Market Remarks

Morning Notes – Monday January 6, 2020

Sunil Sharma

Directional Bias For The Day:

  • S&P Futures are lower; gapped down at week’s open and broke below a low since then; bouncing off the lows near support levels
  • The odds are for a down day with elevated volatility – watch for break above 3222.75 and 3230.00 for change of fortune
  • Key economic data due:
    • Final Services PMI ( 52.2 est. ; prev. 52.2) at 9:45 AM

Directional Bias Before Open:

  • Weekly: Uptrend
  • Daily: Under Pressure
  • 120-Min: Side-Down
  • 30-Min: Down-Side
  • 15-Min: Down-Side
  • 6-Min: Side

Key Levels:

  • Critical support levels for S&P 500 are 3222.34, 3212.03 and 3204.10
  • Critical resistance levels for S&P 500 are 3234.54, 3246.15 and 3257.54
  • Key levels for eMini futures: break above 3222.75, the high of 7:30 AM and break below 3208.75, the low of 4:00 AM

Pre-Open

  • On Friday, at 4:00 PM, S&P future (March 2020) closed at 3234.25 and the index closed at 3234.85 – a spread of about +0.50 points; futures closed at 3235.50 for the day; the fair value is -1.25
  • Pre-NYSE session open, futures are lower – at 8:15 AM, S&P 500 futures were down by -18.00; Dow by -179 and NASDAQ by -64.75

Markets Around The World

  • Markets in the East closed mostly lower – Sydney was up;
  • European markets are lower
  • Currencies:
    Up Down
    • EUR/USD
    • GBP/USD
    • USD/JPY
    • AUD/USD
    • NZD/USD
    • INR/USD
    • Dollar index
    • USD/CHF
    • USD/CAD
  • Commodities:
    Up Down
    • Crude Oil
    • NatGas
    • Gold
    • Silver
    • Platinum
    • Palladium
    • Sugar
    • Cotton
    • Copper
    • Coffee
    • Cocoa
  • Bonds
    • 10-yrs yield closed at 1.788%, down from January 2 close of 1.882%;
    • 30-years is at 2.249%, down from 2.341%
    • 2-years yield is at 1.533%, down from 1.573%
    • The 10-Year-&-2-Year spread is at 0.255 down from 0.309
  • VIX
    • Is at 15.72 up from January 3 close of 14.02; above 5-day SMA
    • Recent high was 17.99 on December 3; recent low was 11.72 on December 26

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

Monthly
  • Uptrend
  • December 2019 was a relatively large green candle with small upper shadow and a lower shadow half the size of the real body; fourth up month in a row and tenth in 2019
    • Stochastic %K is above %D and above 90
    • RSI-9 is breaking above a downtrend line from January 2018 high; above 70
    • Rising to the upper band from near the middle band of the 120-month regression channel
  • Sequence of higher highs and higher lows since February 2016 is broken in December since then a new high has been made
Weekly:
  • The week ending on January 3 was a doji candle
    • Continuing the break above the upper bound of a broadening pattern
    • Stochastic (9,1, 3): %K crossed above %D; above 90; potential bearish divergence
    • RSI (9) is above 80
  • Last week was down -5.17 or -0.2%; the 5-week ATR is 53.45
  • Last week’s pivot point=3235.01, R1=3257.98, R2=3281.12; S1=3211.87, S2=3188.90; R1/S1 pivot levels were breached
  • First down week in last five weeks and second in last ten weeks
  • Near all time highs; Last swing low, 2822.12, was the low on August 5, 2019; last swing high was 3027.98, made during the week of July 22, 2019
  • Above 10-week EMA; above 39-week SMA and 89-week SMA
  • Uptrend
Daily
  • A green candle that gapped down at the open; the gap was filled but still closed below previous day
    • %K crossing below %D from just above 90; potential %D Bearish Divergence
    • RSI-9 declined to near 60 below 8-day SMA; Bearish Divergence
  • Above 20-day EMA, 50-day EMA, 100-day SMA and 200-day SMA;
  • Under Pressure
2-Hour (e-mini future)
  • Declining since 6:00 PM on January 2 after making all time high of 3263.50; near a support level – multiple low points over the past few days – around 3208.00; broke the sequence of higher highs and higher lows; trending higher since 10:00 AM on December 3 in steps
    • RSI-21 declined from above 75 to below 40 after making bearish divergence
    • %K crisscrossing %D lower
  • Below 20-bar EMA, which is below EMA10 of EMA50
  • Bias: Side-Down
30-Minute (e-mini future)
  • Trending down since 6:00 Pm on Thursday; gapped down at the week’s open; the gap is not closed; made double bottom at 4:00 AM with bias towards breaking below it
    • RSI-21 rising from near 30 at 3:30 AM to near 45
    • %K is below %D near 70 after crossing above it at 4:00 AM from below 10
    • At/below 20-bar EMA, which is below EMA10 of EMA50
  • Bias: Down-Side
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is moving down since 6:15 PM on Sunday
  • The Bollinger Band is mostly expanded for past few days
  • Stochastic (9, 1, 3): %K is below %D from above 80
  • Bias: Side-Down

Previous Session

Major U.S. indices closed lower on Friday, January 3 in mixed volume. Dow Jones Industrial Average and NASDAQ Composite traded in higher volume. Most major indices gapped down at the open but then closed above the opens.

For the week, most major indices closed lower in higher volume. NASDAQ Composite was up for the week. Only four S&P sectors – Industrials, Technology, Real Estate and Telecom – were up for the week. Only Shanghai and Hong Kong were up for the week in Asia and only France was up in Europe.

From Briefing.com:

The S&P 500 declined 0.7% on Friday after a U.S. airstrike killed Iran’s top military commander, General Suleimani, prompting retaliatory threats from Iran and some profit taking in the stock market. The Dow Jones Industrial Average lost 0.8%, the Nasdaq Composite lost 0.8%, and the Russell 2000 lost 0.4%.

[…]

Cyclical sectors were among today’s laggards, with the S&P 500 materials (-1.6%), financials (-1.1%), and information technology (-1.1%) sectors leading the retreat. Conversely, the rate-sensitive real estate (+0.8%) and utilities (+0.1%) sectors benefited from the defensive positioning in Treasuries that drove yields lower.

The 2-yr yield fell six basis points to 1.51%, and the 10-yr yield fell nine basis points to 1.79%. The U.S. Dollar Index increased 0.1% to 96.90.

[…]

• The ISM Manufacturing Index for December registered a 47.2% reading (Briefing.com consensus 49.0%). That was below the 48.1% reading for November, the fifth straight sub-50.0% reading, and the lowest level for the index since June 2009.
o The key takeaway from the report is that the conditions remain weak in the manufacturing sector, although there might be a tendency to dismiss the dour December reading in favor of the view that the easing of trade tension between the U.S. and China could lead to better manufacturing activity in 2020.
• Total construction spending increased 0.6% m/m in November (Briefing.com consensus +0.3%) on the heels of an upwardly revised 0.1% increase (from -0.8%) in October. Residential spending was up 1.8% m/m and nonresidential spending was down 0.3% m/m.
o The key takeaway from the report is that new single-family construction (+1.2%) was the main driver of the pickup in residential spending.
Investors will not receive any notable economic data on Monday.

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