Tuesday, February12, 2019, 12:31 PM, EST
- NASDAQ Composite +1.37% Dow +1.30% S&P 500 +1.16% Russell 2000 +1.25%
- NASDAQ Advancers: 1821 / Decliners: 458
- Today's Volume (vs. Monday)+24.60%
- Crude+1.51%, Gold+0.38%
- U.S. lawmakers have reached a tentative deal to avoid a second government shutdown
- Trade talks between the U.S. and China continue in Beijing with senior officials expected to join the discussions on Thursday
- The National Federation of Independent Business’s optimism fell 3.2 points to 101.2, the lowest since 2016
- December JOLTS 7.335M job openings vs. consensus 6.866M
Yesterday’s market could be termed lackluster at best. Two many balls in the air without any meaningful resolution or progress kept investors largely on the sidelines (Incidentally there are 35 days remaining before the opening pitch of Major League Baseball) . The Dow Jones Industrial Average fell 53.22 points, or 0.2%, to 25,053.11, while the S&P 500 rose 1.92 points to 2,709.8, and the Nasdaq Composite Index gained 0.1% to 7,307.90. This morning traders have more tangible news and data to sink their teeth into. The first piece of news crossed the wires last night when it was announced from Washington that lawmakers had reached a tentative deal to avert a government shutdown. Details were still sketchy, but Republicans and Democrats agreed to a border security deal that includes substantially less money than the President was asking for. The proposal calls for the authorization of $1.4 billion to build 55 miles of new border fencing.
This is significantly less that the $5.7 billion the President was requesting for the nearly 215 miles of border barrier. Democrats also dropped their demand for a cap on detention beds for immigrants detained within the U.S. Instead the deal would set an average daily cap at 45,274 beds, less than the 49,057 now detained. While the President has yet to weigh in on the negotiated proposal, Senate Appropriations Chairman Richard Shelby was hopeful and positive. The deal, if approved would fund the government through September 30th. A lot still has to happen before this Friday’s deadline at midnight. It has to be written into legislation, pass both chambers of Congress and get the approval of the President.
Turning our focus to the Far East, senior White House officials have said that President Trump still wants to meet with China’s President Xi Jinping in an effort to end the trade war reversing his stance from last week. Negotiators from both China and the U.S. began a series of meetings in Beijing yesterday that will last the balance of the week. U.S. officials are pressing China to commit to deeper reforms to a state driven economic model that they say hurts American companies. Negotiations are expected to heat up on Thursday as U.S. Trade Representative Robert Lighthizer and Treasury Secretary Mnuchin will join Chinese Vice Premiere Liu He in the meetings. Officials have pointed to this week’s meetings being important in demonstrating progress to both U.S. officials and the financial markets. While the March 1st deadline is fast approaching, it will likely be extended and the tariffs not raised if meaningful progress is made. We had a few items on the economic calendar starting with Small Business Optimism for January.
The National Federation of Independent Business optimism index fell 3.2 points to 101.2, the lowest level since November 2016. That low number was a direct reflection of a weakened economic outlook influenced by the longest ever government shutdown that effectively halted loan applications while the Small Business Administration was closed. In addition many contractors suffered from the shutdown along with other firms that rely on federal workers. We also had the December JOLTS Job Openings report. U.S. job openings rose by 169k to 7.335m in December from 7.166m the prior month. The December job opening rate was 4.7% and the pace of hiring was 3.9%. In the commodity pits, oil is catching a bid thanks to an announcement from the Middle East. The Energy Minister of Saudi Arabia, Khalid al-Falih said that the country will reduce oil production to nearly 9.8 barrels per day in March, over a half a million barrels per day more than it pledged to cut under an earlier deal to cap output. OPEC cut its forecast for 2019 world oil demand due to slowing economies and expectations of faster supply growth from competing nations. Gold is trading in the green this morning as trade negotiations are progressing in Asia, stalling the dollar and bringing new luster to the shiny metal. As investors adopt a more risk on posture, ten of the eleven sectors are in positive territory led by Financials, Consumer Discretionary and Communications Services. Lagging the rest is the REIT sector.
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Brian’s Technical Take
Equities are up across the board after a bipartisan agreement on border security was announced late yesterday. The tentative pact provides far less funding than what the President was asking for and Trump has yet to make any public tweets or comments on it. This is far from a done deal as the plan has yet to be written into legislation, after which it must pass both chambers of Congress and then Trump’s approval. The S&P 500 is currently up 1% and currently resides at the top of the early session’s range. It is on the verge of “breaking out” above its 200-day sma which marked the YTD high made last week.
A breakout to new ytd highs has different implications for different types of investors. Shorter term momentum investors will chase the breakout and at the same time set their stop exits according to their risk tolerance. If price fails to show much upside momentum and instead reverses lower, stops are triggered and the speculator licks his/her wounds but lives to fight another day. For the Elliot Wave crowd, at least for some, a move to new highs affirms the entire uptrend off the December lows is “impulsive” and thus confirmation that the “bear market” of 2018 is in the rearview mirror and a new bull is underway.
This constructive outlook seemingly does not fit with the weakening economic data and the potential recession risk seen by some, however price often leads fundamentals and the lows of this correction appear more and more likely to be in. In late December we highlighted the extremely negative breadth measures that were in line with historical bottoms previously seen in the market. Seven weeks later and the S&P 500’s advanced-decline line is already at all-time highs while the percentage of stocks above their 50-day moving average, now 86%, is at its highest level since the summer of 2016. And today we are less than five points away from new YTD highs in the SPX which will cement it for many of the Elliot Wave folks. The political rhetoric is not going away, it never does, and the trade conflict with China is still a serious question mark, however the price action is telling.
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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.