Chinese Squeeze

Chinese squeeze.  Stocks took their cues from Asian markets as Chinese trade balance slipped.  As reported here yesterday morning Chinese trade data reflected that not only did exports fall by -4.4% but also imports slipped by -7.6%.  The unexpected slowdown adds to the list of signs that the second largest global economy is weakening.  The news caused a global selloff that ultimately made its way into the US as stocks opened in the red.  Adding to the woes were confirmed rumors that California Utility PG&E will be filing for bankruptcy.  You may recall that faulty PG&E equipment had been linked to the recent wave of brush fires that devastated California causing massive financial loss and numerous deaths.  Earnings kicked off yesterday morning with Citigroup, which managed to beat on EPS and miss slightly on top line, or revenue, projections by a bit.  Initially the stock traded off due to their announcing poor performance in their fixed income division but the stock ultimately traded up in the session once traders had a chance to parse the numbers more carefully.  This morning we will get JP Morgan Chase and Wells Fargo and traders will be listening carefully for signs of global headwinds and forward guidance.  In yesterday’s session the S&P 500 slipped by -0.53% as the index was unable to even reach its key resistance point at 2600.  The S&P was able to stay above its Fibonacci support line at 2573, which is a positive step in building a base (see chart 4 in my attached daily chartbook).  The Dow Jones Industrial Average fell by -0.36% also staying above its key support level of Fibonacci 23713.  The Dow will continue to get resistance at 2400 (see chart 6 in my attached daily chartbook).  The small cap Russell 2000 bounced off of its 1448 Fibonacci resistance line slipping by -1.01% after mounting an impressive bounce from its low achieved in late December. The index will continue to get strong resistance at 1448 and will receive support from its round 1400 level (see chart 7 in my attached daily chartbook).  The NASDAQ 100 traded off by -0.91% and closed below its 6584 Fibonacci line which supported the index in the past 3 sessions.  The NASDAQ will get support from its round 6500 and will aim to get a close back above 6584, which will now serve as resistance (see chart 8 in my attached daily chartbook).  All of the S&P, Dow, R2K, and NASDAQ indexes remain risk off.  Crude oil’s recent rally was a key factor in the equity market’s recent recovery and it posted a second day of losses trading off by -2.09% yesterday, closing slightly above session lows at its key $50 support level.  The  $50 / barrel level is important because it represents a level at which shale producers can make a profit and from a technical perspective it is a round number, there is a Fibonacci line right on it, and it has served as a key support level in the past (see chart 11 in my attached daily chartbook).  For more information about support and resistance please refer to my past geek-out Wednesday note on that subject here:  https://www.siebertnet.com/blog/index.php/2018/08/22/whats-in-a-number/ .  Bonds traded off yesterday causing 10 year yields to rise slightly to 2.70%.  Bond traders continue to weigh the ongoing doveish fed message with the reality that rate hikes will ultimately have to commence at some point.  With the market now factoring in no rate hikes for the entire 2019, any hike would represent a surprise and would likely cause a pronounced response.

Today we are supposed to get Producer Price Index but the number may be postponed due to a delayed opening for Government agencies as Washington DC digs out of the biggest snowfall in at least 3 years.  The PPI is expected to show a year over year growth of +2.5%, flat from last month’s reading.  Ex Food and Energy, the year over year figure is forecast to come in at +3.0% versus last month’s +2.7%.  Cheaper oil has helped keep the top line number lower as evidenced by the discrepancy.  As mentioned above, we will hear from JP Morgan and Wells Fargo before the bell and their results may set the tone for financials in the session ahead. JPM is expected to announce earnings of $2.206 per share and Wells Fargo is forecast to have earned $1.185 per share.  Delta Airlines will also announce before the bell and traders will be looking for signs of a continued recovery in the Dow Jones Transport Index which is critical to the overall health of equity markets.  Today, a critical Brexit vote will be taken up by Parliament as Theresa May seeks approval for her Brexit plan.  The government shutdown continues and the markets have largely shrugged off the bad news but it will continue to dominate the news cycle possibly adding some volatility, however earnings and forward guidance will take the front seat in the weeks ahead.  WHILE YOU SLEPT, the Chinese Government announced tax cuts in order to stimulate consumer activity causing futures to trade up in Asia and Europe.  The weak Chinese economic numbers combined with their aggressive response with stimulus exposes their potential willingness to resolve the ongoing trade dispute with the US.  That could be a good thing for the US economy… and the stock market. Please call me if you have any questions.

daily chartbook 2019-01-15