Take a Breather

Take a breather.  Markets took a day of rest yesterday to contemplate Wednesday’s spring and wait for the Federal Reserve’s uneventful release.  Equity markets closed mixed around breakeven while crude oil continued its slip and bonds traded off.  With very little in the way of stimulus yesterday, traders were left to wait on the FOMC meeting at which the FED decided to keep rates unchanged, which was largely expected.  As the meeting did not have a scheduled press release analysts could only parse the official release which mentioned the strong economy, under-control inflation, strong consumer spending, and a moderation in business investment.  None of the release was surprising although some were surprised that the Fed did not mention the recent fall in the stock market.  Many perma-bulls would like to believe that there is still, what is known as, a Fed put which means that the Fed will back up falling financial markets by either stimulative action or, in this case, a slowing down of restrictive action.

In yesterday’s session, the S&P500 traded off -0.3% but managed to stay in above its key 2793 Fibonacci support level (see chart 4 in my attached daily chartbook).  The Dow Jones Industrial Average bounced off of its 26105 Fibonacci line and closed up slightly.  The index will continue to receive support at 26105 with the next resistance level at 26769 (see chart 6 in my attached daily chartbook).  The Russell 2000 traded off slightly on the day as it begins to build a base from which to seek further gains.  The small cap index will find support at 1567 and resistance at 1592 (see chart 7 in my attached daily chartbook).  The NASDAQ 100 traded off -0.62% but held its ground above its Fibonacci support line at 7366 and its 200 day moving average which is just below (see chart 8 in my attached daily chartbook).  Crude oil continued its slip entering bear market territory after it broke through a key Fibonacci support level in the prior session.  The quick drop into bear territory has traders wondering when the selling will end given the unexpectedly large supply build up.  WTI will get strong support from its next Fibonacci retracement line at 58.64 and traders will look to the Baker Hughes Rig Count today, which is one of the two major weekly releases on crude supply (see chart 11 in my attached daily chartbook).  Finally, bonds closed near their lows of the year yesterday as the ten year yield flirted with its annual 3.25% high.  Yields have eased back slightly overnight and will start this morning’s session at 3.2%.

Today, we have very little on the earnings release calendar but we do have the first of the two Bureau of Labor Statistics inflation indicators in the Producer Price Index, AKA the PPI.  Analysts are expecting the PPI to have grown at +2.5% year over year versus last month’s +2.6%.  The PPI Ex Food and Energy is expected to have slowed its year over year growth to +2.3% from +2.5%. These are the ones to watch because they tend to lead the consumer based inflation numbers. Expect the rate and trade debate to start up again today as the sugar rush from Wednesday’s post election rally begins to fade.  Traders will look ahead to next week in which we are due to receive a number of reports from retailers as well as a number of economic releases including retail sales, the Consumer Price Index, a number of industrial production numbers, and some regional Fed reports.  Pay attention to the Fed speaker circuit as that kicks in today now that the black out period is over.  Traders are searching for hints on the Fed’s next move and speeches will be carefully scrutinized.  Have a great weekend and please call if you have any questions.

daily chartbook 2018-11-09