Now That’s The Spirit!

Now that’s the spirit!  Markets rang in the holiday season with a decisively positive day yesterday as holiday spirit ignited traders’ hopes of a year-end rally.  Traders put down their last leftover turkey sandwiches as early reads on the holiday season retail came in showing healthy growth.  Saudi Arabia talked of production cuts, which helped oil trade up and the European Union approved a Brexit deal proposed by the UK adding to the positive spirit and ultimately gave rise to a badly needed rally day.  The move brought the S&P500, which traded back over a key resistance line at 2645 and to a close at session highs.  The next major point of resistance will be at 2700 and support will come from the 2645 Fibonacci line (see chart 4 in my attached daily chartbook).  The positive move in the S&P managed to drive the VIX index down below 20 closing at around 18.85.  Remember that 18 is the magic number for the index historically.  If the VIX is at that level or above, tension is high and a close below could be the beginnings of a rally, if sustained.  If you want to know more about the VIX, read my last week’s Geek-Out Wednesday note here:   The Dow Jones Industrials rallied +1.46% closing just off the index’s session high directly on its 24646 Fibonacci resistance line.  The Dow will need to close above that line before traders can set their sight on 25000 and the extremely important resistance around 25086 which features both a Fib line and the 200 day moving average (see chart 6 in my attached daily chartbook).  The small cap Russell 2000 rallied +1.16% bringing the index back above 1500.  The small caps will need to regain their former leadership position if traders can hope for a broader, sustainable rally and even though the past few sessions are steps in the right direction, there is a long row to hoe ahead.  A one-day rally, though refreshing, does not make a bull market and often one needs to step back and look at the finer points of daily trade to determine the overall implications.  The growth and tech oriented NASDAQ 100 came out on top yesterday with a rally of +2.31% indicating that yesterday’s move was perhaps more speculative.   Bonds traded off slightly yesterday in response to the equity rally and ten year yields rose a basis point to 3.05%. While we are on the topic of bonds, I want to remind you that  the risk-free 3 Month Treasury Bill will pay 2.35% versus the 1.99% dividend yield of the S&P500.  With the VIX around 18.5, the S&P has the potential to trade up or down by 9.25% within the next quarter so investors that will need access to their principal in the near term should consider allocating more to shorter term fixed income.  To learn more, call your advisor to explore investment opportunities which carry lower short term risks.  If you don’t have an advisor, call the trading desk and they can connect you with someone who will be happy to help you.

Today, we will get the FHFA Housing Price Index which is expected to show a growth of +0.4% versus last month’s +0.3%.  We will also get the the Conference Board’s Consumer Confidence reading which is expected to come in at 135.9 down from last month’s 137.9.  This one can be a market mover as consumer confidence has been a primary market driver over the past 18 months and a breakdown here would be an early indicator of real trouble ahead.  Today, we will also hear from several Fed speakers including the New York Fed’s CEO John William’s and FOMC Vice Chair Richard Clarita and we can expect Fed watchers to be listening carefully as the debate over future hikes rages on and is still a major market driver.  We will also get a 5 year treasury auction that can have an impact on the bond market, which has been displaying some interesting characteristics lately (more on that perhaps tomorrow).  The When Issued 5 year is currently trading at 2.88% right around the same level as the current 5 year note. Overnight, WHILE YOU SLEPT, the President sent a harsh message to China ahead of talks which will happen later this week stating that he was not inclined to hold back on the tariff hike that is due to be enacted in the new year.  The statement managed to dampen any positive follow-on moves in Asian and European trade.  It is not clear how that will play out in the regular session ahead but it will certainly be one of the many factors in the news cycle.  Please call me if you have any questions.

daily chartbook 2018-11-27

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