While the markets finished in negative territory on Friday due to continued worries surrounding trade negotiations with China, there were some positives to be taken out of the week as a whole. The Dow managed a 0.17% gain on the week, finishing its seventh straight week in positive territory. The S&P 500 has managed to rally into its 200-day moving average, which in the past has caused a reversal, but this time it has paused, suggesting there may be more upside to come.
Technical traders and many money managers are waiting for the S&P 500 to trade for a sustained period of time (10 days) above the 200 day moving average before pouring back into equities. Friday also marked the seventh day in a row that the S&P 500 has rallied in the last hour of trading. According to "Ye Olde Traders' almanac" this is a bullish signal if you believe that the "smart money" trades during the latter part of the day.
Earnings were also front and center last week with a number of sector bellwethers reporting. With 66% of the companies in the S&P 500 reporting actual results for the quarter, 71% of S&P 500 companies have reported a positive EPS surprise and 62% have reported a positive revenue surprise. In terms of guidance for Q1 2019, 53 S&P 500 companies have issued negative EPS guidance and 12 S&P 500 companies have issued positive EPS guidance.
The markets are off to a measured start to the trading day so far. Looking ahead to this week earnings will remain a dominant theme but politics and geopolitical concerns do not take a back seat. Congress is furiously working towards a compromise with President Trump to avoid another government shutdown with a deadline of midnight on Friday. Speaker Pelosi has been quoted as saying she is aiming for "good news in a short period of time." The two sides, however, seem to be at an impasse. The point of debate seems to be over the number and purpose of immigration detention beds. Democrats want a cap to force the U.S. Immigration and Customs Enforcement Department to detain real criminals rather than undocumented immigrants with no criminal history. The republicans are resisting any sort of cap based on the grounds that criminals shouldn't count toward any limit and that U.S. Immigration and Customs should have discretion. There is a possibility that lawmakers could resort to a resolution and provide funding to keep the Government open through September 30th but that is a long shot.
The trade war rhetoric continues but this could be a pivotal week as Treasury Secretary Mnuchin travels to Beijing with other American officials to continue talks that started in Washington in late January. Asia reopens its markets today after being closed for a week, with China trading in positive territory on optimism that trade détente is progressing. Domestically, unnamed officials on Sunday mentioned that President Donald Trump's advisors have informally discussed holding a summit with Chinese President Xi Jinping next month at the Mar-a-Lago resort, his private club in Florida. This meeting could take place as soon as mid-March but nothing official has been confirmed. This appears to be a reversal from late last week when the President said no meeting was scheduled with President Xi Jinping.
From a sector perspective, five of the 11 sectors are in positive territory led by Industrials, REIT's and Technology. The worst performer is Health Care followed by Communications and Consumer Staples.
• The economic cupboard is bare
• 6:00 am January NFIB small business index
• 10:00 am December Job openings
• 1:00 am Q4 Household credit
• 8:30 am January Consumer price index
• 8:30 am January Core CPI
• 2:00 pm December Federal budget
• 8:30 am w/e 2/9 Weekly jobless claims
• 8:30 am December Retail sales
• 8:30 am December Retail sales ex-autos
• 8:30 am January Producer price index
• 10:00 am November Business inventories
• 8:30 am January Retail sales
• 8:30 am January Retail sales ex-autos
• 8:30 am January Import price index
• 8:30 am February Empire state index
• 9:15 am January Industrial production
• 9:15 am January Capacity utilization
• 10:00 am December Business inventories
• 10;00 am February Consumer sentiment index
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Brian's Technical Take
The industrials sector is once again leading all groups higher with an intraday gain of 0.6%. Industrials have rebounded more than 22% from their 52-week lows in December and are up 14% YTD. Both measures rank #1 amongst all GICS sectors. REIT's are the only other sector up double digits YTD, and no other group has gained more than 20% from their 52-week lows.
A week ago the industrial sector ran into expected resistance representing the prior November and December highs, which coincides with the 200-day moving average (yellow line), now 613.63. It reached this zone of increased overhead supply as its momentum reading (daily RSI) was already in "overbought" territory. The ensuing consolidation has been constructive, "sideways" price action as opposed to a more bearish steeper pullback in price. As such the daily RSI has not seen much of a reset and remains elevated at 69, as opposed to a more normalized reading in the 50's. A breakout to fresh YTD highs looks possible in the near term as "overbought can become more overbought."
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Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.