Thursday, March, 7, 2019, 12:31 PM, EST
- NASDAQ Composite -0.52% Dow -0.67% S&P 500 -0.49% Russell 2000 -0.46%
- NASDAQ Advancers: 1024 / Decliners: 1233
- Today's Volume (vs. yesterday)+8.8%
- Crude $56.44+$0.22, Gold $1285.90-$1.70, VIX 16.29+0.55
- Earnings reaction KR -13%, BURL -12%, GWRE +8%, HRB + 4.5%, AEO -3.5%
- Europe lower on dovish ECB concerns
- Initial jobless claims in-line at 223,000
- Continuing jobless claims better at 1.755 million
- Challenger job-cuts (Feb.) up 117.2% to 3 year high of 76,835
- U.S. Natural Gas Inventories show a draw of 149 Bcf vs a draw of 166 Bcf in the prior week
Small-cap stocks and Health Care names led us lower Wednesday as a risk-off scenario played out. Nothing major has changed on the macro-political level thus leaving traders looking for direction. As opposed to any one factor you can hang your hat on, it is more than likely a number of items that added to the decline. Major indexes hit key resistance levels earlier in the week and that warrants a pullback as technical traders take profits. The S&P 500 hit resistance at 2816 and pulled back 45 handles. The Russell 2000 hit resistance at the 200 day SMA of 1585/90 level and stalled, pulling back over -3.3% since (down -2% yesterday alone). The euphoria we saw for the 1st two months of the year is starting to wain as the markets pause here waiting for the next major headline. Today, the selloff continues as the market opened lower across the board. The S&P 500 is now down for 7 out of the last 8 trading sessions, but only off about 2% from the 2816 resistance level made on Monday. Currently 10 of the 11 S&P 500 sectors are trading lower with Materials, Industrials, Financials and Technology all down over 1%. Crude oil and Gold both trade flat to mixed. The dollar trades higher for the 7th day in a row. The yield on the 10-yr is lower at 2.64%.
Unemployment numbers released by the U.S. Department of Labor show continued demand in the U.S. Reported Initial Jobless Claims were in-line at 223,000 vs polled expectations of 225,000. Last week’s initial claims were revise up by 1,000 to 226,000.Year-over-year initial jobless claims are down by 4%. Reported Continuing Claims were less than expected at 1.755 million claims vs estimates of 1.772 million. The prior week was unrevised at 1.805 million. The report shows continued resilience in the job market.
The Federal Reserve's Beige Book report yesterday afternoon said the U.S. economy was expanding in January and February with 10 of the 12 Fed districts report "slight-to-moderate" growth while two districts (Philadelphia and St. Louis) reported flat conditions. The recent government shutdown, tight labor markets, and weather all hurt growth with the report stating, “About half of the Districts noted that the government shutdown had led to slower economic activity in some sectors including retail, auto sales, tourism, real estate, restaurants, manufacturing, and staffing services. Consumer spending activity was mixed across the country, with contacts from several Districts attributing lower retail and auto sales to harsh winter weather and to higher costs of credit.” NY Fed President John Williams spoke yesterday noting the weakening data in the report and its impact on the economy. “The base case outlook is looking good, but various uncertainties continue to loom large… therefore we can wait for the data to guide our approach.” Williams said the labor markets were strong but showed no signs of inflationary pressure. The next FOMC meeting is March 19th-20th. The Fed Fund Futures show a 0% chance of rate hike.
The European Central Bank left interest rates unchanged. Dovish comments by ECB President Mario Draghi following the release helped push global markets lower. Draghi said, "The weakening in economic data points to a sizeable reduction in the pace of economic expansion … will extend into the current year.” Draghi and the ECB slashed its 2019 Eurozone growth forecast to 1.1% from a previously reported expected growth rate of 1.7%. The ECB expects rates to remain at record low levels at least through the end of 2019. It also announced a series of new cheap loans for banks (TLTRO). Not exactly great commentary on the European economy. However, this could be a “bad is good” scenario for stocks longer term as flat or even negative rates are generally considered a short term positive for traders of riskier assets.
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Brian’s Technical Take
Equities are lower in the early going which, if it holds, will be the seventh time in eight sessions. Yesterday marked the biggest decline during this stretch which was led by the small cap Russell 2000 Index (RTY) and its decline of 2%. The RTY has led all major indices off the December lows with a rebound of 26.5% to its intraday high on February 25th. This made for a YTD return of 18.8%. Not too shabby! Naturally its RSI was at a high overbought reading, 77, which indicated a healthy consolidation could kick in at any time. It then ran into expected resistance at its 200-day moving average, which it has proven to be sensitive to in its recent history (see Q1 & Q2’18), but was unable to hold above it for more than a session. After consolidating along this most popular moving average for seven consecutive sessions, it is now rolling over to the downside.
The recent weakness coincides with the abrupt end to the North Korea summit on February 28th which we suggested in that day’s MIDDAY UPDATE could have a negative impact on the US-China trade negotiations. Interestingly the Shanghai Composite continues to make fresh YTD highs while US equities are correcting the January-February uptrend. Maybe that has more to do with the MSCI announcement? In the bigger picture the RTY is down a relatively modest 5% from its YTD highs, and currently stands +13.5% YTD. Today’s low is equal to the 23.6% retracement of the prior uptrend which is as modest as it gets for a correction.
Greater support begins down at the converging 50-day (purple line) and 100-day (green line) moving averages, now 1,483 and 1,490, followed then by a clustering of technicals in the 1,435 - 1474 range. This price zone represents the 38.2% and 50% retracements, as well as pivot lows made in October and November. The depth of the pullback could be determined by the outcome of the trade negotiations. If the administration announces any new enforcement actions in regards to the NK sanctions with the goal of pressuring China into a deal, we may see a greater pullback in the near term. Given the ongoing strength of the Chinese markets, you wonder if that will embolden the Trump administration to “stir the pot” and fire a shot across the bow. At this time however the longer term technical outlook remains constructive.
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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.