Morning Notes – Friday February 1, 2019

Directional Bias For The Day:

• S&P Futures are drifting down since 4:30 PM on Thursday
• Odds are for a sideways to down day – watch for break above 2708.25 for change of fortunes
• Key economic data due:
  • Non Farm Employment Change (est. 165K; 312K prev.) at 8:30 AM
  • Average Hourly Earnings (est. 0.3%; 0.4% prev.) at 8:30 AM
  • Unemployment Rate (est. 3.9%; prev. 3.9%) at 8:30 AM
  • ISM Manufacturing PMI (est. 54.1; prev. 54.1) at 10:00 AM
  • Revised UoM Consumer Sentiment (est. 90.8; prev. 90.7) at 10:00 AM

Markets Around The World

• Markets in the East closed mixed – Shanghai, Tokyo and Mumbai closed up; Sydney, Seoul and Singapore were down
• European markets are mostly lower – U.K. is up
• Currencies:
  

  Up	Down
  EUR/USD USD/JPY NZD/USD USD/CAD USD/INR	Dollar index GBP/USD USD/CHF AUD/USD

• Commodities:
  

  Up	Down
  Gold Platinum Palladium Coffee Cocoa	Crude Oil NatGas Silver Copper Sugar Cotton

• Bonds
  • 10-yrs yield is at 2.632%, down from January 31 close of 2.635%;
  • 30-years is at 2.994%, down from 3.005%
  • 2-years yield is at 2.459%, up from 2.455%
  • The 10-Year-&-2-Year spread is at 0.173, down from 0.180

Key Levels:

• Critical support levels for S&P 500 are 2694.69, 2675.79 and 2658.65
• Critical resistance levels for S&P 500 are 2708.25, 2721.37 and 2730.90
• Key levels for eMini futures: break above 2708.25, the high of 2:30 AM and break below 2693.25, the low of 3:00 PM on Thursday

Pre-Open

• On Thursday, at 4:00 PM, S&P future (January contract) closed at 2702.75 and the index closed at 2704.10 – a spread of about -1.25 points; futures closed at 2704.50 for the day; the fair value is -1.75
• Pre-NYSE session open, futures price action is lower – at 7:45 AM, S&P 500 futures were down by -4.00; Dow by -10; and NASDAQ by -35.25

Directional Bias Before Open

• Weekly: Down
• Daily: Bouncing off in a Downtrend
• 120-Min: Up-Side
• 30-Min: Up-Side
• 15-Min: Side
• 6-Min: Down

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

Previous Session

Major U.S. indices closed mostly higher on Thursday January 31 in mostly higher volume. Dow Jones Industrial Average and Dow Jones Transportation Average closed lower and NASDAQ Composite traded in lower volume

Major indices remain 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 gained 0.9% on Thursday, as another batch of better-than-feared earnings added to the optimism surrounding U.S.-China trade relations and a dovish-minded Federal Reserve. The Nasdaq Composite gained 1.4%, and the Russell 2000 gained 0.8%.

The Dow Jones Industrial Average, however, lost 0.1% due in large part to negative price action in Microsoft (MSFT 104.43, -1.95, -1.8%), Visa (V 135.01, -2.59, -1.9%), and DowDuPont (DWDP 53.81, -5.47, -9.2%) following their earnings reports.

The S&P 500 communication services sector was easily the best-performing group on Thursday, rising 3.7% on the strength of Facebook (FB 166.69, +16.27, +10.8%) and Charter Communications (CHTR 331.05, +41.14, +14.2%). The utilities (+2.1%) and consumer staples (+1.8%) sectors also outperformed the broader market.

[…]

The Treasury market seems to be pricing in a softer economic outlook, which has been reflected in the sharp drop in yields following Wednesday’s FOMC decision and Fed Chair Powell’s press conference.

After both the 2-yr yield and the 10-yr yield decreased four basis points Wednesday, the 2-yr yield fell seven basis points to 2.46% today while the 10-yr yield fell six basis points to 2.64%. The U.S. Dollar Index increased 0.2% to 95.57.

[…]

• New home sales, which are counted when a contract is signed, jumped 16.9% month-over-month in November to a seasonally adjusted annual rate of 657,000 (Briefing.com consensus 555,000).
o The key takeaway from the report is that the surge in new home sales, which are counted when a contract is signed, coincided with a noticeable drop in both median and average selling prices.
• The Employment Cost Index showed compensation costs for civilian workers increased 0.7% (Briefing.com consensus +0.8%), seasonally adjusted, in the fourth quarter, down from 0.8% in the third quarter. Wages and salaries, which comprise about 70% of compensation costs, increased 0.6%, while benefit costs jumped 0.7%.
o The key takeaway from the report is that it showed an acceleration in the growth of wages and salaries for civilian workers, which increased 3.1% for the 12 months ending in December 2018, versus 2.5% for the 12-month period ending in December 2017.
• The MNI Chicago Business Barometer, also known as the Chicago PMI, dropped to 56.7 in January (Briefing.com consensus 58.0) from a downwardly revised 63.8 (from 65.4) in December. The dividing line between expansion and contraction is 50.0, so the January reading is to be interpreted as a deceleration in growth and not an actual decline in growth.
o The key takeaway from the report was the indication that the New Orders Index fell to a two-year low of 53.2 and that manufacturers’ inability to absorb cost pressures was a reason customers were deterred from placing orders in January.
• Initial claims for the week ending January 26 increased by 53,000 to 253,000 (Briefing.com consensus 220,000). Continuing claims for the week ending January 19 increased by 69,000 to 1.782 million.
o The headline increase is notable, yet the key takeaway is that the large increase in initial claims is apt to be dismissed at this juncture as some typical volatility in a series that saw initial claims hit their lowest level last week in nearly 50 years.

[…]

• S&P 500 Sectors