Weekly Market Analysis: 2018 Week 46 Recap / Week 47 Preview

Week  Review (12-16 Nov 2018)

Wall Street tumbled this week, with consumer discretionary and information technology stocks leading the retreat.

Concerns over peak earnings growth continued to linger, and a further breakdown in oil prices also weighed on investor sentiment. Brexit reentered the mix this week, and, as always, U.S.-China trade headlines were plentiful. The S&P 500 lost 1.6%, the Dow lost 2.2%, the Nasdaq lost 2.2%, and the Russell 200 lost 1.4%.

Within the tech space (-2.5%), Apple (AAPL) got off to a rough start after two more suppliers, Lumentum (LITE) and Qorvo(QRVO), cut their guidance. Disappointing guidance from chipmakers NVIDIA (NVDA) and Applied Materials (AMAT) also weighed on the sector, with NVIDIA plunging nearly 20% on Friday.

Meanwhile, a host of retailers reported earnings this week, including Walmart (WMT), Macy’s (M), Home Depot (HD), and Nordstrom (JWN) to name a few. The reports generally showed better-than-expected profits, but shares sold off in response nonetheless. The SPDR S&P Retail ETF (XRT) lost 4.5%, while the consumer discretionary sector lost 3.8%.

Additional Commentary On Macroeconomics

This week saw the market bounce on any U.S.-China trade development no matter if the news was new or repetitive.

Financial Times report suggested China and the U.S. are trying to reach a trade truce ahead of the G-20 meeting at the end of the month, but clarification from the U.S. Trade Representative’s office said that the next round of tariffs for China are not on hold. President Donald Trump chimed in that China is open to a trade deal, though a list of concessions reportedly presented from China before did not mention structural reforms that have been demanded by President Donald Trump.

At the very least, National Economic Council Director Larry Kudlow did confirm that the U.S. and China have resumed trade discussions.

Overseas, UK Prime Minister Theresa May received cabinet approval for her draft withdrawal statement for Brexit. However, Brexit secretary Dominic Raab, and several other ministers, resigned after the approval, and reports indicate that the 1922 Committee received 48 letters needed to trigger a vote of no-confidence in Prime Minister Theresa May. The vote could take place next week.

Sector Performance

In Washington, Congresswoman Maxine Waters, who is set to take over the House Financial Services Committee this January, vowed that the days of weakening bank regulations will be coming to an end. Ms. Waters’ comments should not have been seen as a surprise as it was understood this would likely be the case following the midterm election results. However, a knee-jerk sell off in the financial space, which finished the week lower by 1.3%, suggested otherwise.

Conversely, outperforming the broader market were the lightly-weighted real estate (+0.8%), materials (+0.4%), and the heavily-weighted health care (-1.1%) spaces. Utilities seems to the bright spot in a soft market for the last week.

Other Market(s) Performance

The oil-sensitive energy space (-2.1%) fell in tandem with WTI crude, which dropped 6.1% to $56.52/bbl and extended its losing streak to 12 sessions before bouncing back.

Saudi Arabia announced it would reduce its oil exports in December by 500,000 barrels a day due to a seasonal slowdown in demand, but President Trump rebuked that decision on Twitter. There were also reports that OPEC and non-OPEC allies could be entertaining a plan to cut production by 1.4 million barrels per day in 2019. However, OPEC cut its 2019 oil demand forecast for the fourth consecutive month.

Elsewhere, U.S. Treasuries saw heightened demand amid market turbulence and a softer-sounding perspective from Fed Vice Chair Richard Clarida. Mr. Clarida conceded on Friday that he thinks the Fed is getting closer to a neutral rate, which is a dovish stance compared to Fed Chair Jerome Powell’s “long way from neutral” comments from last month. The 2-yr yield lost 13 basis points to close at 2.80%, and the 10-yr yield lost 12 basis points to close at 3.07%.

2 Weeks Ago I Said……

“On the technical front, looking at the orange vertical lines I have plotted, we can see a P1=P2 price structure forming. While over the course of the next week, it’s a obvious call to say that prices will now test 2600 level. However I do have a different twist to this since it’s soooo obvious.

I am going to make a bold call for prices of SPX to consolidate & retest the upside 2700 level first before any movement to 2600 is possible. One thing is for sure, it’s going to be a volatile week.”

First & foremost please accept my sincere apologies for missing the market analysis for the past 2 weeks. Nov has been rather hectic with my business travels for seminars in 2 different countries, and also plagued with a persistent flu bug for most of the last week. This is why I didn’t provide with a timely market update since the start of Nov.

Now it’s back to business, and again if you had followed my call on SPX, you would have struck gold catching the bounce. Again the reason why I made my bold call of SPX bouncing and retesting the upside 2700 level is because of a divergence I saw on the technical charts. The confirmation came at the break of the trend line.

Week 47 Preview (19th Nov – 23rd Nov 2018)

The market is stuck in a consolidation phase for now, with the upside of 2800 in force. The reason why I think that the market might stop declining and does a retest of the 2800 supply zone is because of the advancing swing lows from a technical stand point.

However the market seems to be really spooked by the prospect of trade war between US & China. My blunt take on this is, nothing is going to stop the market as long as the fundamentals remain intact for the long term.

In the past 8 years of trading, I have witnessed the effects of tapering, raising interest rates, euro crisis & most recent Brexit. Time after time, the market bounced back strongly and continue its upwards climb as we are in a bull market.

This time round, I am not betting against it. The more negative headlines I see on news portal, the more I shake my head as stocks are changing hands from the weak hands to the “smart money”.

This week I would want to see the market testing the 2700 zone first, to probe if there are any demand at this price point. If there is, I can also expect 2800 zone to be tested again towards the end of the week. However, If the probe fails, then we should see SPX sliding below 2700 zone to test out 2625 zone.

And Because I Missed The Analysis For Past 2 Weeks……

I am going to share with you these stocks that I will be looking at for this coming week for their respective direction:

Short: MO, GS

Long: CCK, MMM

Please do your own due diligence. Trade safe guys!

Weekly Market Analysis: 2018 Week 43 Recap / Week 44 Preview

Week  Review (22-26 Oct 2018)

The stock market just had another terrible, horrible, no good, very bad week, filling in some more blanks on what has been a terrible, horrible, no good, very bad month.

Just how bad has it been?  The Russell 2000 is down 12.5% in October; the Nasdaq Composite is down 10.9%; the S&P 500 is down 8.8%; and the Dow Jones Industrial Average is down 6.7%.

The thrust of matters is that the market is worried about growth.  That might sound odd considering it was revealed on Friday that third quarter real GDP increased at an annual rate of 3.5%, yet it is the sobering message that has resonated loud and clear in the stock market’s price action.

The worry isn’t about the growth that was just left behind.  Rather, it is about the growth to come — or perhaps lack thereof.

There are various explanations regarding the causes of the stock market’s correction: the adverse effect of a strong dollar; the slowdown in China and other foreign markets; tariff issues, raw material price increases; political uncertainty; diplomatic uncertainty; price increases for consumers; rising interest rates; and profit margin pressures.

Ultimately, they all feed into the one thing that matters most for the stock market: earnings growth.

The clearest evidence that the stock market is wrapped up in worries that future earnings growth won’t live up to expectations is in the third quarter earnings results.  They have been quite impressive.

According to FactSet, the blended third quarter earnings growth rate is 22.5%, up from 19.3% on September 30.  What’s more is that the forward 12-month EPS estimate has increased by 0.8% over the same period.

Analysts, then, aren’t marking down their estimates, yet investors are marking down stock prices sharply, believing those estimates are destined for a downward revision in due time as the effects of tariffs, higher interest rates, and higher operating costs kick in just as the initial thrust of the tax cuts gets kicked out and earnings comparisons become more difficult.

The quantitative result is that there has been a compression in the forward twelve-month P/E ratio to 15.5, versus 16.8, at the beginning of the fourth quarter, according to FactSet, as prices have dropped sharply while the earnings estimate has drifted higher.

Even so, there hasn’t been a concerted effort yet to buy into the weakness, which has been unsettling for investors who have grown accustomed to the stock market, and particularly the mega-cap growth stocks, always bouncing back in confident fashion.

The recognition that any strength has been viewed as an opportunity to sell has shaken investor confidence and has contributed to selling efforts on the part of investors trying to secure profits in crowded trades before they disappear altogether.

That would take some time yet for anyone buying at the start of this bull market.  To wit, the S&P 500 is still up nearly 300% from its low in March 2009; nevertheless, the ugly price action of late in key leadership stocks (i.e. the FAANG stocks), key leadership groups (i.e. information technology, communication services, consumer discretionary, financials, and industrials), and the major indices has upset the balance of confidence in the stock market.

That all came home to roost in the week that just concluded.

There were some good reports to be sure and some encouraging reactions to those reports.  Microsoft (MSFT), Tesla (TSLA), Twitter (TWTR), Intel (INTC), and Boeing (BA) come to mind.

However, the stock market wasn’t governed by their good news.  It was governed by the disappointing guidance from the likes of Caterpillar (CAT), 3M (MMM), Texas Instruments (TXN), Amazon.com (AMZN), Alphabet (GOOG), Mohawk Industries(MHK), Colgate-Palmolive (CL), and Western Digital (WDC) to highlight a few examples.

Nothing cured the stock market this week, because none of its bugaboos got cured.

Additional Commentary On Macroeconomics

It is sounding like the trade war between the U.S. and China could be a prolonged one; Italy sounds as if it is thumbing its nose at the EU’s request to revise its budget; Saudi Arabia’s explanation for how Washington Post columnist Jamal Khashoggi died had obvious signs of being a cover up; Brexit negotiations have hit another impasse; the U.S. dollar strengthened; and, perhaps most importantly, Federal Reserve officials continued to make their case for why they think further rate hikes are warranted.

The latter is a central component of why the stock market is wrapped up in growth concerns.  It is bothered by the idea that the Federal Reserve is going to raise rates too much, too soon, and choke off the U.S. economy’s growth trajectory at a time when foreign economies, namely China and Europe, are already slowing down.

The translation heard from the lips of many pundits is that there is a fear of the Federal Reserve making a policy mistake.

Sector Performance

Again, though, that gets back to earnings growth concerns, which have fueled broad-based de-risking in the stock market.  All 11 sectors in the S&P 500 ended lower in the week just concluded.  The real estate sector fared the best with a 1.0% decline while the energy sector fared the worst with a 7.1% decline.

Other Market(s) Performance

There was nowhere to hide other than in cash and risk-free Treasuries.  Yields fell across the curve. The 2-yr note came down 11 basis points to 2.81% and the 10-yr yield dropped 12 basis points to 3.08%.

The fact that the stock market found little comfort in the drop in market rates was a telltale sign that it was a terrible, horrible, no good, very bad week for a stock market caught up in a correction driven by earnings growth concerns.

Last Week I Said……

“A tank with this ferocity will rarely lead a a V shaped recovery immediately. The market seems to be capable of pulling surprises of its own with the volatile movement going on lately, so this can be either a dead cat bounce or pullback.

Looking at the market breadths, we should see some respite in the drop for the time being especially in the short term. However the longer term market breadth still display some more room towards the downside.

Any pullback of this scale is at best a complex pullback where there will be multiple tests of the range high and low. And I would want to see some form of basing, or accumulation if SPX were to make a higher markup leg some time in the future.

While I do not argue with the major uptrend that has been on for years, I do think that the market is ripe for a pullback. Prices is testing the previous structure with higher volumes for the past week. Currently it does seems that the market is going to give 2700 a poke this coming week again.”

Again, I am blissfully wrong because the tank went much worse than expected. The market is indeed ripe for a pullback, and it didn’t only gave 2700 a poke, but it crashed through towards the end of the week and closed below the 2700 level convincingly, closing nearer to 2650 level.

A pullback of this scale, more like a correction now, would never be a V-shaped bounce like I previously mentioned. It should and would be healthier to have a complex pullback where the holdings change hands from the retail participants to the “smart money”.

Week 44 Preview (29th Oct – 2nd Nov 2018)

For starters, both the 50d & 200d moving average are turning down. The last time 200d MA trend down to a negative gradient was in late 2015/early 2016. Another time before that was in 2011 where the market was shocked by the Euro crisis. This time, there wasn’t much of an external catalyst that propelled this sell down, but more of worry towards future earnings contraction plus headwind from the trade war.

On the technical front, looking at the orange vertical lines I have plotted, we can see a P1=P2 price structure forming. While over the course of the next week, it’s a obvious call to say that prices will now test 2600 level. However I do have a different twist to this since it’s soooo obvious.

I am going to make a bold call for prices of SPX to consolidate & retest the upside 2700 level first before any movement to 2600 is possible. One thing is for sure, it’s going to be a volatile week.

If you are still reading this, I have prepared a FA checklist just for you to help you streamline your decision in stock selection. Just check out the link, and let me know where do I send it to!

Weekly Market Analysis: 2018 Week 42 Recap / Week 43 Preview

Week  Review (15-19 Oct 2018)

Stocks had a mixed outing this week after suffering heavy losses in the week prior. The benchmark S&P 500 finished flat, leaving its October loss at 5.0%, and the blue-chip Dow ticked up 0.4%. Conversely, the tech-heavy Nasdaq fell 0.6%, and the small-cap Russell 2000 lost 0.3%.

The third quarter earnings season ramped up this week after kicking off last Friday. Financial companies Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC), U.S. Bancorp (USB), Charles Schwab (SCHW), and BlackRock (BLK) reported mostly better-than-expected profits, helping to boost the S&P financial sector 0.8% higher.

Meanwhile, the health care sector rallied 0.5% after Dow components Johnson & Johnson (JNJ) and UnitedHealth (UNH) beat earnings estimates and issued above-consensus guidance.

Software giant Adobe Systems (ADBE) surged nearly 10% on Tuesday after it reaffirmed fourth quarter guidance and said it expects FY19 revenues to be up 20%. The information technology sector trailed the broader market this week overall though, losing 1.2%. Chipmakers were relatively weak, with the Philadelphia Semiconductor Index falling 2.2%.

Netflix (NFLX) was another notable name on this week’s earnings calendar. The streaming media giant beat bottom-line estimates and reported higher-than-expected subscriber growth by adding nearly seven million new subscribers last quarter — six million coming from overseas. However, shares fell later in the week on news that The Wall Street Journal is investigating the company’s corporate culture.

Away from earnings, home-improvement retailers Home Depot (HD) and Lowe’s (LOW) sold off on Wednesday following some disappointing housing data. Housing starts rose to a seasonally adjusted annualized rate of 1.201 million units in September, below the Briefing.com consensus estimate of 1.221 million, and building permits declined to a seasonally adjusted annualized rate of 1.241 million, also below the Briefing.com consensus estimate of 1.273 million.

Also of note, retailer Sears Holdings (SHLD) filed for Chapter 11 bankruptcy. While the news was not a surprise, it did generate a sentimental story line given the retailer’s storied operating history.

The minutes from the September FOMC meeting were released on Wednesday, showing that officials generally agreed on the need for more gradual rate hikes. In addition, the minutes revealed that a number of officials saw the need to hike rates above levels expected to prevail over the long run. The probability of a December rate hike remains high, ticking up to 83.7% from 79.8% last week, according to the CME FedWatch Tool.

Sector Performance

As for the 11 S&P 500 sectors, they finished the week pretty evenly mixed between green and red. Defensive groups like consumer staples (+4.3%), utilities (+3.1%), and real estate (+3.2%) were the top performers, while growth-sensitive groups like consumer discretionary (-2.0%), energy (-1.9%) and materials (-1.4%) finished at the bottom of the sector standings.

2 Weeks Ago I Said……

“With SPX closing just under 2900, and the break of the minor trendline, it can be assumed that SPX can no longer ascend at that same rate. I will want to see SPX testing 2870 zone and see how it reacts around this level in the coming week (evidence of accumulation or further distribution).

Upside remains at all time high of 2940 zone for now. SPX should pullback further to the mid term trend line which has a more manageable angle of ascension. If SPX breaks below 2870 level convincingly, I will be watching the 2800 zone although it’s unlikely to happen in the coming week.”

I was spot on to say that SPX can no longer ascend at the same rate. However what I didn’t expect was the ferocity of the drop, that didn’t even “give face” to the 2800 zone, let alone the 2870 zone. The 2 down days that threw the whole market into chaos, reach the lows of 2725 level.

On a separate note, that week gave me 2 of the best intraday swing opportunities on /ES. More on that here.

Week 43 Preview (22 – 26th Oct 2018)

A tank with this ferocity will rarely lead a a V shaped recovery immediately. The market seems to be capable of pulling surprises of its own with the volatile movement going on lately, so this can be either a dead cat bounce or pullback.

Looking at the market breadths, we should see some respite in the drop for the time being especially in the short term. However the longer term market breadth still display some more room towards the downside.

Any pullback of this scale is at best a complex pullback where there will be multiple tests of the range high and low. And I would want to see some form of basing, or accumulation if SPX were to make a higher markup leg some time in the future.

While I do not argue with the major uptrend that has been on for years, I do think that the market is ripe for a pullback. Prices is testing the previous structure with higher volumes for the past week. Currently it does seems that the market is going to give 2700 a poke this coming week again.

Weekly Market Analysis: 2018 Week 40 Recap / Week 41 Preview

Week  Review (1-5 Oct 2018)

The S&P 500 fell 1.0% this week, weighed down by a surge in bond yields, which rose to multi-year highs in front of Friday’s release of the Employment Situation report for September. The tech-heavy Nasdaq and the small-cap Russell 2000 underperformed, losing 3.2% and 3.7%, respectively, but the blue-chip Dow finished flat.

Stocks began the week on a positive note, boosted by Canada joining Mexico and the United States in a trade agreement. On Sunday night, Canada agreed to allow greater dairy market access to the U.S., while also capping its automobile exports to the States. The deal, also known as the United States-Mexico-Canada Agreement (USMCA) replaces the 24-year-old NAFTA deal between the countries. However, Congress still has to approve the deal, which likely won’t be easy.

Investors awoke to continued Italian drama on Tuesday, when Italy’s anti-establishment government defended its plan to increase the country’s budget-deficit target despite pushback from the EU. In addition, Claudio Borghi, who leads the economic policy of the ruling Lega party, claimed that most of Italy’s problems could be solved if the country had its own currency — although that idea was dismissed by Italy Deputy Prime Minister Di Maio.

However, on Wednesday, Italy’s government decided to cede to some of the EU’s budget demands. Italy’s budget-deficit target will be reduced from 2.4% of GDP in 2019 to 2.2% in 2020 and then to 2.0% in 2021.

That news helped push bond yields higher overnight. Yields then extended those gains significantly after the September ADP Employment Change report — a prelude to Friday’s nonfarm payrolls reading — showed an estimated 230K positions were added to private sector payrolls — well above the consensus estimate of 184K. The ISM Services Index for September also came in better-than-expected on Wednesday, hitting a record high of 61.6% (consensus 58.2%), clearly indicating that business activity in the service-providing sector of the economy is strong.

Yields continued to advance on Thursday and then again on Friday following the release of the Employment Situation report for September. The report showed a smaller-than-expected increase in nonfarm payrolls (134K actual vs 184K consensus), but the August increase underwent a notable upward revision (to 270K from 201K). As for the rest of the report, average hourly earnings increased 0.3% (consensus +0.3%), the average workweek was reported at 34.5 (consensus 34.5), and the unemployment rate dropped to 3.7% from 3.9%.

The key takeaway from the September jobs report is that the labor market is solid and still simmering with the prospect of pent-up wage pressures being unleashed at any point as employers encounter difficulty in finding qualified workers.

Sector Performance

Looking at this week’s S&P sector standings, most groups finished in negative territory. The consumer discretionary sector led the retreat with a loss of 4.2%, and information technology (-2.0%) and communication services (-2.0%) also showed relative weakness. On a positive note, the influential financial sector advanced 1.7%, benefiting from rising yields and, more specifically, a steepening of the yield curve. The benchmark 10-yr yield jumped 16 basis points in total, closing Friday at 3.23% — which marks its highest level since 2011 — while the 2-yr yield jumped five basis points to 2.88%.

Last week I said……

“SPX is firmly in uptrend territory, trending at the gradient of upper minor trendline. As with previous break outs witnessed in the past 3 years, prices more often than not does a retest of the previous price structure and finding a strong base before continuing the uptrend.

It’s unlikely that they will be a severe pullback in the coming week, and if it does break the minor trendline, it will likely do a re-retest of the 2870 zone it previously broke out from. Any further retracement should see SPX breakdown of the 2870 level and pullback to the previous gradient of ascension (major trendline).”

With the current behavior of SPX, seems that it’s indeed heading down to test 2870 level. Given the performance from Mon to Wed, from a price action perspective, it’s a matter of time that a retest of the previous structure happens. Seems that it almost did so in the last 2 sessions of the week.

Week 41 Preview (8 – 12th Oct 2018)

With SPX closing just under 2900, and the break of the minor trendline, it can be assumed that SPX can no longer ascend at that same rate. I will want to see SPX testing 2870 zone and see how it reacts around this level in the coming week (evidence of accumulation or further distribution).

Upside remains at all time high of 2940 zone for now. SPX should pullback further to the mid term trend line which has a more manageable angle of ascension. If SPX breaks below 2870 level convincingly, I will be watching the 2800 zone although it’s unlikely to happen in the coming week.

Crude Oil – How much further can it go?

Disclaimer: Following analysis done based on technicals, without much consideration for macro factors affecting oil prices as well as geo-political events.

Crude oil have been rallying for a large part of 2018. Price action definitely suggest further upside. If you have been long /CL for 2018, you would have been tremendously profitable. However if part of your strategy exposes you a counter-trend position, then you may not be liking your open P&L now.

Price Action

Definitely bullish, without a doubt. However any bull run cannot be sustained without a pullback to mean, finding a base before trend resumes. I am not those trader that goes gaga over chart patterns, I tend to see how prices react to the key levels on the charts and derive at a conclusion based on that.

The recent rally is presumably due to Trump’s sanction on Iran. Check out the article by CNBC at: https://www.cnbc.com/2018/10/02/oil-markets-us-sanctions-on-iran-in-focus.html for a clearer picture on the background story.

Technicals

While I am largely a trend follower, I will also pay attention to short term exhaustion/extended levels based on my customized study. What my study does is to convert the price movement into an oscillatory movement. We can clearly see that whenever CL rallies towards an exhaustion/extended zone, that’s where the pullback will happen.

I certainly do not want to be caught out with the short-lived breakout if the breakout happens near the exhaustion level. On the chart, we can see the zone highlighted in YELLOW clearly shows where this level is, and it’s evident that we are in the vicinity of exhaustion.

How To Trade This?

While it’s not 100% that whenever prices hit the exhaustion level it will retrace, more often than not, it will. Especially in the case of CL, a globally traded commodity, prices should not fluctuate unnecessarily unless in the event of serious sanctions or war.

Hence my opinion for CL is we should see a respite from the bullish action we have witnessed recently. This leaves a limited upside as it also approaches a monthly pivot resistance level.

I would be looking for evidence of price rejection off the resistance before I would jump in to short CL back to mean.

Weekly Market Analysis: 2018 Week 39 Recap / Week 40 Preview

Week 39 Review (24 – 28 Sept 2018)

The S&P 500 pulled away from record highs this week, losing 0.5% in total, as investors digested a flurry of political headlines and the latest policy statement from the Federal Reserve, which included another rate hike — the third one this year. The Dow also fell, losing 1.1%, but the tech-heavy Nasdaq outperformed, rallying 0.7%.

The week began with the U.S. implementing tariffs on $200 billion worth of Chinese goods, which triggered Beijing to impose retaliatory tariffs on $60 billion worth of American products. Chinese officials also canceled mid-level trade talks that had been scheduled for later in the week, dashing hopes for a near-term resolution.

OPEC was also in focus on Monday after it and several non-OPEC nations ended a weekend meeting without an agreement to increase output in order to counter falling supply from Iran due to U.S. sanctions. President Trump criticized OPEC in front of the UN General Assembly on Tuesday, saying the oil cartel is “ripping off the rest of the world” by colluding to limit supply and prop up prices.

In the same address, the U.S. president also criticized Iran, which is currently the target of U.S. economic sanctions, calling its government a “corrupt dictatorship” and saying its leaders “sow chaos, death, and destruction.” President Trump also spoke regarding North Korea, ISIS, and Syria, and reiterated his administration’s hard stance on fair trade.

The Federal Reserve increased short-term interest rates on Wednesday, as expected, raising the fed funds target range by 25 basis points to 2.00-2.25%. In its policy statement, the Fed removed the word ‘accommodative’, which led some to believe that officials could be moving towards slowing monetary tightening. However, Fed Chairman Jerome Powell said during his post-decision press conference that the language change didn’t signal a change in the Fed’s path for rate hikes.

As for rate-hike projections, the Fed still appears to be on track to raise rates another 25 basis points in December, with the CME FedWatch Tool putting the chances at 75.8%. Beyond 2018, the Fed’s dot plot showed expectations for three rate hikes in 2019 (unchanged from June) and one in 2020 (also unchanged from June).

On Capitol Hill, political drama unfolded on Thursday as Supreme Court nominee Brett Kavanaugh and his accuser, Christine Ford, who has accused Mr. Kavanaugh of sexually assaulting her back in high school, testified before the Senate Judiciary Committee. The Committee advanced Mr. Kavanaugh’s nomination on Friday, but a final Senate vote will be delayed for a one-week FBI investigation.

Overseas, two populist parties governing Italy widened the country’s budget-deficit target for next year to 2.4% of GDP on Friday, likely putting the country at odds with the European Union. The major European stock indices sold off in reaction to the news, with Italy’s MIB leading the retreat.

In U.S. corporate news, Comcast (CMCSA) paid $40 billion to win a bid for European broadcaster Sky, ending a two-year battle with 21st Century Fox (FOXA); Nike (NKE) reported above-consensus earnings for its fiscal first quarter; and Facebook (FB) fell on Friday after disclosing a “security issue” impacting 50 million users.

However, perhaps the week’s biggest corporate story revolved around Tesla’s (TSLA) CEO, Elon Musk, who was sued by the SEC on Thursday evening over his tweet about taking the electric automaker private. Mr. Musk and the SEC were reportedly close to reaching a no-guilt settlement that would have barred him from being chairman for two years, but Mr. Musk backed out at the last minute.

As for the sector standings, they were pretty mixed between red and green. The heavily-weighted financials sector was the second-worst performer, losing 4.1% in total, with materials (-4.5%) being the only group with a more substantial loss. Conversely, the newly-added communications services sector was the top performer with a weekly gain of 1.1%.

Week 40 Preview (1 – 5th Oct 2018)

SPX is firmly in uptrend territory, trending at the gradient of upper minor trendline. As with previous break outs witnessed in the past 3 years, prices more often than not does a retest of the previous price structure and finding a strong base before continuing the uptrend.

It’s unlikely that they will be a severe pullback in the coming week, and if it does break the minor trendline, it will likely do a re-retest of the 2870 zone it previously broke out from. Any further retracement should see SPX breakdown of the 2870 level and pullback to the previous gradient of ascension (major trendline).

SPX – A Week In Review

While the market takes a tumble the past week, breaking SPX out of the mid-term channel, the major uptrend is still intact. With that said, lets look at the few levels that would invoke a response and more importantly how we can trade this market moving forward.

With a nice base formed in Apr 2017, SPX embarked from an uptrend from 2330 to the higher of 2480 in Aug 2017. We put on a fibonacci retracement for this rally, and thus able to identify the few key fibonacci  levels namely:

78.6% – 2450

61.8% – 2424

50% – 2410

As the chart shows, SPX has already broke out of the mid-term up channel and entered a tighter short term down channel. The bottom of the short term channel coincided with the 61.8% level which translate to SPX possibly stopping the slide and bounce up from this level. Further downside for SPX remains at 2405 level should the slide continues in the coming week.

Price action lately seems to suggest the bears are in control lately; marked by the ferocious bear candles and lack of bullish fight back in the recent cluster of price action.

I am more inclined for a bounce towards 2450 level (both a resistance and 78.6% fib retracement level) in the coming week, then prices continue to test 2425 and then 2410 towards the end of the coming week or early next week.

Jackson Hole remains on Fri/Sat which is going to keep the market in suspension as to what Yellen or other key officials will say. It’s unlikely for SPX to continue sliding in a fiercer fashion early week unless there are external catalysts such as escalated row with North Korea.

In summary, after such a “fierce” session last Thurs, I am expecting SPX to bounce at least to the middle of the channel (2440-2450) and then bearish pressure to continue towards the end of the week.

Trade safe!

Weekly Market Analysis: Week 39 Recap / Week 40 Preview

Weekly Recap

Dow Jones Industrial Average

CNN - DJI

Standard & Poor’s 500

CNN - SPX

Nasdaq Composite

CNN - NDX

The stock market began the new week on a cautious note. The S&P 500 lost 0.3%, but managed to erase more than half of its opening decline. Thanks to the rebound, the benchmark index reclaimed its 50-day moving average (1976.78) after slipping below that level in the morning. Equities slumped at the open amid a couple global developments that dampened the overall risk appetite. Continued student protests in Hong Kong and a potential response from China weighed on the Hang Seng index (-1.9%), while other regional indices held up relatively well with Japan’s Nikkei (+0.5%) and the Shanghai Composite (+0.4%) posting gains. Meanwhile in Europe, participants showed concerns about the Catalan independence referendum scheduled to take place on November 9. However, a twist was introduced to the story during the afternoon when the Spanish Constitutional Court announced it will block the independence vote.

On Tuesday, the market finished the third quarter on a defensive note with small caps leading the retreat. The S&P 500 shed 0.3% to narrow its Q3 gain to 0.6%, while the Russell 2000 (-1.5%) widened its quarterly loss to 7.9%. The retreat represented the second consecutive decline for the benchmark index, which registered a September loss of 1.6%. The S&P 500 displayed modest strength in the early going with help from influential sectors like technology (+0.2%), financials (-0.2%), and industrials (-0.1%), but slid from highs amid significant weakness in the two commodity-related sectors. Most notably, the energy space (-1.2%) widened its Q3 loss to 9.2% and was pressured by a 3.6% decline in crude oil, which fell to $91.16/bbl, registering a 13.6% loss for the quarter.

The stock market began October and the fourth quarter with a retreat. The major averages spent the day in a steady decline with the Nasdaq Composite leading the slide. The tech-heavy index lost 1.6%, while the S&P 500 (-1.3%) sliced through its 100-day moving average (1958) with nine sectors ending in the red. Equities were pressured from the start with a disappointing set of Manufacturing PMI figures from the eurozone weighing on sentiment. The region-wide reading slipped to 50.3 (expected 50.5) and was driven in part by Germany’s decline to 49.9 from 50.3 (consensus 50.3). Once the U.S. session got going, the key indices slumped amid early weakness in the industrial sector (-1.9%). In turn, the growth-sensitive group suffered from notable losses in airlines, stemming from concerns about the first case of Ebola in the United States. Delta Air Lines (DAL) and Southwest Airlines (LUV) both lost near 3.5%, while the Dow Jones Transportation Average tumbled 2.5%.

The major averages ended the Thursday session on a flat note despite showing broad-based weakness in the early going. The S&P 500 ended unchanged with four sectors in the green. Equity indices started the day near their flat lines, but commenced their retreat once European Central Bank President Mario Draghi concluded his press conference without providing much detail about the central bank’s ABS purchases. Furthermore, Mr. Draghi did not hint at plans for sovereign bond purchases, which had been the subject of conversation in recent weeks. To that point, diminished prospects of a full-scale QE program weighed on markets in Italy (-3.9%) and Spain (-3.1%) with bank shares leading the retreat. As for the U.S., equities slumped across the board in the morning, but staged an impressive reversal after reaching short-term oversold conditions just ahead of 12:00 ET. At that time, the S&P 500 hit its session low of 1925.93 and the TICK reading at the NYSE neared -1500—a level typically associated with excessive selling.

On Friday, the major averages finished a defensive week on an upbeat note. The S&P 500 gained 1.1% with nine sectors ending in the green. The rally helped the benchmark index narrow this week’s decline to 0.8% after being down near 3.0% at its lowest point on Thursday. Equities received a morning boost after the Nonfarm Payrolls report for September sailed past expectations. According to the Bureau of Labor Statistics, payrolls grew by 248,000, which was well ahead of the Briefing.com consensus estimate (210,000). The unemployment rate fell to 5.9% from 6.1%, but that resulted from a drop in the labor force participation rate.

Summary

“finally back after a 9 months long hiatus after settling my business and wedding matters”

Direction for Week 38 – DOWN

Week 38-39 is traditionally the end of the jittery Q3. Many would have heard of “sell in may and go away” but truth be told, May is not the most bearish month on the calendar year. Aug and Sept tends to be when “shit” hits the fan and market tends to be shaky; sideways volatile. That has been what we are seeing so far.

Market Internals

VIX

CNN - VIX

BRIEFING WEEKLY WRAP

SPDR ETF

VIX have been near the floor of 12-13 level for the most of the year except for 4 periods where it spiked above 16. Towards the end of the week, where Week 38 heading into Week 39 should be the turn in market momentum, we see a good rally in the market and an expected drop in the VIX, corresponding to the bullish close to the week. VIX hit a high of near 18, and lose 2% to close the week below 15.

In yet another volatile week, all the major indices closed flat to the down side. With the exception of Russell 2000, the major indices lost between 0.6 to 0.8% for the week. RUT is lagging the market, throwing in a performance of -1.3% for the week. Year to date, Nasdaq is still leading the market with a 7.2% gain while RUT is lagging with a 5.1% loss.

With the market in jittery, sideways volatile fashion, the sector breakdown reflects the exact same sentiments. Energy and Materials top the losers with losses of near 4%. On the other hand, Consumer Staples and Utilities led for the week with a 0.75% and 1.87% gain respectively. In a volatile week to the downside, the countercyclical sectors that led reflected the confusion in the market. The leaders and laggards were not as clear cut as it’s supposed to be.

In addition, the daily volumes for the week have been higher than prior week. With the exception of Monday, where volumes are below the 1 month average of 750m, Tues to Friday saw volumes ranging between 800m to 900m shares.

Technical Update

Dow Jones Industrial Average

TOS - DJI

DOW dipped below the crucial 17000 level at the start of the week after getting resisted by the 20D MA. 50D and 100D MA proved to be no support for the falling market until DOW hit the lower bank of a 2 years up-channel. On Thursday, we saw a Dragonfly Doji forming that coincided with the bottom bank of the uptrend channel. On Friday, in anticipation of the bounce, we saw one of the best bullish rally in the recent weeks to see DJI test the 17000 level again.

I dont see the 20D MA as much of a resistance for DJI. I would expect DJI to break 17000 level in the week to come. Any signs of start of the bullish year end rally has to have DJI finding solid support on the 17000 level.

Standard & Poor’s 500

TOS - SPX

Likewise, a Dragonfly Doji was formed on the SPX on Thursday. SPX isnt as clear cut as DJI, having broke down of its 2 years uptrending channel. It fought back on Friday to get itself back to the channel. I will be awaiting a confirmation sign to see if SPX can hold above 1950 level before it goest to test 2000 level again in the weeks to come.

Nasdaq Composite

TOS - NDX

NASDAQ Composite, being the best performer for the year, also threw up a Dragonfly Doji on Thursday. It found support off the bottom bank of the 2 years uptrending channel and its 100D MA. Moving forward, the 50D MA level might see COMPQ getting resisted there, as well as COMPQ testing the 4500 level. Before the traditional year end rally starts, I would love to see COMPQ closing above 4500 level and holding solid support at this level.

VIX

TOS - VIX

Year to date, VIX have been at a record low level with the exception of 4 periods prior to this spike. This week saw VIX went up to near 18 and VIX closed the week below 15. This coincided with the superb bullish rally in the end of the week. I will be paying close attention to VIX, and a possible spike back to 18 or even 21 because I have a gut feel that the worst might not be over.

Bond Market

BRIEFING BOND

10-Yr: -03/32..2.744%.. USD/JPY: 101.85.. EUR/USD: 1.3698

The Week in Review: 

  • Treasuries booked solid gains as the S&P 500 saw back to back weekly losses for just the third time in 2013.
  • Raising concerns on the macro level was continued economic weakness in both Asia and Europe and a slew of mixed U.S. economic data, not to mentionstudent-led pro-democracy protests in Hong Kong, and ebola fears as the first U.S. case has been confirmed.
  • Continued economic weakness in Japan has many participants expecting the Bank of Japan to up its QE program at some point.
  • Student-led protests for democracy in Hong Kong carried on for an eighth day and saw an escalation as protesters clashed with citizens who support Chinese rule.
  • The European Central Bank outlined its ABS program, indicating asset purchases will take place for at least two years; however, no sovereign bond buying was announced.
  • U.S. economic data was mostly disappointing as pending home sales (-1.0% actual v. -0.2% expected), Case-Shiller 20-city Index (6.7% actual v. 7.4% expected), Chicago PMI (60.5 actual v. 61.5 expected), consumer confidence (86.0 actual v. 92.0 expected), ISM Index (56.6 actual v. 58.5 expected), construction spending (-0.8% actual v. 0.4% expected), and factory orders (-10.1% actual v. -9.3% expected) highlighted the misses.
  • Nonfarm payrolls climbed 248K (210K expected) and the unemployment rate dipped to 5.9% (6.1% previous). Other data to top estimates included personal spending (0.5% actual v. 0.4% expected), PCE Prices – Core (0.1% actual v. 0.0% expected).
  • Friday’s post-nonfarm payrolls action was interesting as selling took place in the belly while buyers were in control at the long end.
  • Yields across the curve hit their lowest levels in a month.
  • Up front, the 2Y slipped -1bp to 0.563%. Action has spent the past month locked in a tight range between 0.500%/0.600% as neither bulls nor bears have been able to gain the upper hand.
  • In the belly, the 5Y eased -7bps to 1.737%. The yield pressed as low as 1.650% amid Thursday’s buying frenzy, but found support at the 200 dma.
  • The 10Y fell -8bps to 2.447%.  the benchmark yield tested support in the 2.400% region before probing the 50 dma (2.471%) in an initial response to Friday’s jobs report.
  • At the long end, the 30Y shed -8bps to 3.134%. Mid-week buying tested the 3.100% area, but so far action has avoid a rendezvous withe September low near 3.050%.
  • A flatter curve took hold as  the 2-10-yr spread narrowed to 188.5bps and the 5-30-yr spread tightened to 139.5bps.

Macroeconomic Data (upcoming)

FF CAL

Market Commentary

Cyclically, Week 39 (end of Sept) will see the sideways volatile movement being muted and early Oct tends to be the inflexion point to see if the market will tank or rally towards the end of year. Technically, most of the indices have hit bottom and this gives me one reason to be bullish in the weeks to come. However, earnings season will be starting soon and we should see further volatility in the market before a “clear sky” can be revealed.

On the horizon, Wed and Thurs should see more volatility as the FOMC Meeting Minutes and the Unemployment Claims will be announced. I am expecting to see Mon and Tues closing bullishly (less any bearish news) before a muted Wednesday till the FOMC minutes are announced. All eyes will be on the “when” the FED will possibly raise interest rates. Given that the Unemployment Rate went bellow 6% in the latest report, should the FED bring forward the date, this should send the market into panic mode.

With all else being equal, we should see a technical bounce and a positive week ahead.

Direction for Week 40 – UP

Weekly Market Analysis: Week 06 Recap / Week 07 Preview

Weekly Recap

Dow Jones Industrial Average

DJIA

Standard & Poor’s 500

SPX

Nasdaq Composite

NASDAQ

The stock market began the week on a subdued note. The Dow Jones Industrial Average, Nasdaq, and S&P 500 posted gains between 0.1% and 0.5% with the Nasdaq Composite ending in the lead. Overall, the session had a ‘wait-and-see’ feel as many participants stuck to the sidelines ahead of Janet Yellen’s testimony on monetary policy. The limited participation was reflected in the trading volume as only 640 million shares changed hands at the NYSE.

On Tuesday, the stock market rallied steadily with the Dow Jones Industrial Average (+1.2%) providing the lead. Thanks to the advance, the Dow narrowed its 2014 loss to 3.5% while the Nasdaq (+1.0%) was able to swing from a loss to a year-to-date gain of 0.4%. The S&P 500 (+1.1%) regained its 50-day moving average with all ten sectors contributing to the climb. Contrary to the expectations of many, Janet Yellen’s testimony before the House Financial Services Committee was uneventful as the Chair struck a tone consistent with remarks made by her predecessor. When asked about the impact of the disappointing jobs reports for December and January on the Fed’s reaction function, Ms. Yellen said it would be premature to alter policy based on a limited sample size. All ten sectors took part in the advance with energy (+1.4%) and materials (+1.2%) ending in the lead. Despite the broad rally, trading volume was below average as less than 700 million shares changed hands at the NYSE.

Equity indices took a bit of a breather on Wednesday after the S&P 500 surged nearly 4.5% in the six sessions since February 3. The benchmark index shed less than a point while the Dow Jones Industrial Average slipped 0.2%. Overall, the session was very quiet as the key averages respected narrow ranges. The S&P 500 spent the bulk of the trading day near its flat line while the Nasdaq (+0.2%) outperformed. Again, participation was well below average with less than 630 million shares changing hands at the NYSE.

Thursday’s session saw the stock market rally steadily throughout the trading day despite starting on a lower note. Small caps led the way with the Russell 2000 climbing 1.3% while the S&P 500 advanced 0.6%. The benchmark index was down as much as 0.6% at the start after overnight weakness in the futures market set the stage for a lower open. The losses in futures coincided with a wave of yen strength that once again stoked fears about potential forced unwinds of the yen-based carry trade. Adding to the early weakness was a disappointing retail sales report for January. Even though stocks opened lower, the S&P 500 found support at its 50-day moving average in the 1810 area. The index also drew strength from the retreat in the yen as the dollar/yen pair climbed off its low just under the 101.75 level.

On Friday, the stock market ended an upbeat week on a positive note. The Dow Jones Industrial Average (+0.8%) paced the advance while the S&P 500 gained 0.5%. The Nasdaq (+0.1%) lagged, but was able to finish at its highest level since late 2000. Friday’s advance capped an impressive week during which the benchmark S&P 500 gained 2.3%. Even though stocks rallied sharply, it is worth noting that all five sessions of the week saw below-average volume while bellwether groups like financials and transports struggled to keep pace with the broader market. The financial sector added just 0.2% on Friday, extending its weekly gain to 1.6%. For its part, the Dow Jones Transportation Average (+0.3%) added 0.9% for the week.

Summary

Cyclically, Week 3 is bearish. And Week 4, is likely to follow suit but to a lesser extent. I am expecting largely sideways movement for this week with a slightly bearish tone. However I would also pay attention to Wednesday where the FOMC statement is released. Given the sentiment-driven market, what the Fed says will have a strong bearing on the performance.

Direction for Week 4 – DOWN

Much has changed since I last published my Weekly Market Analysis. The 4 Weeks of selling we saw throughout Jan changed when the market headed into Feb. Although the 1st trading session of Feb was very bearish, bulls came in quickly to reverse the tide against the bears. Since then, market have been thrown in an outstanding performance for the bulls and major indices are heading towards their pre-sell down levels. Week 5 was the reversal and week 6 saw the bulls took over and resume the bullishness we see throughout 2013.

Market Internals

VIX

VIX

Briefing-Weekly-Wrap

SPDR-Sector-ETFs

Nasdaq has yet again led the market for the week with a near 3% gain. Trailing behind is both the DJIA and SPX with good gains of 2.3% for the week. Year-to-date, Nasdaq broke even with a 1.6% gain while the rest of the major averages are still in negative territory with losses of 0.5% to 2.5%. Lagging the whole market is DJIA with a loss of 2.5% year to date.

In such a bullish week, all the sectors gained between 1.69% to 3.6%. Top performing sectors are Utilities and Materials and Health Care while Financials, Industrials and Consumer Discretionary trailed the overall S&P500 index.

The breakdown of sector performance certainly does not support the bullish week that passed and as 2 counter-cyclical sectors are among the leading sectors of the week. While on the other hand, the lagging sectors are all cyclical sectors. This is a possible sign of fear and cautiousness among the market participants in this stellar bullish week.

In addition, the daily volumes for the week have been below average of 746m. Notably, Friday’s volume was especially low with only 621m shares exchanging hands on the NYSE.

Technical Update

Dow Jones Industrial Average

Prophet-DJIA

DOW gained near 800 points since the reversal in early Feb, and around 400 points for the past week. Moving forward, I am expecting a consolidation after such a stellar bull run for the past week. Without a doubt, DJIA is certainly still on the long term uptrend, having just cleared above it’s 50D SMA. Moving forward, it remains to be seen if DJIA can break 16200 and if it does, next major resistance will be at 16600.

Standard & Poor’s 500

Prophet-SPX

Likewise, after a triumphant rally by the bulls for the past 2 weeks, SPX is heading towards its all time high of 1850.84. I am looking for SPX to inch towards this level and I dont think a break up of this resistance level will happen this week. SPX has cleared all its 20D and 50D SMA in the past week, and they will act as important dynamic support should SPX tank this week.

Nasdaq Composite

Prophet-Nasdaq

NASDAQ Composite, being the best performer for the week and year, closed around 4250 (all time high levels). Given the bullish momentum with technology sector lately, I would expect COMP to break through this key psychological level this week. In addition, COMP is the only average that is still long term and short term bullish while DJIA & SPX has a bearish crossover on their respective 20D and 50D SMA. Should COMP be unable to break up of the 4250 levels, it will correct and possibly find support on the 20D/50D SMA.

VIX

Prophet-VIX

Looking at VIX, which is range bounded between 12 and 21 for the whole of last year and this year, is on a short term down trend heading towards the key support level of 12. This is also in line with my expectations of a slightly bullish but consolidating week ahead.

Bond Market

Briefing Bond Chart

10-Yr: -03/32..2.744%.. USD/JPY: 101.85.. EUR/USD: 1.3698

The Week in Review: 

  • Treasuries posted their first weekly loss in six.
  • The complex has seen selling in seven of the past ten sessions.
  • On Tuesday, Fed Chair Janet Yellen testified in front of the House Financial Services Committee. She hinted,“The Committee will likely reduce the pace of asset
    purchases in further measured steps at future meetings.” 
    Thursday’s Senate Banking Committee testimony was postponed due to inclement weather.
  • Congress approved a clean debt ceiling bill that will keep the government funded through March 2015.
  • This week’s data was mostly disappointing as wholesale inventories (0.3% actual v. 0.6% expected), retail sales (-0.4% actual v. 0.0% expected), industrial production (-0.3% actual v, 0.3% expected), and capacity utilization (78.5% actual v. 79.4% expected) all fell short of estimates.
  • Only Michigan Sentiment (81.2 actual v. 80.2 expected) impressed.
  • This week’s auctions were unimpressive, but not terrible.
  • Tuesday’s $30 bln 3y note auction drew 0.715% and a solid 3.42x bid/cover. A solid indirect takedown (42.0%) helped offset the weak direct bid (16.6%). Primary dealers were left with just 41.4% of the supply.
  • Wednesday’s $24 bln 10y note auction drew 2.795% (2.800% when issued) and a light 2.54x bid/cover (12-auction average 2.70x). A strong indirect takedown (49.7%) helped offset the weak direct bid (16.2%).
  • Thursday’s $13 bln 30y bond auction drew 3.690% (3.700% when issued) and a weak 2.27x bid/cover. A solid 45.2% indirect takedown helped offset the disappointing 13.9% direct bid.
  • Selling had the biggest impact on the belly of the curve as the 5y added +7bps to finish the week @ 1.525%. Traders will be watching the 1.550% resistance level over the coming days.
  • The 10y tacked on +7bps, closing the week @ 2.746%. The benchmark yield is +16bps off its February 3 low, and is now contending with resistance in the 2.750% area that is helped by the 100 dma.
  • Outperformance at the long end saw the 30y tack on +4bps, ending the week @ 3.700%. Treasury bears will have a difficult time running the 30y above 3.760/3.800% resistance as both the 50 and 100 dma rest in the area.
  • The front of the curve saw a slight inversion early in the week as debt ceiling fears developed. However the curve normalized once Congress reached a deal.
  • This week’s selling swing the yield curve steeper as the 2-10-yr spread widened to 242.5bps.

Macroeconomic Data (upcoming)

FF-Cal

Market Commentary

Cyclically, Week 7 is as per my expectations for the week; largely consolidation to a bullish tune. Technically, the markets are also inching towards, if not breaking out of, their respective all time high. This will certainly take affirmation from the bulls to pull of such a move in the week (s) to come. With that being said, I am sticking to my market call for the week.

Direction for Week 7 – UP

Daily Market Analysis – 13th Feb 2013 (Thursday) – BMO

Market Recap

ETFC-Overview

16:15 ET Dow -30.83 at 15963.94, Nasdaq +10.24 at 4201.29, S&P -0.49 at 1819.26

Equity indices took a bit of a breather on Wednesday after the S&P 500 surged nearly 4.5% in the six sessions since February 3. The benchmark index shed less than a point while the Dow Jones Industrial Average slipped 0.2%.

Overall, the session was very quiet as the key averages respected narrow ranges. The S&P 500 spent the bulk of the trading day near its flat line while the Nasdaq (+0.2%) outperformed.

Similar to the major averages, most individual sectors never deviated too far from their unchanged levels. The largest S&P 500 sector, technology (+0.3%), finished in the lead thanks to chipmakers. Intel (INTC 24.55, +0.08) added 0.3% while the broader PHLX Semiconductor Index rose 0.9%.

Outside of technology, consumer discretionary (+0.1%) and industrials (+0.2%) were the only other advancers among cyclical groups. Defense contractors outperformed (PHLX Defense Index +0.5%) while Deere (DE 86.90, -0.56) fell 0.6% despite beating on earnings and revenue.

Also of note, two of yesterday’s leaders—energy (-0.4%) and materials (-0.3%)—finished among today’s laggards. However, the pair still fared a bit better than the consumer staples sector, which lost 0.5% as tobacco names lagged after Lorillard (LO 47.47, -2.48) reported disappointing earnings.

Other countercyclical groups were little changed with telecom services (+0.3%) ending modestly higher while health care (-0.1%) and utilities (-0.1%) finished in the red.

Treasuries posted their third day of losses as the 10-yr yield rose three basis points to 2.76%. Interestingly, the retreat in one safe-haven asset was accompanied by an increase in another. Gold futures saw their fourth day of gains, climbing 0.4% to $1294.90/ozt.

Today’s participation was well below average as less than 630 million shares changed hands at the NYSE.

Economic data was limited to just two reports:

  • The weekly MBA Mortgage Index slipped 2.0% to follow last week’s uptick of 0.4%.
  • January Treasury Budget showed a deficit of $10.40 billion, which followed the prior month’s surplus of $2.90 billion. The Briefing.com consensus expected the deficit to hit $10.00 billion.

Among overseas news of note, Italian Prime Minster Enrico Letta held a press conference amid increasing calls for his resignation, making way for the leader of the Democratic Party, Matteo Renzi. In his remarks, Mr. Letta asked for ‘clarity,’ saying, ‘He who wants to replace me must be clear about his intentions.’ Even though the political future of Italy remains uncertain, Italian stocks appeared unconcerned with the situation as the MIB gained 1.3%.

Tomorrow, weekly initial claims and January retail sales will be reported at 8:30 ET while the December Business Inventories report will cross the wires at 10:00 ET. Also of note, Fed Chair Janet Yellen was scheduled to appear before the Senate Banking Committee for the second part of the semiannual testimony on monetary policy, but the hearing has been postponed due to weather.

  • Nasdaq Composite +0.6% YTD
  • S&P 500 -1.6% YTD
  • Russell 2000 -2.5% YTD
  • Dow Jones Industrial Average -3.7% YTD

Market Internals

VIX

NYSE-Data

NASDAQ-DataVolumes were light, with only 640m shares exchanging hands on NYSE compared to the one month’s average volume of 751m. This is also inline with the range bounded market we saw last night. Both DJIA and SPX also dropped below their previous close before lunch and stayed there for the rest of the session.

UVOL and DVOL were largely the same with a ratio of 1:1 on the NYSE and UVOL outpacing DVOL 1.61:1 on the Nasdaq. On the other hand, Advancers and Decliners were also showing similar behaviour, with Advancers outpacing Decliners 1.32:1 on the NYSE and 1.16:1 on the Nasdaq. Without a doubt, we are looking at a consolidated session here.

TRIN was definitely in bearish territory throughout the session while TICK was shuttling between the bullish and bearish territory. This sort of divergence is also expected when we have a consolidated session. VIX was also range-bounded for the trading session with it ranging between 14 and 14.6. VIX also closed with a slight loss of 1.45% to close at 14.30.

Sector Performance

SPDR-Sector-ETFs FinViz-Sector-Heat-Map

Leadership was seen in Industrials, Technology and Utilities with gains of 0.57%, 0.39% and 0.13% respectively. On the other hand, laggards were Consumer Staples, Energy and Materials with losses of 0.43%, 0.24% and 0.18% respectively. The lack of leadership from both the bulls and bear were evident as the leaders and laggards were a mixture of cyclical and counter-cyclical sectors.

Macroeconomic Data (Thursday)

FF-Cal

With Core Retails Sales and Retail Sales numbers on the horizon, today’s session will definitely be more volatile than last night’s. However the highlight of the day would be Unemployment Claims figures to be released at 830am EST.

Technical Scans

Briefing-TA-Scans

***Just a temporary addition as a value add to my readers. I certainly hope that this will generate some trading ideas for you.

Market Commentaries

After consolidation last night, I am expecting the market to resume its normal volatility for tonight. Janet Yellen is also slated to testify again tonight before the congress and more details can be found here. All eyes will be on the Unemployment Claims and this testimony. If nothing goes wrong, we should see another bullish session to the tune of around 0.7% gain.