Morning Notes – Thursday January 31, 2019

/ January 31, 2019

Directional Bias For The Day:

  • S&P Futures are moving sideways
  • Odds are for an up day with elevated volatility – watch for break below 2674.25 for change of fortunes
  • Key economic data due:
    • Employment Cost Index (0.7% vs. 0.8% est.; prev. 0.8%) at 8:30 AM
    • Unemployment Claims (253K vs. 215K est.; prev. 199K) at 8:30 AM
    • Chicago PMI (est. 61.5; prev65.4) at 9:45 AM
    • New Home Sales (est. 569K; prev. 544K) at 10:00 AM

Markets Around The World

  • Markets in the East closed mostly higher – Sydney and Seoul were down
  • European markets are mixed – Germany, Spain, Italy and STOXX 600  are down; U.K., France and Switzerland are up
  • Currencies:
    Up Down
    • EUR/USD
    • GBP/USD
    • AUD/USD
    • NZD/USD
    • Dollar index
    • USD/JPY
    • USD/CHF
    • USD/CAD
    • USD/INR
  • Commodities:
    Up Down
    • NatGas
    • Gold
    • Silver
    • Copper
    • Platinum
    • Palladium
    • Sugar
    • Coffee
    • Cocoa
    • Crude Oil
    • Cotton
  • Bonds
    • 10-yrs yield is at 2.678%, up from January 30 close of 2.695%;
    • 30-years is at 3.027%, up from 3.053%
    • 2-years yield is at 2.504%, down from 2.516%
    • The 10-Year-&-2-Year spread is at 0.174, down from 0.179

Key Levels:

  • Critical support levels for S&P 500 are 2675.79, 2658.65 and 2648.34
  • Critical resistance levels for S&P 500 are 2690.37, 2708.54 and 2730.90
  • Key levels for eMini futures: break above 2690.25, the high of 3:00 AM and break below 2674.25, the low of 3:30 PM on Wednesday

Pre-Open

  • On Wednesday, at 4:00 PM, S&P future (January contract) closed at 2680.25 and the index closed at 2681.05 – a spread of about -0.75 points; futures closed at 2682.50 for the day; the fair value is -1.25
  • Pre-NYSE session open, futures price action is mixed – at 7:45 AM, S&P 500 futures were up by +2.75; Dow down by -22; and NASDAQ by +37.50

Directional Bias Before Open

  • Weekly: Down
  • Daily: Bouncing off in a Downtrend
  • 120-Min: Up-Side
  • 30-Min: Up-Side
  • 15-Min: Up-Side
  • 6-Min: 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 January 25 was a small green candle with long lower shadow and small upper shadow; the high was below previous week’s high and week’s low reached near previous week’s middle; approaching the downtrend line, which may act as a resistance
    • Stochastics (9,1, 3) and RSI (14) moving up – %K is above %D; RSI is moving up and is near 50
    • The index is nearing the 61.8% retracement of the decline from the high in early October 2018
    • The index reached below the 50% Fibonacci retracement level – at 2374.98 – from the rally from February 2016 low and reached a low of 2346.58; the 61.8% Fibonacci retracement is near 2251.86
    • During the week of October 22, Stochastics reached the lowest since the week of October 31, 2016; last week RSI reached the lowest since the week on August 15, 2011;
  • Last week was down -5.95 or -0.2% and ATR is 59.52
  • Last week’s pivot point=2650.00, R1=2687.14, R2=2709.52; S1=2627.62, S2=2590.48; no pivot levels were breached;
  • A down week; first after four up weeks; first in last five weeks and fifth in last ten weeks
  • The break above an ascending triangle in May 2018 is nullified as the price has fallen below its low
  • The break above a down sloping flag on April 24 2017 is also nullified; the 161.8% extension target near 2835.46 was achieved; 100% extension target of a longer flag-pole near 2913.13 is achieved
  • Last swing low, 2532.69, was the low on February 5, 2018 and breached in December 2018
  • Below 10-week EMA and 39-week SMA; below 89-week SMA (first since June 27, 2016)
  • Downtrend
Daily
  • A relatively large green candle with small upper and smaller lower shadow; breaking above the downtrend line from October 2018 high
    • %K again crossed above %D after dropping below 50;
    • RSI-14 is turned up again from near 60;
    • RSI-9 is turning up from near 55; showing a failure swing top and needs to rise above 71.46 to nullify it
    • Sequence of lower highs and lower lows since October 3, 2018; need to rise above 2800.18 to break it
  • Above 20-day EMA and 50-day EMA, below 100-day SMA and 200-day SMA
  • Bouncing off in a Downtrend
2-Hour (e-mini future)
  • Moving mostly higher since 12:00 PM on January 28; broke above a symmetrical triangle at the high, which resembles a pennant;
    • The symmetrical triangle targets – 61.8% extension target is near 2707.00 and 100% extension target is near 2732.00
    • The Flag-Pennant targets – the 38.2% extension target is near 2758.00, the 61.8% extension target is near 2815.00 and the 100% extension target is near 2906.00
  • RSI-9 is drifting lower from a high of 80.84 made at 8:00 PM on January 30
  • Above 20-bar EMA; which is above EMA10 of EMA50
  • Bias: Up-Side
30-Minute (e-mini future)
  • Drifting mostly sideways since 2:30 PM on January 30 near the high;
    • broke above an ascending triangle is emerging since 8:00 AM on January 28; the 100.0% extension target near 2694.75 is almost achieved; the 161.8% target is near 2712.00
  • RSI-9 is declining from a high of 85.49 at 2:30 PM on Wednesday; bouncing off 39.37 at 5:00 AM; near 55
  • A/above flattening 20-bar EMA, which is above a rising EMA10 of EMA50
  • Bias: Up-Side
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is mostly drifting sideways since 8:00 PM on Wednesday
  • The band is relatively narrow since 8:00 PM
  • RSI-9 is drifting lower since the high of 84.55 reached at 2:45 PM on Wednesday; bounced off above 50 from a low below 40 at 5:15 AM
  • Stochastic (9, 1, 3): %K is above %D
  • Bias: Up-Side

Previous Session

Major U.S. indices closed higher on Wednesday January 30 in higher volume. Indices gapped up at the open and then stayed up. They rose even higher following FOMC Press Conference at 2:30 after a brief pullback.

Major indices are either near or breaking above downtrend line from October 2018 highs. NASDAQ Composite and Russell 200 broke above their respective downtrend lines on January 18 and are staying above after a brief pullback to them. S&P 500, NYSE Composite and Wilshire 5000 Total Market index are breaking above their respective downtrend lines. Dow Jones Industrial Average is just below its downtrend line and the Dow Jones Transportation Average is much below its.

From Briefing.com:

The S&P 500 began the day comfortably higher as Apple’s (AAPL 165.25, +10.57, +6.8%) better-than-feared earnings and Boeing’s (BA 387.72, +22.81, +6.3%) impressive report fueled broad-based buying interest. The benchmark index then added as much as 1.9% after the Federal Reserve provided some market-friendly commentary before finishing up 1.6%.

The Dow Jones Industrial Average gained 1.8%, the Nasdaq Composite gained 2.2%, and the Russell 2000 gained 1.1%.

All 11 S&P 500 sectors finished higher with information technology (+3.0%) and consumer discretionary (+2.2%) leading the advance.

[…]

The FOMC voted unanimously to keep the fed funds rate unchanged at a target range of 2.25% to 2.50%, as expected.

[…]

The Fed’s dovish-minded perspective sent U.S. Treasuries in the belly of the curve to session highs. Longer-dated Treasuries were less affected.

The 2-yr yield, which was up as much as two basis points, decreased four basis points to 2.53%. The 10-yr yield, which was up as much as two basis points, decreased two basis points to 2.70%. The U.S. Dollar Index also fell on the news, losing 0.4% to 95.43.

[…]

• The ADP National Employment Report showed an increase of 213,000 in January (Briefing.com consensus 170,000), and the December reading was revised to 263,000 (from 271,000).
• Pending Home Sales decreased 2.2% in December (Briefing.com consensus +0.7%). Today’s reading follows a revised decrease of 0.9% in November (from -0.7%).
• The weekly MBA Mortgage Applications Index decreased 3.0% following a 2.7% decline in the prior week.

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