Friday, January 11 , 2019, 12:37 PM, EST
- NASDAQ Composite -0.42% Dow -0.29% S&P 500 -0.27% Russell 2000 -0.21%
- NASDAQ Advancers: 1012 Decliners: 1273
- Today's Volume (vs Thursday) -4%
- Crude $51.73 -$0.86 , Gold $1290.00 +$2.60, VIX 19.11 -0.38.
- Government shutdown enters 21st day
- December CPI decreased -0.1% M/o/M
- December Core CPI increased +0.2% M/o/M
- Y/o/Y CPI up +1.9%, decreased from November reading of +2.2%
- Core CPI Y/o/Y steady at 2.2%
- China to lower GDP growth target to 6-6.5% for 2019
Though higher for the week, the markets opened lower today in a more defensive tone. Poised for a third week of gains, markets have stalled on inflation data and lack of political bipartisanship. Trading volumes have been trending lower following the extreme market volatility we saw at the end of last year which brought significantly higher trading volumes. A pause here is not a bad thing as investors take in the landscape. News that China Vice-Premier Liu will visit Washington later this month could be the spark to move this market, after the President announced he will cancel his planned trip to Davos.
Currently 10 of the 11 S&P 500 Sectors are trading lower with Energy and Materials both off about 1% while Real Estate tries to stay positive. Crude oil is trading lower by 1.35% after posting 9 straight days of gains. Gold trades higher while the dollar moves higher. The yield on the 10-yr is slightly lower at 2.69%.
Major retailers gave pause yesterday as department stores and big box retailers saw Q4 seasonal sales disappointment. Consumer spend was strong, as MasterCard reported retail sales hit a six year high posting a +5.1% increase year-over-year. Adobe also reported that online holiday spend increased 17.8% Y/o/Y. However, ShopperTrak reported that brick & mortar traffic declined by 3%. With projections of $1.1 trillion consumer spend projected for the holiday season, it seems to be a tale of two tapes. While E-Commerce was a clear winner and Brick & Mortar a laggard, Omni-channel providers appeared to be the big winners. Unfortunately, because of the government shutdown, the Commerce Department, who releases Retail Sales among other economic items, may not be back on the job to release the December sales report scheduled for next Wednesday.
U.S. Consumer Price Index (CPI) was soft in December, falling for the first time in 9 months on lower gasoline prices. CPI declined by 0.1% last month, in line with economists' expectations and remained unchanged for November. Core CPI, which excludes food and energy costs, rose 0.2%, which was in-line with consensus. Year-over-year CPI only increased 1.9%, while Y/o/Y Core CPI rose 2.2%, also in line. CPI measures the change in prices paid by consumers for goods and services and thus is a crucial measure of inflation. Consumer inflation data is a focal point for the Federal Reserve and the capital markets. Accordingly, December's CPI report showed continued core inflation advancing.
Politics divide . As the government shutdown enters its 21st day, no sign of a compromise between both parties. Similar to two spoiled, crying babies, all we hear is selfish rhetoric from both. The three major rating agencies (Moody's, Fitch and S&P) have taken notice. Though they have found a limited impact, if the situation continues, analysts warn that spillover risks to state and local credit will grow. That will impact the markets. Currently Moody's estimates US economic output for January could be reduced by $8.7 billion for January, reducing Q1'19 annualized growth by -0.2%. Even the Fed Chairman acknowledged the shutdown yesterday in his discussion at The Economic Club in Washington that a long shutdown could prove harmful to the U.S. economy stating "If we had an extended shutdown then I do think that would show up in the data pretty clearly…" Again, all of this is a headwind for the markets and the rally we are currently in.
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Brian's Technical Take
Nearly every day at the Nasdaq Marketsite we are graced with the presence of a prominent Wall Street technician showcasing his or her "chart of the day" either on one of the two CNBC shows, Squawk Box or Fast Money, or a more local "hit" for an online platform like TD Ameritrade or Yahoo! Finance, or even social media's Facebook and Twitter.
Yesterday Paul Ciana from Bank of America was on the airwaves highlighting the bullish reversal in the Chinese Yuan which he noted has broken down the neckline of a common topping pattern (H&S), as well as below key moving averages like the 50, 100, and 150-day sma's. Given the weakening Yuan led the risk-off move in equities in 2018 as well as 2015, the current bullish reversal may signal the opposite.
Clearly the path ahead will largely depend on the outcome of tariff negotiations, but Paul's argument was that the strengthening Yuan may be signaling we could see a positive resolution. This struck a chord as this theme fits in line with Wednesday's MIDDAY Update on emerging markets.
In similar fashion the setup in the Shanghai Composite Index (SHCOMP) is showing a great deal of potential. Although just last week the SHCOMP made a 52-week low for a decline of 32% from its January 2018 highs, it rebounded strongly to close the week with a gain of 0.8%. This seemingly modest return may be overlooked by most given its connection to a new 52-week low, however there a number of technical that support a more optimistic view.
Last week's 52-week low at 2,441 was just 0.3% below its prior October low 2,449 which puts in play the "double bottom" reversal pattern that is so commonly seen throughout the markets at major lows (see SPX in the summer of 2015, Q1'16, and Q1'18). The price action illustrated in the last two weekly candlestick charts ending 12/28/18 and 1/4/19 also show common bottoming patterns which are being confirmed by this week's +1.6% gain.
Momentum is showing a great deal of promise with the weekly RSI carving out a bullish divergence into the October lows. The RSI bottomed back in July and has formed a perfectly symmetrical triangle pattern of lower highs and higher lows which is plenty deep into the pattern for a breakout.
The longer term shows the recent lows bottomed at (i) prior resistance from Feb to May 2012, and again in Feb'13 (dashed blue horizontal line), which coincides exactly with (ii) the rising trend line connecting the cyclical lows of 2005 and 2013. Prior resistance, now support. (Hat tip to Paul's colleague Stephen Suttmeier for highlighting the latter support to me.) Also, the monthly RSI bottomed in December at 33, its lowest level since its inception in 1990. While monthly momentum can remain at extreme levels for prolonged periods of time, I would argue that is less so on the downside.
While there is plenty of geopolitical risk whose outcome will likely determine the next direction from here, the technical setup appears ripe for a strong upside breakout from the 12-month declining price channel if our leaders can come to a resolution.
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Since 1976, when the current budget and appropriations process was enacted, there have been 22 gaps in budget funding, 10 of which led to federal employees being furloughed. How many of those periods saw the S&P 500 move higher?
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.