Monday, March 25, 2019, 12:31 PM, EST
- NASDAQ Composite +0.14% Dow +0.28% S&P 500 +0.19% Russell 2000 +0.82%
- NASDAQ Advancers: 1337 / Decliners: 985
- Gold +0.7%, Dollar Index -0.2%, WTI Crude Oil -0.2%
- Chicago Fed National Activity Index down less than expected at -0.29
- Dallas Fed Manufacturing Activity missed expectations at +8.36
- Apple unveils new services including video and news subscription venues
The long-awaited Mueller Report was filed late Friday but that is having no impact on today’s markets one way or the other, so if you want more on that topic you’re stuck with cable TV. Moving on…following the pullback on Friday the markets opened little changed this morning but fell to session lows within an hour. Approaching midday, however, the markets pushing into positive territory with the Russell 2000 leading the way with a 1.1% advance. This follows a sea of red in Europe and Asia with most Asian markets off over 1%. Part of the yield curve inverted on Friday for the first time since 2007. Since the early 1950s the inversion has correctly predicted a recession will follow in eight to twenty-four months with only one exception in 1966. However, current very low rates and past false signals means there is still some debate about the signal.
Trader sentiment has shifted from expecting more rate hikes later this year or next to expecting rate cuts, maybe by year’s end. Friday’s general narrative of slowing global growth remains on the table and today we have little additional economic data to change that view. Broad moves in sentiment like we saw on Friday always raise the risk of ‘group-think,’ and case in point was Friday’s excellent exist home sales data that was completely ignored. Later this week we get a look not only at housing starts but both pending and new homes sales stats. Stable or softening rates should boost housing sales, which is a significant part of the economy.
The sectors are mixed at midday with some red in Technology (-0.1%) while Industrials (+0.7%) are the best performer. Akamai is the leading decline within the tech space following a downgrade to sell at Deutsche Bank, and Halliburton was weighing on the Energy space after announcing a decline in North American E&P spending for the year. Financials and Bank stocks are seeing slight gains after a horrible showing last week. Crude oil is trading a little lower today with WTI off about 1.3%. On Thursday it hit resistance at the $60 level and has softened since, and similar for Brent after touching the $68.50 line also on Thursday. Gold is also positive with a 0.5% advance but the dollar index is off about 0.1%. Lastly market volumes are down about 12% compared to Friday morning, so trading conditions are relatively calm.
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Brian’s Technical Take
Last week the Fed cleared the egg off its face and double downed on its dovish pivot both by forecasting an end to its balance sheet reduction program (QT) by September, and by reducing the number of expected rate hikes in 2019 from two to zero. Powell said there was no bias about the next direction, hike or cut, but markets are now pricing in a near 70% probability that the next act will be a rate cut by December.
The dovish acceleration went over well on Thursday, for most sectors, with the S&P 500 gaining 1.1% to fresh YTD highs, but just as quickly gave it all back and then some with Friday’s 1.9% decline. The whipsaw left the SPX down a modest 0.77% for the week, however the flagship large cap index carved out a bearish weekly candlestick pattern along clearly defined long term resistance. The recent move to fresh highs two weeks ago carried a wave five label for many “Ellioticians” which if accurate suggests we should be in the early stages of the biggest correction since the start of the December uptrend.
The financial sector reacted decisively following Wednesday’s FOMC with the KBW BKX Index (BKX) registering declines of 3%, 1.5%, and 3.9% in the final three sessions. For the week the BKX gave back 8.3%, its largest weekly decline since January 2016. Just last Tuesday the BKX was making fresh 2019 highs, +19% YTD and +27.9% from its December lows, however as soon as it poked its head above its 200-day moving average, sellers quickly slammed it down. It finished Tuesday’s session with a decline of 1.3%, the start of four consecutive sessions in the red, while forming a large bearish engulfing pattern on the daily.
The 10YR - 3M treasury spread inverted on Friday for the first time since 2007. This drove the BKX down below expected support at the 92.75 price gap which formed during the January uptrend. At today’s lows the BKX has already lost more than 10% from the highs which equates to a near exact 50% retracement of the Q1 uptrend. With the daily RSI already dipping down below the “oversold” 30 level, a relief rally could be in store, however a fair amount of technical damage has been inflicted that will likely take time to heal.
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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.