
    • 30-years is at 2.872%, down from 2.889%
    • 2-years yield is at 2.246%, down from 2.307%
    • The 10-Year-&-2-Year spread is at 0.184, up from 0.175

Key Levels:

  • Critical support levels for S&P 500 are 2859.16, 2836.40 and 2828,08
  • Critical resistance levels for S&P 500 are 2875.87, 2878.94 and
  • Key levels for eMini futures: break above 2861.75, the high of 7:30 AM and break below 2849.00, the low of 8:30 AM

Pre-Open

  • On Thursday, at 4:00 PM, S&P future (June contract) closed at 2871.00 and the index closed at 2870.72 – a spread of about +1.25 points; futures closed at 2872.75 for the day; the fair value is -1.75
  • Pre-NYSE session open, futures are lower – at 8:30 AM, S&P 500 futures were down by -18.25; Dow by -126 and NASDAQ by -54.25

Directional Bias Before Open

  • Weekly: Uptrend
  • Daily: Uptrend under pressure
  • 120-Min: Down
  • 30-Min: Down
  • 15-Min: Down
  • 6-Min: Down

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

Monthly
  • Under Pressure
  • March 2019 was a green spinning top candle with lower shadow larger than the upper shadow
  • Third up month in a row
  • Sequence of higher highs and higher lows since February 2016 is broken
Weekly:
  • The week ending on Mar 3 was a small green spinning top with small upper shadow and long lower shadow; the index made all time closing and intraday highs
    • Stochastics (9,1, 3) is above 90 but %K is crossing below %D;
    • RSI (9) is above 71; potential of making a Bearish Divergence vis-à-vis October 2018 high when the RSI was above 75 and January 2018 high when it was above 90
    • The index has broken above the 78.6% Fibonacci retracement of the decline from the high in early October 2018
  • Last week was up +5.76 or +0.2% and 5-week ATR is 43.86
  • Last week’s pivot point=2933.42, R1=2966.35, R2=2987.05; S1=2912.72, S2=2879.79; S1 pivot level was breached
  • An up week; fourth in last five weeks and seventh in last ten weeks
  • Last swing low, 2532.69, was the low on February 5, 2018 and breached in December 2018, when a lower swing low of 2346,58; since then the high of 2815.15 is breached but the all time high is not
  • Above 10-week EMA and 39-week SMA; above 89-week SMA
  • Uptrend
Daily
  • A green hammer like candle with small upper shadow and long lower shadow
    • %K is crossing above %D from near 20;
    • Stochastic (70, 1, 3) Pop since February 11
    • RSI-9 is declining since April 30 from 77.81 after making a Bearish Divergence; near 30
    • The sequence of higher highs and higher lows since December 26, 2018
  • Below 20-day EMA; above 50-day EMA, 100-DAY SMA and 200-day SMA
  • Uptrend under pressure
2-Hour (e-mini future)
  • Declining since 10:00 PM on April 30 in steps; lower highs and lower lows since April 30
    • RSI-9 moving down and is near 30 after bouncing from lows below 25 to as high as 60.22 at 8:00 PM on May 9
    • %K is below %D and below 20
  • Below 20-bar EMA, which is below EMA10 of EMA50
  • Bias: Down
30-Minute (e-mini future)
  • Down trending; fresh move down since 8:00 PM on Thursday; Bollinger band is moving sideways to down
    • RSI-21 has declined below 40 after bouncing up tp 59.45 at 9:30 PM from a low of 22.1 at 11:00 AM on Thursday
    • %K is crossing above %D from near 20
  • Below EMA10 of EMA50, which is below 20-bar EMA
  • Bias: Down
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is moving down since 0:45 AM
  • The Bollinger Band was briefly narrow from 6:00 AM to 7:00 AM; expanding since with price walking down the lower band
  • Stochastic (9, 1, 3): %K is crisscrossing %D near 20
  • Bias: Down

Previous Session

Major U.S. indices closed lower on Thursday, May 9 in higher volume. Indices gapped down at the open and then declined sharply till midday. They reversed course around noon and then recouped most of the losses. Many indices made hammer like pattern with long lower shadow and short upper shadow and real body. A close above Thursday high will be positive for the market.

From Briefing.com:

The S&P 500 declined 0.3% on Thursday, although it had dropped as much as 1.5% on concerns about an elongated trade war with China. The Dow Jones Industrial Average (-0.5%), the Nasdaq Composite (-0.4%), and the Russell 2000 (-0.3%) also finished near their highs after being down as much as 1.7%, 1.9%, and 1.8%, respectively.

[…]

Investors were steadfast on de-risking, pushing stocks to session lows in morning action. All 11 S&P 500 sectors showed considerable losses, which helped send the S&P 500 below its 50-day moving average (2860). U.S. Treasuries rose in a flight-to-safety trade, and the CBOE Volatility Index (VIX 19.35, -0.26) touched 23.38 at its high.

[…]

Nevertheless, the trade-sensitive S&P 500 materials (-0.8%) and information technology (-0.7%) sectors were the worst-performing groups. The real estate (+0.3%) and energy (+0.1%) sectors were the lone sectors to finish higher.
[…]

U.S. Treasuries finished on a higher note, although buying interest cooled off as equities staged a recovery. The 2-yr yield declined four basis points to 2.26%, and the 10-yr yield declined three basis points to 2.46%. The U.S. Dollar Index lost 0.2% to 97.42. WTI crude lost 0.6% to $61.73/bbl.

[…]

• The Producer Price Index for final demand increased 0.2% m/m in April, as expected, while the index for final demand, less food and energy (“core PPI”), increased 0.1% (Briefing.com consensus 0.2%). That left the yr/yr increases at 2.2% and 2.4%, respectively, unchanged from March.
o The key takeaway from the report is that it didn’t show any acceleration in core producer inflation, which will keep the market’s pass-through concerns for the consumer in check.
• Initial claims for the week ending May 4 decreased by 2,000 to 228,000 (Briefing.com consensus 220,000). Continuing claims for the week ending April 27 increased by 13,000 to 1.684 million.
o The key takeaway from the report is that the four-week moving average of 220,250 remains relatively close to a 50-year low, which implies there hasn’t been any undue weakening in the labor market.
• The trade deficit was $50.0 billion in March (Briefing.com consensus -$51.2 bln), up from -$49.3 billion in February. Exports of $212.0 billion were $2.1 billion more than February exports. Imports of $262.0 billion were $2.8 billion more than February imports.
o The key takeaway from the report is that there hasn’t been a meaningful improvement in the trade deficit despite efforts to reduce it with increased tariffs.
• Wholesale inventories declined 0.1% in March (Briefing.com consensus +0.1%) on top of an upwardly revised 0.4% increase (from 0.2%) in February. Wholesale sales jumped 2.3% following an unrevised 0.3% increase in February.
o The key takeaway from the report is that inventory growth continues to outpace sales growth on a year-over-year basis, which should help keep price pressures in check.

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