Wednesday, February 13, 2019, 12:31 PM, EST
- NASDAQ Composite +0.06% Dow +0.31% S&P 500 +0.20% Russell 2000 +0.05%
- NASDAQ Advancers: 1163 / Decliners: 1111
- Today's Volume (vs. Tuesday) -2.75%
- Crude +1.96% , Gold +0.52%
- Mortgage applications for the period ending February 8th decreased -3.7%
- January US CPI 0.0% vs. consensus +0.1%; January ex-Food & Energy +0.2% vs. consensus +0.2%
- Department of Energy reports crude oil inventories +3.63M barrels vs consensus +2.4M barrels
- The monthly budget statement for December will be released at 2:00 pm
While yesterday's markets finished at 2019 highs thanks to positive negotiations in Congress to avoid a second government shutdown and continued constructive dialogue in Beijing over trade, I will admit there were points in time where I doubted the momentum could be sustained into the close. Lately markets can get derailed too easily by an offhand comment or tweet. But yesterday seemed to be the exception as all three indexes hit highs for the year. Perhaps the most closely watched movement was that of the S&P 500. It finally crossed above its 200 day moving average not seen for the past 46 days. That was the longest period under that key trend line since March of 2016. Now technicians will be looking for the broad based average to sustain or continue that climb indicating a positive turn in the market.
Today's market drivers are similar to yesterday's with two words as central themes. Unlikely and Flexible. Unlikely was a word used by President Trump and on the surface looks like a negative. In context however it is a major step forward. When presented with the details from the Congressional negotiations over border security the President expressed his unhappiness over the tentative agreement but also mentioned that a second government shutdown was unlikely, ultimately willing to compromise in an otherwise tense standoff.
Flexible is more of a positive word and was also used by the President saying that he would allow for flexibility on the timeline for a trade deal with China if negotiations progress and an agreement looks close. The deadline of March 2nd to raise tariffs from 10% to 25% on $200 billion worth of goods and services looks like it will be avoided. Another sign of progress in these negotiations was highlighted in a report earlier from the South China Morning Post indicating that Chinese President Xi Jinping will meet with U.S. delegates on Friday.
On the economic calendar
a key measure of inflation was little changed in January. The Consumer Price Index for January came in at 0.0% vs. the consensus estimate of 0.1%. Core CPI, which is closely watched by the Federal reserve and strips out food an energy rose 0.2% from the prior month and 2.2% from a year earlier. The annual gain of 1.6% was the smallest since June of 2017. The data reinforces the Fed's recent decision to pause on raising rates amid global risks and trade headwinds and suggests that inflation remains around their target of 2%. Mortgage applications for the week ending February 8th fell 3.7% after falling 2.5% during the prior week. Mortgage applications fell for a fourth consecutive week. Purchases were down 6.1% after falling 4.9% the prior week and re-financings fell 0.1% after rising 0.3% the prior week.
Looking at commodities oil was getting an earlier boost after Saudi Arabia said it would cut crude exports and deliver an even deeper cut to its production, however those gains are being pared after the Department of Energy released data indicating a build of 3.6 million barrels vs the consensus estimate of 2.4 million barrels. U.S. crude output is expected to grow by 1.45 million bpd this year and by another 790,000 bpd next year to hit 13 million bpd in 2020, according to Energy Information Administration. Gold is fluctuating, little changed today as the dollar has retreated from a two month high on hopes of a U.S. China trade deal.
As the markets continue to trade in positive territory buoyed by trade hope and domestic accord, ten of the eleven sectors trade in positive territory lead by energy, financials and materials. The lone laggard is utilities.
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Brian's Technical Take
In impressive fashion all of the major US equity indices are today making out to fresh YTD highs, and on average are up 20% from the late December lows. Since the lows small caps are outperforming large caps, and growth has reclaimed its perch over value. The energy sector went from last year's worst performer to one of this year's best. Today the S&P 500 energy index is leading all GICS sectors with a gain of 1.3% as the underlying commodity, WTI crude, is up 1.7%. Although WTI is not making fresh YTD highs, its technical setup looks very promising.
Last quarter WTI crude was at the forefront of the broad risk-off environment with a decline of 45%. It bottomed in late December at a clearly defined support line representing the lows of 2H'16 and 2017, before then rallying more than 31% over the ensuing six weeks ending February 1st. Here it stalled at the ~$55 level, a pivot in mid-November and early December, as well as a near exact 38.2% retracement of the Q4 downtrend, and thus an expected resistance line. After a relatively minor five day pullback, WTI seems to be resuming its early 2019 uptrend.
The bottoming process over the prior three months has formed a classic bottoming pattern (cup and handle). Over the last two sessions price has begun to emerge from the "handle" of the pattern and is now again testing the neckline resistance at $55. The size of the pattern indicates a breakout above the neckline carries a measured move towards the $67 level. I would think that scenario would bode well for risk assets. Feel the energy!
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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.