Holiday spirits. After a few rough sessions, stocks attempted to show some bull spirit, trading in the green for most of Wednesday’s session only to close mixed on the day. Seller exhaust was met with value seekers’ quest for bargains as traders grabbed for the badly bruised FANGS, retail stocks, and consumer discretionary shares. Energy had a little bounce too but that appears to be short lived. Investors went for the “buy the dip” play that yielded the best results over the first three quarters and how that plays out over the next few weeks will give us some good insight into what 2019 may look like. The S&P500 closed up +0.3% at session lows. The index will get support from its 2645 Fibonacci line as well as its round 2600 below (see chart 4 in my attached daily chartbook). The Dow Jones Industrials closed down 1 point also closing on its session lows. The Dow will find weak support at 24247 and at its 24070 Fibonacci line below (see chart 6 in my attached daily chartbook). The small cap Russell 2000 closed up +1.31% in Wednesday’s session as value investors picked through the rubble searching for bargains. The NASDAQ 100 closed up +0.75 on the day as investors grabbed for the usual suspect stocks of a dip buying strategy. The index closed right on a support line at 6574 and it will receive more support below from its 6551 Fibonacci line (see chart 8 in my attached daily chartbook). All of the S&P500, Dow Jones Industrial Index, Russell 2000, and the NASDAQ 100 remain risk off. Chart 10 in my attached daily chartbook features the AdvisorNXT Equity Sentiment indicator, which is based on the S&P500 long term sentiment and momentum and gives fairly accurate signals for the road ahead. In the top panel, you will note that the line and regions shaded in red indicate negative sentiment based on the lower two panels.
When both of the lower indicators go below zero (also shaded in red), there is good chance of a longer period of sideways or negative movement in the broader stock market. It is not intended as a trading signal but rather as a general guide. Another interesting data point to note was the University of Michigan Consumer Sentiment Index which came out on Wednesday showing some signs of a possible peak as the index has declined in its last few readings. More interesting is that confidence has dropped most notably amongst high income consumers while it increased in lower earners. To be fair the economy is not driven by high income consumers, but they are usually the first to recognize directional changes in the economy. On a positive note, early indicators on the holiday buying season are pointing to a strong year for retail driven by the sturdy economy, positive sentiment, and added income from last year’s tax package. Additionally there appears to be an increasing willingness on behalf of the Chinese government to work out some sort of compromise. As for the Fed, they are still likely to raise rates in December with a 72% chance of a 25 basis point hike, which is largely factored into the market already. A positive break in the trade standoff between the US and China remains the single largest roadblock for the equity markets placing the G20 meeting in Buenos Aires a week from today front and center.
Today, equity and bond markets will close early with only manufacturing and services PMI numbers. The manufacturing PMI is expected to have stayed flat at 55.7 and the services PMI is expected to come in at 55.0 up from last month’s 54.8. Next week will be chock-full of releases including more housing data, GDP, the now-hallowd PCE deflator (personal consumption expenditures, loved by the Fed), FOMC minutes, and the G20 summit. Though this may sound like a broken record, we can count on one thing in the markets next week: more volatility. Until then, enjoy the comfort of family, friends, and lots of left over turkey.