Friday,March15, 2019, 12:31 PM, EST
- NASDAQ Composite +0.89% Dow +0.57% S&P 500 +0.55% Russell 2000 +0.49%
- NASDAQ Advancers: 1539 / Decliners: 798
- Today's Volume (vs. Thursday)+51.05%
- Crude-0.32%, Gold+0.60%
- March US Empire Manufacturing +3.7 vs. consensus +10.0
- February US Industrial Production +0.1% vs. consensus +0.4%; February Capacity Utilization 78.2% vs. consensus 78.5%. January Industrial Production revised to (0.4%) from (0.6%). January Capacity Utilization revised to 78.3% from 78.2%
- January US JOLTS 7.581M job openings vs. consensus 7.310M
- March US Michigan Consumer Sentiment (preliminary) 97.8 vs consensus 95.5
- The Chinese government vowed to cut value added taxes renewing its commitment to fiscal stimulus to boost the economy
- Today is a Quad Witch Options expiration day (more on that in the note)
- Today is also a quarterly S&P Index rebalance
- Our heartfelt sympathy goes out those affected by the senseless tragedy that occurred in Chistchurch New Zealand
Ah TGIF right? It has been a long week and it would be nice to just ease into the weekend. But that is not the case here at the Market Intelligence Desk as there are a myriad of factors affecting stocks and the market this morning that are both obvious and not so obvious. The obvious are those factors making headlines through the various media outlets and calendars that we are exposed to on a daily basis. Things such as geopolitical concerns regarding the ongoing trade negotiations between China and the U. S. and the continuing evolving Brexit soap opera. We also have the economic calendar that while relatively light on the number of releases still needs to be paid attention to as it can sway investor sentiment. Then we have the not so obvious factors that can catch some flat footed if not brought to one's attention. Today I am talking about a Quad Witch Options expiration day which happens four times a year and can caused outsized volume moves. That is the simultaneous expiration of stock index options, stock market index futures Individual stock company options and single-stock futures.
Volume typically picks up towards the end of the trading session. In addition today we have an S&P quarterly Index rebalance which also tends to cause volatility in the market and an increase in volumes beyond an company's average daily volume as the various indexes rebalance themselves to properly reflect the changing market. Ok with that as a background, let's turn our attention back to what is obvious. This morning's market is getting an early boost from overseas as further progress is evident in the U.S.-China trade negotiations.
A phone conversation has apparently taken place between Chinese Premier Liu and U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer expressing his desire to continue earnest progress towards a solution. That was in direct contrast to the buzz yesterday when the rhetoric seemed to indicate that negotiations were stalling. Across the pond Parliament voted on Thursday to seek a delay in Britain's exit from the EU. This marked the end to dramatic events this week which have added yet more confusion into the whole Brexit process. British Prime Minister Theresa May is preparing once more to try and win approval for her twice-rejected Brexit deal. Third time a charm? To be honest a lot of these changes both positive and negative in Europe and Asia have been a bit of a roller coaster keeping traders on their toes and keeping the markets in check. Turning to the economic calendar the firs t report released was the Empire State Manufacturing Index which was a huge miss, coming in at 3.7 vs the estimated 10 indicating at first glance that conditions in the NY region are cooling. However the reading had a positive signal that orders are still growing, but at a slower pace. In addition there was an increase in unfilled orders suggesting that current capacity is struggling to meet rising demand.
Manufacturing output fell 0.4% after a revised 0.5% decline in the prior month. Total industrial production rose 0.1% after a revised 0.4% decrease that was upwardly revised. Industrial production fell for a second month in a row, indicating that that stop and start progress in the trade negotiations and slower global growth are weighing on manufacturers performance. The University of Michigan's preliminary March consumer sentiment index rose to 97.8, the highest this year so far. The increase in sentiment reflects a sizeable jump in income expectations among middle and lower earners. In addition a measure of economic outlook for the next 12 months rose to a four year high. In the commodity pits, oil trades in mixed territory, after reaching its highest levels this year on a combination of production cutbacks from heavyweight OPEC and sanctions against both Iran and Venezuela.
Growth however is expected to slow as concerns over an economic slowdown in both China and Europe could potentially curtail demand. Global economic fears are easing the growth of the dollar this morning providing a boost for gold back above the key technical $1,300 level. From a sector perspective Technology is by far and away the leader today (1.44%) followed by Financials (0.50%) and Utilities (0.39%). Laggards on the day are REITs (-0.49%), Communications (-0.25%) and Industrials (-0.15%). The VIX is 12.86 while the Dollar Index is 96.51.
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Brian's Technical Take
U.S. equities remain in a holding pattern along clearly defined resistance as disappointing Empire Manufacturing data increased flows towards treasuries driving yields to near 52-week lows. Despite the poor data and seemingly mixed message from rates, the Nasdaq 100 (NDX) is having its best weekly performance (+4%) in 2019. Global economic data has been far from inspiring for quite some time however the price action is also telling a different story.
The iShares MSCI Emerging Market ETF (EEM) is a favorite amongst institutions looking for overseas exposure as evidenced by its average daily volume of more than 76M shares. The EEM is also having its best weekly performance (+3.4%) in 2019 and currently stands +10.1% YTD. During its strong rebound in January the EEM broke out of its declining price channel, as well as a large "double bottom" reversal pattern. The breakout carries a minimum measured move to the $45.50 level, +5% from last sale, however given its 28% high-to-low decline in 2018 there appears to be fair opportunity for greater upside. After peaking in early February at the ~$43.50 level, the EEM has since been consolidating in a sideways range for six consecutive weeks. Over this time its daily RSI has reset from an "overbought" 69 reading to more normalized levels. The recent low of 42 has held within the bullish zone and is now trending higher to a current 57 reading.
The moving averages are healing with its rising 50-day sma (violet line), a clearly defined resistance line throughout much of the 2018 downtrend, recently acting as support during the ongoing six week corrective period. The 50-day sma, now $41.97, is gaining roughly 6-7 points per session and by Tuesday should form a "golden cross" with its move above the 200-day sma, $42.08. While this indicator is no stranger to giving off false signals, its prior bullish cross came in early 2017 when it gained 34.6%. While some may point to the strength in the US dollar as reason to wait on emerging markets, the dollar's performance vs. its Asian pairs has not been as robust.
The US dollar index (DXY) is +4.4% due largely to its 57.6% weighting to the euro. Conversely the JP Morgan Asia Dollar index (ADXY), whose constructive technical setup we highlighted in the January 11th and 14th MIDDATY UPDATE's, is actually +0.9% YTD. And the current technical setup of the ADXY (not shown today, maybe Monday?) is forming a gorgeous "cup and handle" bottoming pattern which confirms on a break above 106.80. The relevance for the EEM is its outsized weighting to Asia with more than 58% of its holdings allocated to China/Hong Kong, South Korea, Taiwan, and Thailand. This explains the strong 0.66 correlation between the two asset classes. Despite the ongoing mixed signals from the market and economic data, price action in equities across the globe continues to improve. And while some sectors, industries, and regions may be extended, the EEM looks ripe for being on the receiving end of rotation.
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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.