It's Risk-On As Stocks Stage A Global Relief Rally

Friday,October 12, 2018, 12:11 PM, EST

  • NASDAQ Composite +1.34% Dow +0.52% S&P 500 +1.26% Russell 2000+0.79%
  • NASDAQ Advancers: 1658 Decliners: 642
  • Today's Volume -14.77%
  • Crude +0.90%, Gold -0.45%

Market Movers

  • September US Import Prices +0.5% vs. consensus +0.2%; Export Prices 0.0% vs. consensus +0.3% . August Import Prices revised to (0.4%) from (0.6%) . Export Prices revised to (0.2%) from (0.1%)
  • October University of Michigan Consumer Sentiment (preliminary) came in at 99.0 vs consensus 100.6
  • Chinese trade data indicated that exports rebounded while imports remained robust thanks to strong demand domestically
  • Treasury Secretary Steven Mnuchin stated in a CNBC interview that the recent sell-off is a "natural correction" in a bull market and respects the Federal Reserve's independence
  • Later this afternoon Atlanta Federal Reserve President Raphael Bostic and the Fed's Vice Chairman of Supervision Randal Quarles speak

Charlie's Commentary

Investors needed motion sickness pills yesterday as the markets ebbed and flowed for much of the day. When the bell rang and the dust settled, the major averages closed notably lower. Booth the Dow and the S&P closed down 2.1% while Nasdaq trimmed 1.3%.

The S&P 500 logged its sixth consecutive negative day and was in its longest slide since 2016, closing below the 200 day moving average. At the close only 19% of the S&P 500 stocks were above their 50 day moving average. Trading was heavy with volume roughly 60% above the average over the past 30 days. The Dow dropped 240 points in the last 90 minutes. Treasuries were stronger with the curve notably flattening. The dollar was down against the major currencies. Gold posted its strongest daily gain since 2016, finishing up 2.9%. Oil was weaker, with crude settling down 3.0% after a larger-than-expected US inventory build.

This morning we received an early positive boost from overseas when a report out of China indicated that exports rebounded while imports remained robust thanks to strong demand at home. This seemed to indicate that concerns over the effects of the trade war were a bit overblown and eased the Asian markets.

The positive sentiment overseas continued domestically as third quarter earnings got off to a good start with finance bellwether JP Morgan reporting better earnings and revenues than estimated. Jamie Dimon commented that 'the US and global economy continue to show strength despite increasing economic and geopolitical uncertainties, which at some point in the future may have negative effects on the economy."

Citigroup and Wells Fargo followed with mostly positive results. Traders were also focused on the September Import / Export price data as another gauge of inflation. Excluding agricultural exports, export prices increased 0.2% after declining 0.2% in August. Import prices, excluding fuel were unchanged after declining 0.2% in August. The bottom line is that non fuel import prices are being held in check which is helpful in easing some of the market's inflationary concerns.

The final item on the economic calendar today was the University of Michigan consumer sentiment reading for October which dipped unexpectedly to 99, albeit still at an elevated level, amid a slightly dimmer view of personal finances and the long term economic outlook. Turning to the commodity space, oil prices are rising this morning buoyed somewhat by the rebound in world equity markets despite a report from the International Energy Agency that stated the market looked "adequately supplied for now."

Gold is pulling back today from 2 month highs as the appetite for riskier equities surpass the desire for the safe haven shiny metal. All sectors in the S&P 500 with the exception of Utilities are trading in positive territory led by Technology and Consumer discretionary. With all the damage that has been done the past several days, technical analysts have had to hit the reset button. Today we are looking at support at the 2717 / 2720 level and resistance at 2755 / 2758. While it's too early to tell we do seem to be getting a bit of a relief rally today. Let's see if it is sustainable.

Sector Recap

Brian's Technical Take

Equities are rallying sharply from extreme oversold technical conditions as a result of the widespread carnage seen this week. Coming into today all of the major equity indices were trading below their 200-day moving average, as well as nine of the eleven GICS sectors. Utilities and healthcare were the only sectors holding above this long term trend indicator. For the S&P 500 its daily RSI closed at the 17 level yesterday, its lowest measure since the summer of 2015.

Today's relief rally gained as much as 2.4% and has moved the SPX back above its 200-day sma, while its daily RSI has seen a sharp jump above 30. Over the near term a key test will be the 2,790 - 2,800 range which has proven itself to be both a clearly defined resistance and support range over many occasions since the February lows.

There are two primary possibilities that we are looking for over the coming days and weeks. One is a bullish V-shape rally towards the 2,850 level which would equal a 61.8% retracement of the October decline. The other is a failure at the 2,800 resistance and followed by a retest of yesterday's low, 2,710. This latter scenario would be in-line with what we saw in the SPX during the previous corrections in February 2018, Q1'16, and in the summer of 2015.

However, failure to even reach the initial resistance at 2,790 - 2,800 would indicate the SPX is still in its first leg down.

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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.

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