Trade Momentum Powers Equities to Record Levels

NASDAQ Composite +1.07% Dow +0.60% S&P 500 +0.81% Russell 2000 +1.15%

NASDAQ Advancers: 1725 Decliners: 683

WTI Crude: +0.22%   Gold -0.12%   VIX 11.73          

Market Volume (vs Friday): -11.87%

Market Movers

• December US Empire Manufacturing +3.5 vs. consensus +4.0. December New Orders +2.6 vs +5.5 in November
• December US Markit PMI - Manufacturing - Flash 52.5 vs. consensus 52.5
• December US Markit PMI - Services - Flash 52.2 vs. consensus 52.5
• December US NAHB Housing Market Index 76 vs. consensus 70
• Boeing  is reportedly considering a halt or reduction of its 737 MAX amid continued re-certification uncertainty
• Chinese industrial production rose 6.2% in November on a year-over-year basis. Retail sales in China also jumped 8% last month

Charlie’s Commentary

Stocks eked out only modest gains on Friday, despite a landmark phase 1 trade deal agreed to with China and a Conservative party win in the UK, paving the country's exit from the EU. The Dow ended the day just 3.33 points higher. The S&P 500 closed just above the flat line increasing 0.23 points while the Nasdaq Composite gained 17.56 points. Why the meager returns you ask? Well details of the agreement were not readily available and it was unclear if the deal had actually been signed by anyone. In addition many traders believed an agreement was largely already priced in to the market and some think that this was a buy the rumor sell the news event. Weekly gains were decidedly better driven primarily by Thursday's action when news of a struck deal initially broke. The S&P 500 and Nasdaq were up 0.7% and 0.9%, respectively while the Dow gained 0.4% for the week. And to put everything in perspective, in a year in which the Fed pivoted to cut interest rates three times, the US imposed successive rounds of tariffs against China halfway through December and articles of impeachment were brought against the President...the S&P 500 is up 26.4% while the Dow and Nasdaq are up 20.6% and 31.6%, respectively! Merry Christmas everyone!

This morning the markets are off to a positive start with all three major indexes trading at record highs, as continued momentum from the partial trade deal reached late last week is easing risk heading into the year end. In addition  there was good economic news out of China where industrial production for November rose 6.2%, topping expectations. Retail sales also rose in the country by a strong 8% in November as consumers continue to dig into their pockets. While momentum continues to trend in a positive direction now for a fourth day in  a row, advances are being contained after a Wall Street Journal article broke on Sunday indicating Boeing was close to a decision to halt or cut production of the 737 Max. This follows an interview last week with Federal Aviation Administration’s head Steve Dickson stating based on policy and procedure the 737 Max was unlikely to be cleared before 2020. Boeing currently weighs approximately -65 points on the Dow.  

On the , we received the Empire Manufacturing report for December. The Federal Reserve Bank of New York’s survey of general business conditions for the next six months rose 10.4 points in December to a five month high of 29.8. Despite the increase in optimism, sluggish demand remains among the areas manufacturers. The New York Fed’s headline of current general business conditions rose slightly to 3.5 in December from 2.9. Both Markit Manufacturing and Services PMI for December is relatively in line with consensus coming in at 52.5 and 52.2 respectively. Anything above 50 signals expansion. The National Association of Home Builders Housing Market Index rose 5 points to 76, the largest monthly increase since the end of 2017 and the highest level since 1999. Of the index's three components, current sales conditions rose 7 points to 84, sales expectations in the next six months rose 1 point to 79 and buyer traffic increased 4 points to 58.

Looking at the commodity pits, oil is getting a predictable boost from last week’s announced trade deal with China. Oil is trading at 3 month highs with Brent at $65.57 and WTI at $60.25. With a lack of detail on the phase 1 trade deal, gold has steadied as the dollar has weakened against a basket of currency rivals.

Currently 10 of the 11 sectors are trading in positive territory with Energy (+1.60%), Healthcare (+1.20%) and Technology (+1.18%) leading and Real Estate (-0.26%), Utilities (+0.225) and Industrials (+0.24%) lagging.

Sector Recap 

Brian’s Technical Take

U.S. homebuilder sentiment rose to a 20 year high with the NAHB Housing Market Index gaining five points to 76 vs. last month’s upwardly revised 71 reading. The 76 reading came in above all estimates polled in the Bloomberg survey which expected a 70 reading.  

We last covered the homebuilder ETF (ticker ITB) in the 9/25  MIDDAY Update when the ITB stood +42% YTD. We noted then there was 4-8% of upside gains ahead, but it was then likely to enter a period of consolidation as the ITB was fast approaching a major resistance level “which represents its prior cyclical highs made back in January 2018, and also a key pivot from 2006-2007. While an upside breakout to new highs is certainly a possibility, typically the first test of a major price level is met with initial resistance. While a few percentage points remain on the table before the ITB reaches resistance, we may soon start seeing signs of distribution over the near to intermediate term.”  

Over the next four weeks the ITB went on to gain 8.2% to come within a penny of its January 2018 high, best seen on the below weekly period Chart 1. Since then it’s been seven weeks of “healthy,” corrective price action. Over this time the weekly RSI has pulled back from an overbought 79 to 66, while the daily RSI has gone from 79 to a more normalized 46 reading.  

In the daily period chart of the ITB ETF (below Chart 2) we see the seven weeks of corrective price action has allowed the 50-day simple moving average (sma) to catch up to price and recently it appears to be acting as a support buffer. The rising 50-day sma, now $44.74, is now converging closer towards the aforementioned key resistance just above at the $46 level. This has resulted in “coiling” price action of decreasing volatility. This is measured by the width between the upper and lower Bollinger Bands contracting to 28 month lows.     

With overbought technical readings now worked off, coiling price action below long term resistance, and seemingly bullish fundamentals and sentiment readings for the broader industry, the ITB may soon be on the cusp of a “bullish breakout” and resumption of the prior steep uptrend underway since the start of 2019.

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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.

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