Steam Rolled

Steam rolled.  Investors were steam rolled in equities as heavy equipment manufacturer Caterpillar missed earnings and gave weak guidance before yesterday’s bell flattening any hopes of a positive day.  To compound the risk off mood, chip manufacturer Nvidia provided negative guidance, warning investors about their 2/14 release. The company warned that revenue expectations for 4Q would be lowered in response to weaker demand for gaming and crypto-minig chips.  Not that we saw that one coming (just saying).  Apparently some investors didn’t see it because the stock traded off by -13.82% yesterday.  This follows a poor showing by silicon aristocrat Intel, who slid by nearly -6% since it offered a mixed release late last week.  This has many investors wondering about the fate of technology in the year ahead.  Semiconductors are usually a leading indicator of the broader technology industry.  You need chips to make servers, which make up the data centers that house most of the world’s cyber business.  Ya, I just said that.  If chip demand is waning it could be a sign that somewhere higher up in the data center eco-system demand may be slowing as well.  Companies typically invest in data infrastructure when business is accelerating.  Additionally, chip manufacturers are typically more volatile than the broader technology sector and therefore tend to lead the way to new highs or vice versa.  Markets once again ignored the government shutdown saga, which in this case should have been positive as the government has temporarily reopened and it seems that all sides may be ready to move forward.  All equity indexes slipped yesterday with the S&P500 and the Dow Jones Industrial Average both trading off by -0.8%, the Russell 2000 falling by -0.63%, and the NASDAQ 100 selling off by -1.33%.  All of the major indices remain risk off with the S&P500 resting right on top of its 2643 Fibonacci line (see chart 4 in my attached daily chartbook). The Dow Jones rests on its weak 24500 round number support after bouncing off of its 24332 Fibonacci support line, which it will surely test again (see chart 6 in my attached daily chartbook).  It should be noted that its important 200 day simple moving average line is just above and coinciding with 24950 Fibonacci resistance line.  The small cap Russel 2000 is stalled just below 1504 resistance and will get support from its 1448 Fibonacci line (see chart 7 in my attached daily chartbook).  The NASDAQ 100 remains just above its 50 moving average, which will be strong support for the index (see chart 8 in my attached daily chartbook).  Gold has rallied since late November spiking last Friday (see chart 12 in my attached daily chartbook).  The reason for gold’s move up can be found on chart 13, the Dollar Index.  The Dollar Index represents the exchange rate of the US dollar versus a basket of trading partner currencies.  You will note on the chart that the dollar peaked in late 2018 and began to lose altitude since then.  The primary reason for the faltering dollar is the Fed and its doveish guidance.  Expectations for a weaker economy, lower rates, or in this case raising rates at a slower pace weakens the currency.  Gold trades in US Dollars, so when the USD becomes cheaper so does gold (to foreign currency holders) increasing demand for the metal.  The net result is that the two general trade inversely of each other.  Yesterday, 10 year treasury yield were down slightly from Friday and ended the session at around 2.74% and the 2/10 yield curve continues to hover around 15 basis points.

Today, we will get the Conference Board’s Consumer Confidence number which is expected to come in at 124 down from last month’s 128.1.  This number can be a mover and many analysts will be watching to see if the government shutdown may have had an effect on consumer behavior.  Remember that the consumer drives the economy and if they give up, recession is all but a guarantee.  We will get a number of earnings releases before the bell including Verizon, HCA Healthcare, Rockwell, Lockheed Martin, and Pfizer.  The big news is still the FOMC which begins its two day meeting today culminating in policy statement and press release tomorrow.  The market has almost certainly priced in a gentle Fed for the entirety of 2019.  Any verbal hints that imply otherwise will cause significant volatility.  WHILE YOU SLEPT, the US announced plans to continue its pursuit of Huawei and its CFO seeking extradition from Canada.  This caused a bit of stir for tech shares overnight but investors seem interested in one thing this morning: earnings.

daily chartbook 2019-01-29