Morning Notes – Thursday June 6, 2019

Directional Bias For The Day:

  • S&P Futures are higher; moving sideways since 3:30 AM after breaking above an ascending triangle
  • The odds are for a sideways to an up day with elevated volatility – watch for break below 2821.75 for change of fortune
  • Key economic data due:
    • Challenger Job Cuts (85.9%; prev. 10.9%) at 7:30 AM
    • Revised Nonfarm Productivity ( est. 3.6%; prev. 3.6%) at 8:30 AM
    • Revised Unit Labor Costs ( est. -0.9%; prev. -0.9%) at 8:30 AM
    • Trade Balance ( est. -50.5B; prev. -50.0B) at 8:30 AM
    • Unemployment Claims ( est. 215K; prev. 215K) at 8:30 AM

Markets Around The World

  • Markets in the East closed mixed – Hong Kong, Sydney Singapore were up; Shanghai, Tokyo and Mumbai were down; Seoul was closed
  • European markets are higher
  • Currencies:
    Up Down
    • EUR/USD
    • GBP/USD
    • USD/CHF
    • AUD/USD
    • NZD/USD
    • Dollar index
    • USD/JPY
    • USD/CAD
    • USD/INR
  • Commodities:
    Up Down
    • Crude Oil
    • Gold
    • Silver
    • Copper
    • Platinum
    • Palladium
    • Sugar
    • Coffee
    • NatGas
    • Cotton
    • Cocoa
  • Bonds
    • 10-yrs yield is at 2.104%, down from June 5 close of 2.123%;
    • 30-years is at 2.607%, down from 2.633%
    • 2-years yield is at 1.835%, down from 1.855%
    • The 10-Year-&-2-Year spread is at 0.269, up from 0.268

Key Levels:

  • Critical support levels for S&P 500 are 2815.32, 2800.92 and 2791.09
  • Critical resistance levels for S&P 500 are 2841.36, 2851.11 and 2863.18
  • Key levels for eMini futures: break above 2838.00, the high of 5:30 AM and break below 2821.71, the low of 1:30 AM

Pre-Open

  • On Wednesday, at 4:00 PM, S&P future (June contract) closed at 2827.25 and the index closed at 2826.15 – a spread of about +1.00 points; futures closed at 2827.75 for the day; the fair value is -0.50
  • Pre-NYSE session open, futures are higher – at 7:15 AM, S&P 500 futures were up by +9.25; Dow by +82 and NASDAQ by +29.25

Directional Bias Before Open

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

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

Monthly
  • Under Pressure
  • May 2019 was a large Bearish Engulfing candle that closed below the real body of April and March and well into March’s lower shadow; April 2019 was a green candle with almost no upper and lower shadows;
  • Third up month in a row
  • Sequence of higher highs and higher lows since February 2016 is broken in December since then a new high has been made in May 2019
Weekly:
  • The week ending on May 31 was a large red candle with small upper shadow and almost no lower shadow;
    • Stochastics (9,1, 3): %K is below %D and near 0; %D made Bearish Divergence during the week of April 29
    • RSI (9) has fallen below 40; made 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 down -74.00 or -2.6% and 5-week ATR is 89.99
  • Last week’s pivot point=2781.03, R1=2811.54, R2=2871.02; S1=2721.55, S2=2691.04; S1/S2 pivot levels were breached
  • A down week; fourth in last five weeks and fifth 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
  • Below 10-week EMA and 39-week SMA; above 89-week SMA
  • Uptrend under pressure
Daily
  • A relatively small green candle that gapped at the open; with small upper shadow and long lower shadow making it look like a hammer
    • %K is above %D from below 10 and approaching 90
    • RSI-9 is above 50 and above its 8-period MA
    • The sequence of higher highs and higher lows since December 26, 2018 is broken on May 29
  • At/below 20-day EMA; below 50-day EMA; above 100-DAY SMA and 200-day SMA; 100-day SMA crossed is above 200-day SMA after for the first time since January 15 on May 22
  • Uptrend under pressure
2-Hour (e-mini future)
  • Rising after the gap down weekly open since 2:00 PM on June 3; broke a sequence of lower highs and lower lows since May 16
    • RSI-21 is rising since 2:00 AM on June 3 after making a Bullish Divergence near 25; moving along 75 after reaching a high near 90
    • %K is crisscrossing %D above 90 since higher since 6:00 AM on June 4;
  • Above 20-bar EMA, which is above EMA10 of EMA50
  • Bias: Up
30-Minute (e-mini future)
  • Moving sideways to up since 9:00 PM on Tuesday; broke above a double bottom pattern the 261.% extension target is near 2846.00
    • Broke above an ascending triangle at 3:00 AM; the 50% extension target is near 2844.00, 61.8% extension target is near 2847 .00 and 100% extension target is near 2858.0
    • RSI-21 is mostly rising since 10:30 AM on Wednesday after declining to just below 50; nearing 65
    • %K is crisscrossing %D above 80
  • Above 20-bar EMA, which is above EMA10 of EMA50
  • Bias: Up
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is moving sideways to up since 10:00 PM on Tuesday
  • The Bollinger Band was relatively narrow from 00:00 AM to 3:00 AM; expanding since with price first walking up the upper band and the moving sideways
  • Stochastic (9, 1, 3): %K crossed above %D at 6:15 AM; moving higher
  • Bias: Up

Previous Session

Major U.S. indices mostly closed higher on Wednesday, June 5 in lower volume. It was a good follow-through day for most indices after the big gain on Tuesday but the lower volume dampens it impact. Russell 2000 closed down.

Most indices, however, made either doji like candle or a candle with small real body with long lower shadow. Indices opened higher and then declined and tested Tuesday’s close before turning up and closing higher than the open. All S&P sectors except Energy were up for the day.

From Briefing.com:

The S&P 500 advanced 0.8% on Wednesday, benefiting from follow-through buying interest on hope that the Fed will cut rates amid a slowing growth environment. The Dow Jones Industrial Average gained 0.8%, and the Nasdaq Composite gained 0.6%.

The Russell 2000 lost 0.1% in part due to lower oil prices ($51.66/bbl, -$1.87, -3.5%) weighing down energy stocks following some bearish inventory data. The S&P 500 energy sector declined 1.1%.

Gains were still seen across the other ten S&P 500 sectors, led by the utilities (+2.1%) and real estate (+2.3%) sectors. The outperformance in these defensive-oriented sectors reflected some reservations in adopting a full risk-on mindset, though.

[…]

The disappointing ADP report helped bolster this view, as the 2-yr yield dropped 10 basis points to 1.78% at its low following the report. The fed funds futures market now sees a 71.8% implied likelihood of a rate cut at the July 30-31 FOMC meeting.

Demand for Treasuries eased during the day, bringing yields off session lows, as equities advanced to session highs. The 2-yr yield finished four basis points lower at 1.84%, and the 10-yr yield finished unchanged at 2.12%. The U.S. Dollar Index advanced 0.3% to 97.34.

[…]

• The ADP Employment report showed an estimated 27,000 jobs were added to private-sector payrolls in May, well below the Briefing.com consensus estimate of 170,000 and the prior month’s downwardly revised 271,000 (from 275,000). Jobs in the goods-producing sector decreased by 43,000 while jobs in the service-providing sector increased by 71,000.
o The key takeaway from this report is that it will foment the concerns about the U.S. economy slowing in the second quarter. At the same time, though, it will feed the market’s belief that the Fed is going to be forced to cut the fed funds rate sooner rather than later.
• The ISM Non-Manufacturing Index increased to 56.9% (Briefing.com consensus 55.4%) from 55.5% in April. The dividing line between expansion and contraction is 50.0%, so the uptick in May reflects a slight acceleration in growth for the non-manufacturing sector.
o The key takeaway from the report is that growth in the sector is leveling off; and it was said in the report that respondents are “mostly optimistic about overall business conditions, but concerns remain about tariffs and employment resources.”
• The Federal Reserve’s June Beige Book described economic activity during the survey period as expanding at a “modest” pace, which represents a slight improvement from the previous report. Growth was reported across most districts, but there were signs of slowing in some regions. Vehicle sales decreased across most districts. Employment continued increasing nationwide while overall prices saw modest upward pressure.
• The weekly MBA Mortgage Applications Index increased 1.5% following a 3.3% decline in the prior week.

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