Hope as a strategy

Hope as a strategy.  Hope for positive progress on anything in DC these days seems to be slowly fading, so when an unconfirmed headline from the Wall Street Journal comes out at 2:30 in the afternoon stating that the Administration is considering rolling back Chinese tariffs to jumpstart negotiations, well, a spring of hope emerges driving stocks up almost 300 points in minutes.  Stocks traded sideways for most of yesterday’s session as Morgan Stanley’s per-market miss on revenue and earnings set the tone of the day.  With the pace of economic releases being hampered by the government shutdown, traders are forced to rely on earnings releases alone for a source of market driving news.  Just as yesterday was looking to be a quiet day of consolidation, a headline hit the tape spurring hopes that the end of the trade war is near.  Before anyone had a chance to contemplate the headline, the algos, some of which act in milliseconds on positive headlines, pushed up equities.  Traders, who noticed the sharp move, scurried to find the source just as the headlines began flashing on CNBC prompting a second wave of buying, this time by humans.  Interestingly most of the algos that sparked the trade were most likely already out of the market having scored a nice win.  Minutes later, CNBC reported that the Treasury department denied that any proposals were made by Mnuchin or Lighthizer and that negotiations were no where near completion.  That revelation caused markets to pull back from the daily high but ultimately markets closed higher on the day.  Hope prevailed.  The S&P500 bounced off of its 2643 Fibonacci resistance line and rose by +0.76%.  The index will get support at its round 2600 and continue to ply the Fib line above (see chart 4 in my attached daily chartbook).  The Dow Jones Industrial Average managed to close above its 24332 Fibonacci line as it rose by +0.67% on the session.  The index will get support at 24332 and resistance will come from its 24950 Fibonacci line which also coincides with the Dow’s 200 day simple moving average (see chart 6 in my attached daily chartbook).  The Russell 2000 rose by +0.86% as it gained more ground in its recovery.  The index will get support from its 1448 Fibonacci line and resistance above at 1500  (see chart 7 in my attached daily chartbook). The NASDAQ 100 rose by +49 points, or +0.75% on the day.  The NASDAQ will get resistance above from its 6797 Fibonacci line and support from its 6584 Fibonacci line (see chart 8 in my attached daily chartbook).  The major equity indices, all still in risk off mode, have made very positive technical progress in the past few weeks. Investors are still searching for that one thing to sustain and extend the rally, which is evidenced by yesterday afternoon’s extreme response to the WSJ headline.  Bonds had a more muted response to the headline but did ultimately close down in the session. Ten year yields rose to 2.75% and the yield curve is at +18 basis points.

This morning we will get the Industrial Production indicator and it is expected to have grown by +0.2% month over month compared to last month’s +0.6% growth.  Later this morning we will get University of Michigan Sentiment which is expected to come in at 96.8 down from last month’s 98.3.  Netflix announced after the bell yesterday and it beat on EPS and missed on revenues but traded up in the overnight session.  This morning we will get numbers from a number of financials as well as Schlumberger and VF Corp.  Let’s be hopeful that the hope that drove stocks yesterday turns into some action, as that would be the basis for a more solid strategy.  Have a great weekend and please call me if you have any questions.

daily chartbook 2019-01-18