Morning Notes – Thursday December 6, 2018

/ December 6, 2018

Directional Bias For The Day:

  • S&P Futures are lower; drifting up since 5:00 AM
  • Odds are for a down day with increased choppiness and elevated volatility
  • Key economic data due:
    • Unemployment Claims (231K vs. 226K est. and 235K prev.) at 8:30 AM
    • Revised Unit Labor Costs (0.1% vs. 1.1% est. and 1.2% prev.) at 8:30 AM
    • ISM Non-Manufacturing PMI (est. 59.1 and 60.3 prev.) at 10:00 AM

Markets Around The World

  • Markets in the East closed lower
  • European markets are lower
  • Currencies:
    Up Down
    • EUR/USD
    • GBP/USD
    • USD/CAD
    • USD/INR
    • Dollar index
    • USD/JPY
    • USD/CHF
    • AUD/USD
    • NZD/USD
  • Commodities:
    Up Down
    • Gold
    • Cocoa
    • Crude Oil
    • NatGas
    • Silver
    • Copper
    • Platinum
    • Palladium
    • Sugar
    • Coffee
    • Cotton
  • Bonds
    • 10-yrs yield is at 2.869%, down from December 5 close of 2.924%;
    • 30-years is at 3.130%, down from 3.178%
    • 2-years yield is at 2.734%, up from 2.828%
    • The 10-Year-&-2-Year spread is at 0.135, up from 0.096

Key Levels:

  • Critical support levels for S&P 500 are 2649.97, 2631.99 and 2603.54
  • Critical resistance levels for S&P 500 are 2682.53, 2697.18 and 2711.29
  • Key levels for eMini futures: break above 2668.25 the high of 8:30 AM and break below 2651.25, the low of 5:30 AM

Pre-Open

  • On Tuesday, at 4:00 PM, S&P future (December contract) closed at 2703.50 and the index closed at 2700.06 – a spread of about +3.50 points; futures closed at 2701.75 for the day; the fair value is +1.75
  • Pre-NYSE session open, futures price action is to the downside – at 9:00 AM, S&P 500 futures were down by -43.25; Dow by -436; and NASDAQ by -140.50

Directional Bias Before Open

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

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 November 30 was a large green candle with almost no upper and lower shadows; gapped up on Monday and the gap was not filled; closed above previous weeks high
    • Stochastics (9,1, 3) and RSI (14) turning up – %K crossed above %D from just below 10; RSI also turned up from just below 40
    • During the week of October 22, Stochastics reached the lowest since the week of October 31, 2016 and RSI the lowest since the week on Jan 11, 2016
  • Last week was up by +127.61 or +4.8% and ATR is 110.91
  • Last week’s pivot point=2723.67, R1=2797.38 R2=2834.58; S1=2686.47, S2=2612.76; R1 pivot level was breached;
  • An up week; third in last five weeks and fourth in last ten weeks
  • Broke above an ascending triangle but retraced back to its upper limit; 100% extension target is near 3070.00 level; retraced back to the lower trend line of triangle
  • Broke above a down sloping flag on April 24 2017;
    • flag-low was 2322.25 during 27-Mar-17 week; shorter flag-pole length is 317.19 and longer flag-pole length is 590.88;
    • 100% extension target of shorter flag-pole near 2639.44 and the 161.8% extension target near 2835.46 are achieved; the 261.8% extension target is near 3013.72
    • 61.8% extension target of longer flag-pole near 2687.41 is achieved; the 100% extension target near 2913.13 is achieved; the 161.8% extension target is near 3138.85
  • Broke above a down-sloping flag on November 14, 2016;
    • the flag low was 2083.79 during 31-Oct-16 week; the shorter flag-pole length is 202.13 and the longer flag-pole length is 383.71;
    • 261.8% extension target of shorter flag-pole near 2612.97 is achieved
    • the 161.8% extension target of longer flag-pole near 2704.63 is achieved; the 261.8% extension target is near 3088.34
  • Last swing low, 2532.69, was the low on February 5, 2018; Last swing high, 2940.91, was during the week of September 17, 2018;
  • Below 10-week EMA and 39-week SMA; above 89-week SMA
  • Uptrend Under Pressure
Daily
  • A large red candle with very small lower and upper shadows; broke below past three days’ lows
    • %K crossed below %D from near 100
    • Did not break above previous high of 2815.15 and thus sustaining the sequence of lower highs and lower lows since October 3 2018
  • Below 20-day EMA , 50-day EMA, below 100-day SMA and 200-day SMA
  • Uptrend Under Pressure
2-Hour (e-mini future)
  • Futures are lower and declining since 2:00 AM on December 3 in steps
  • RSI-9 declining in steps since 2:00 AM from 92.09
  • Below  20-bar EMA, which is below EMA10 of EMA50;
  • Bias: Down
30-Minute (e-mini future)
  • Similar to that on 2-hour chart
  • RSI-9 is higher from the low of 11.47 made on 1:00 PM on December 4; made a bullish divergence at 8:00 PM on December 5 below 20; just above 40
  • At/below 20-bar EMA , which is below EMA10 of EMA50
  • Bias: Down
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is trending down since 9:15 AM on December 5
  • The band was narrow from 1:15 AM to 2:15 AM; expanding since then; price moved along the upper band till3:00 AM and the touched the lower band at 5:00 AM; risen up to the mid-pint since
  • RSI-9 rising since 5:15 AM from the low of 26.05; just above 50
  • Stochastic (9, 1, 3): %K is moving up crisscrossing %D from near 0
  • Bias: Down

Previous Session

U.S. equity markets were closed on Wednesday due to the death of President G. H. W. Bush.

Major U.S. indices closed sharply lower on Tuesday December 4.  Indices closed below past three days’ lows in increased volume.

From Briefing.com:

The S&P 500 tumbled 3.2% on Tuesday, catalyzed by waning optimism in trade negotiations between the U.S. and China and concern over future economic growth, which was signaled by the drop in U.S. Treasury yields. A technical breach of the S&P 500’s 200-day moving average (2762.32) also contributed to some selling.

Meanwhile, the Dow Jones Industrial Average lost 3.1%, the Nasdaq Composite lost 3.8%, and the Russell 2000 lost 4.4%.

Monday’s trade-relief rally was under pressure from the onset as market participants reoriented their mindset to concerns that the U.S. and China won’t be able to settle differences over major trading issues in the next 90 days.

[…]

Beyond that factor, today’s sell-off was really sparked by economic growth concerns, which manifested themselves in a decisive curve-flattening trade in the Treasury market that also featured an inversion of the 2-yr note yield (2.80%) and 3-yr note yield (2.80%) over the 5-yr note yield (2.79%). The 10-2 spread narrowed to 12 basis points, which is the narrowest spread since 2007.

The benchmark 10-yr yield dropped seven basis points to 2.92% while the 30-yr yield dropped 10 basis points to 3.17%. Those moves were exacerbated by a “pain trade,” as short sellers expecting higher rates were compelled to cover their bearish bets.

  • S&P 500 Sectors
Sector Daily Trend (Visual) Relative Strength (Last Month – November) Relative Strength (Current) %K vs. %D
Consumer Discretionary Down SPY XLY Below
Consumer Staples Under Pressure XLP XLP Cross-Under
Energy Down SPY SPY Below
Materials Side XLB XLB Above
Industrials Down XLI (Cross – Over) XLI Below
Finance Down XLF XLF Cross-Under
Technology Down SPY SPY Below
Utility Under Pressure XLU XLU Above
Heath Care Under Pressure XLV (Cross – Over) XLV Above
Real Estate Up XLRE XLRE Above
Telecom Down SPY SPY Below
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