Friendly Gestures

Friendly gestures.  With trade being top of mind for investors these days any positive advances on trade talks between the US and China could help to firm up markets and that is precisely how yesterday’s session for equities played out.  Stocks rose yesterday as trade talks were kicked off between the US and China with negotiators displaying positive body language.  On hopes that positive outcomes will prevail investors began to put on fresh risk.  Already confident from positive comments by Fed Chair Powell and a strong employment figure from last week larger investors have most likely began putting on positions from their wish lists generated in the darkest days of last quarter.  The S&P500 rose by +0.7%, the Dow Jones Industrial Index added +0.42%, the Russell 2000 went up by +1.78%, and the NASDAQ 100 advanced by +1.02%.  The Russell’s performance over the past few sessions is a good sign that investors are trying something new.  My regular readers know that I believe the small cap Russell 2000 index is a good indicator of overall equity sentiment and that until that index re-trends there is less likelihood for a sustained growth in stocks in general.  By observing the Russell 2000 chart in my attached daily chartbook (chart 7) you will note that the index has advanced above the 1366 Fibonacci line and must now advance above the next line of resistance at 1448.  It is in that region that the index received strong support earlier in the 4th quarter.  Another positive sign can be found by observing sector performance over the past week in which Utilities and Consumer Staples were two of the worst performers during the period (see chart 1 in my attached daily chartbook).  This represents a turn-around from the defensive rotation that dominated trade for much of the past quarter.  These small signs indicate that investors are attempting something new and while it is still too early to call this a trend, it is certainly a positive sign.  All of the major indexes remain risk off.  Another favorable factor is Crude oil, which has been rallying since it bottomed out in the last days of 2018 and continues to help support ailing equities.  Crude will get resistance from its $50 Fibonacci line which is also right around the price point which allows shale oil producers to make a profit.  A continuation of the crude rally can play a big role in helping not only equities but also the junk bond market which contains many energy-based borrowers.  Bonds traded off yesterday and the 10 year treasury yield rose by 2 basis points to close around 2.69% and the 2/10 yield curve remains flat at 15 basis points.  Junk Bond spreads have narrowed a bit as lower quality debt rose faster than the underlying treasury yields (see bottom panel of chart 17 in my attached daily chartbook).

Today we will get the JOLTS job openings number and it is expected to show a slight decrease to 7.050 million down slightly from last period’s 7.079, which is still around a 10 year high.  Later today we will get a read on Consumer Credit which is expected to have grown by +$17.5 billion versus last period’s +$25.384 billion.  Earlier this morning the NFIB small business optimism index came out at 104.4 slightly lower than the prior month’s 104.8 but managed to beat lower expectations of 103.0.  With trade talk underway showing positive signs and a Chinese purchase of US soybeans WHILE YOU SLEPT should give traders a positive vibe to start their day. Though the real potential economic effects of the Government shutdown have not really been pondered yet expect the discussion to begin to intensify today.  President Trump will hold a press conference today to discuss the shutdown, which may add some volatility to the market.  Please call me if you have any questions.

daily chartbook 2019-01-08