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Is Positive Sentiment Enough To Continue Market Rally?


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Tuesday, January  8 , 2019, 1:08 PM, EST
  • NASDAQ Composite +0.66% Dow +0.89%    S&P 500 +0.63%    Russell 2000 +0.88%
  • NASDAQ Advancers: 1518    Decliners:   833
  • Today's Volume (vs Monday) +6.27%
  • Crude  $49.69 +$1.17 ,  Gold  $1285.50 -$4.40, VIX 20.66 - 0.74

Market Movers

  • Jolts job openings decline to 5 month low of 6.89 million
  • US NFIB Small-Business Sentiment Index declines to 104.4, a 4 month low
  • German industrial output fell unexpectedly -1.9% in November
  • Oil rallying for 7th day

Chris's Commentary

The markets opened up over one percent this morning , sold off slightly early on and are now attempting to rally back at midday. Monday saw the markets climb higher to build upon Friday's outsized gains. Positive investor sentiment following Fed Chairman Powell's comments last week helped spark that end of week rally. Today, positive comments on US-China trade talks have traders optimistic that a trade deal will be in place in the allotted timeframe.

Despite the current government shutdown over the budget, entering its third week, as a near term overhang, the potential positive outlook of a more dovish (read "market depended") FED and the potential easing of a China trade war makes investors cautiously optimistic for the near-term prospects of the market.

The S&P 500 is currently trading up against the near term resistance level of the S&P 500 at ~2550 level. The next leg of this New Year rally weighs in the balance. Can the market pick itself up from the December lows and retest last year's all-time highs or will we continue seeing violent swings, on high trading volumes which decimate any positive momentum made.

A close above or below this level should be closely watched as an indication of near-term sentiment. Currently 10 of the 11 S&P 500 sectors are in the green with Real Estate and Energy both up over 1% while Financials are down nearly 0.7% on the day. Crude oil is up 1.3% posting its 7th day of gains. Gold trades lower while the dollar moves higher. The yield on the 10-yr today is up slightly from yesterday at 2.6995%.

Jamie Dimon, CEO of JP Morgan, recently commented that Q4's selloff was a market overreaction. The S&P 500 posted its worst December in decades, declining more than 9% for the month and down 6.2% for the year. Despite the negative sentiment at year-end, Jamie Dimon told Fox Business that "…markets are overreacting to short-term sentiment around a whole bunch of complex issues."

He thinks we are in better shape than perceived stating, "I think you're going to have decent growth in 2019 in America. Therefore sentiment might reverse course at some point in the future." JP Morgan, is one of the largest consumer lenders in the US, and as such Mr. Dimon has perspective into the health of the US Consumer. He stated that, "the consumer is in good shape and is continuing to grow, and they have backwinds with jobs and wages going up."

This has been backed up with the recent non-farm payroll numbers and Y/o/Y wage increases. This bodes well for US GDP as two-thirds of U.S. economic activity is related to consumer spending. So does a healthy consumer help equate to a healthy market? We shall see…

Sector Recap

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Brian's Technical Take

Equities spiked higher off the open and are embarking on their third straight week in the green. In just two weeks' time the smaller cap Russell Microcap and Russell 2000 indices have rebounded 13.7% and 11.2% off their December lows, while the large cap Nasdaq 100 and S&P 500 are not far behind with gains of 13.5% and 9.9%. While the possibility of a V-shape recovery exists whereby THE lows have already been made for this correction, many including myself are in the camp that a retest and possibly a lower low is in store sometime in Q1. If so, at what level can we expect the markets to roll over?

Today the flagship S&P 500 index is reaching the 50% Fibonacci Retracement (2,573 level) of its 454 point downtrend made in December. This is an expected resistance level where some statistical/quant/technical strategies (whatever you call it!) are programmed to sell. It is certainly not the "end all, be all", rather a potential roadmap. Price is certainly capable of making a higher high, but at the very least we can fairly say it is a level where overhead supply increases.

The next hurdle is December's 61.8% Fibonacci Retracement at the 2,627 level. This is likely a more formidable level of increased overhead supply for a number of reasons. The initial 336 point decline in October bottomed at 2,604. The rally over the next eight sessions topped out at 2,815 which then represented a near exact 61.8% retracement of the prior downtrend.

Also, today's 61.8% retracement level (2,627) coincides with the closing lows of October and November (2,641, and 2,631), as well as the 50-day moving average, now 2,639. This clustering of technicals reinforces its significance and increases the likelihood of sell strategies kicking in, and thus increased overhead supply.

From a time symmetry perspective, it took eight sessions for the S&PX to reach its 61.8% retracement (2,815 level) in October. Today is the eighth session since the SPX made its intraday low on December 26th which, if equal, supports today's 50% retracement as be the top.

While other potential tops reside above (76.4% retracement at 2,693, or the 200sma at 2,741), increased overhead supply could already be setting in. The cluster of technicals at the 2,627 - 2,6401 range is the standout. While the major indices have already come a long way in two weeks' time, it's virtually impossible to pick the top. Depending on the sector, I suspect the more successful tactical investors are already reducing recent longs and raising their stops to protect remaining positions (units).

Tomorrow we will take a brief look at bitcoin which this time last year was nearly all anyone talked about and now has seemingly been thrown out the window with the bath water. The December low has some historical precedent.

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.




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