Timing is Everything

Timing is everything.  Twitter, not the stock, but the application was the leading driver behind a solid market rally yesterday as President Trump tweeted positively about a phone call with Chinese President Xi.  With very little positive market news buyers appeared exhausted yesterday morning as equities seemed to be losing ground but then came the magical tweet that changed the mood of traders.  Ahead of the summit planned for later this month (after elections) the President had a positive discussion with Xi and decided to let us know.  Overnight, WHILE YOU SLEPT, word got out that the President asked his cabinet to start drafting an agreement.  A positive result of the ongoing trade talks is just what the market needs to stage a comeback.  To be clear, the summit at which the leaders will be meeting is not a summit between Trump and XI, but a long scheduled G20 summit to be held in Buenos Aires on November 30th. Can that meeting mark the end of the now drawn out trade dispute with China?  Hopefully, but not likely. We can certainly hope for some progress as trade is one of the major factors impacting 2019 projections. Additionally, there is motivation on both sides to resolve the conflict because the tariffs on China have not only already affected the Chinese economy but also US concerns as well.  Voters will take to the polls next Tuesday in a contentious, politically charged election which is also hanging over the markets (though they shouldn’t).  A strong showing for the Republicans could be a motivator for the markets as Trump has also promised additional tax cuts, which could not possibly happen without a Republican Congress.  Now back to the world of money.  Yesterday’s pre market releases were on par with much of the others in the season and the ISM Manufacturing number was somewhat disappointing but markets managed to achieve some important technical levels.

The S&P500 put in a solid showing closing just below its highs of the session and right on its 2743 Fibonacci resistance line.  It is still below its 200 day moving average and remains risk off (see chart 4 in my attached daily chartbook).  The Dow Jones closed above its 200 day moving average and right on its 25401 Fibonacci resistance line (see chart 6 in my attached daily chartbook).  The index remains risk off but it is close to getting back in the neutral zone.  Even the long suppressed small cap Russell 2000 put in a strong showing yesterday.  Though it has had 3 very positive sessions, it is a long way from regaining its former status as market leader.  It will get resistance from its 1567 Fibonacci line and it is far from achieving positive momentum(see chart 7 in my attached daily chartbook).  The R2K remains risk off. The NASDAQ 100 almost made it over its 200 day moving average but managed close just on in and right below resistance at its 7093 Fibonacci (see chart 8 in my attached daily chartbook).  The index also remains risk off.  Crude oil has been particularly weak in the past several sessions due primarily to significant supply buildups.  West Texas Intermediate closed below 65 and a critical support level at its 64.75 Fibonacci line. (see chart 11 in my attached daily chartbook).  The weakness in crude is good news for those who fear inflation and corporate headwinds.  In contrast, the Dollar has been raging and trading at the high end of its recent range but hopes of a trade resolution should ease it back a bit, and it certainly has overnight (see charts 14 and 14 in my attached daily chartbook).  Bonds continue to trade off in response to the recent stock rally, in general.  I say “in general”, because it is not exactly an 1/x inverse relationship as bonds factor in lots of different factors and are generally more sensitive to economic releases and inflation related matters.  Ten year yields, for instance closed slightly down yesterday right in the middle of its range between Fibs 3.06% and 3.25% (see chart 20 in my attached daily chartbook). Tens will start the day at 3.26%.

Today, we get the long awaited, and possibly politically charged, monthly employment situation.  Non-farm payrolls are expected have grown by 200k jobs versus last month’s 134k.  The unemployment rate is expected to come in at 3.75% flat from last month.  Both numbers have the potential to shock markets as the estimate ranges are broad due to hiring anomalies related to the two most recent hurricanes to strike the US.  Last night after the bell, Apple announced its earnings, which were a beat but they provided some less than reassuring guidance.  Apple is expecting slower holiday sales and reflected a slow down in iPhone sales.  This was enough to move the largest stock in the US down in overnight trading.  Being it is such an influencer on the influential tech group as well as the large cap indices, markets would have surely reflected the disappointment in today’s open… but for the positive trade leak overnight.  Markets traded up overnight and are looking to open up on a positive leg this morning as traders will ponder the pre market releases of a number of energy companies, Berkshire Hathaway, and Abbvie, amongst others. The week ahead will bring us more earnings, a FOMC meeting, more jobs data, and the Producer Price Index (PPI).  Oh and an election on Tuesday.

daily chartbook 2018-11-02