Afraid of Trade

Afraid of Trade… still.  Trade issues dampened equity trade once again yesterday, although not to the same extreme as in prior weeks.  The S&P 500, with little in the way of stimulus, managed to trade up on the session, though it closed just above its lows.  Although it represents a small gain, it was welcomed by traders after a week of soft trade.  Taking a step back the S&P still has significant short and mid term momentum behind it, which are positive signals for the index (see solid black and green trend lines in the top panel of chart 4 in my attached daily chartbook).  The VIX eased back below 15 yesterday which was the higher end of its range since early July.  This too indicates that perhaps traders are ready to move on from last weeks trade fears and tech troubles.  The Dow Jones Industrial Index, yesterday’s outlier, ended the session with minor losses closing at its low.  The Dow continues to lag the other major indices due to being made up of large, global industrials which are perceived as being more vulnerable to trade issues. Traders have been gunning for closes above 26000 which will be critical to getting things back on the bull track for the index whose range is 25631 to 26000 (see chart 6 in my attached daily chartbook).  The Russell 2000 managed to close up slightly yesterday in an attempt to build a base.  Though the Russell made several new all time highs this summer, it has been losing mid term momentum and its momentum trend is slightly negative indicating that the explosive spring fling growth earlier in the year may be past (see chart 7 in my attached daily chartbook).  The NASDAQ 100 rose in yesterday’s session indicating that tech sellers have possibly exhausted themselves after a week of tough trade.  Taking a step back (as I often do) you will notice that moves like last week’s are quite typical for the index that is packed with more speculative, growth-oriented tech and consumer discretionary stocks.  These types of stocks are subject to short term swings in sentiment making the index highly volatile.  Despite their high volatility, these stocks have been at the core of equity market growth often leading all others into positive territory. As I have pointed out in several of my recent notes many traders are looking for signs of a longer term rotation out of growth into defensive stocks and the NASDAQ is the superlative index for growth.  The jury is still out on a larger exodus into defensive, but there certainly is mounting evidence of a shift.

Fixed income was relatively quiet as traders await a raft of economic data and more supply.  Ten year yields are hovering right at their 2.94% Fibonacci line putting 3% in the sights of traders.  While the increased supply, in theory should weigh down prices, investors starved for yield may receive the new supply with open arms perhaps keeping rates subdued.  Today we received small business optimism at 6 AM (yeah, they start real early) and the index showed continued optimism coming in at 108.8 off of last month’s 107.9.  Later this morning, we will get JOLTS from the Bureau of labor statistics, which tracks the number of job openings and it is expected to continue to grow to 667,500 openings.  Though these are minor numbers, they are worth noting on a low volume day with little expected news.  For today’s session, traders will attempt to put ongoing trade fears behind them, ponder the trouble brewing in Europe over Brexit, and what impact Hurricane Florence may have on the markets.  Today also marks the 17th anniversary of the 9-11 terror attacks that changed the world forever.  Our industry, with its heart in downtown NYC, was particularly hit hard and many if not all financial services professionals were affected by the event in one way or another.  Today, we remember.

daily chartbook 2018-09-11

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