Flying High

Flying high.  Both the S&P500 and NASDAQ 100 closed at new highs yesterday helped along by the announcement of a US Mexico trade deal… of course momentum helped a bit as well.  The S&P500 muscled to a new high once again yesterday closing just below its intraday high as traders pressed down on the accelerator despite failed China trade talks.  The move is positive for the index which will get some resistance on the round 2900 (remember when we were talking 2800?) and will need to build a base to develop some support on or around these levels as there is very little in the way of technical support below (see chart 4 on my attached daily chartbook).  The Dow Jones Industrial Index also rallied to close just below its session highs but its technical achievement was not a new high but rather a close above 26000, which still counts for a bullish signal.  The Dow has very little in the way of technical resistance between these levels and its all time high of 26616.  Support for the index will be its 25595 Fibonacci retracement line (see chart 6 in my attached daily chartbook).  The NASDAQ 100 powered to a new high yesterday perhaps indicating a shift in trader sentiment back to growth oriented and momentum stocks.  Remember that it was those stocks that powered the markets for much of the current record bull market with only small handful of stocks claiming responsibility for the move.  Chart 16 in my attached daily chartbook tells the story graphically.  The indicator shows a shift from growth oriented stocks into defensive ones in late June.  And wouldn’t you know, the latest move which propelled 3 of the 4 major indices to new all time highs coincided with a shift back into growth oriented stocks.  Oh, and while you are on that chart, which goes back one year, you should note that growth outperformed defensive for the entire time period leading up to the indicator’s late June peak.  The markets’ resilience despite negative news indicates the reemergence of the speculative spirit of 2017.  Not all markets are driven by speculation.  I reported to you yesterday that China made a move to support the Yuan over the weekend (they do this by changing requirements and even buying the currency in the open market).  The move put pressure on the dollar, which has been increasing in value for much of the summer and peaked two weeks ago.  The dollar index closed below its 95 Fibonacci line yesterday indicating that the downward move may not be over (see chart 14 in my attached daily chartbook).  The Yuan, which has been gaining strength against the dollar closed lower but will still get some support around 6.78 (see chart 15 in my attached daily chartbook).  Bonds gave up some ground yesterday pushing 10 year yields up a few basis points confirming the positive move in equities.  Despite the move in longer yields the 2/10 yield curve remains at 29 basis points, where it will start today’s session.  

Today we get consumer confidence at 10:00 AM EDT and that number is expected to come in at 126.5 down slightly from last month’s 127.4.  We hear from BestBuy and Tiffany this morning and get several post-market reporters.  With little else in the way of numbers traders will try to follow on yesterday’s momentum to maintain, if not increase these altitudes. With the thin air up here, there is no telling whether the euphoria of late will help propel markets yet further.  I want to leave you with a quote from the famous stock investor Sir John Templeton who once said “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria”.

daily chartbook 2018-08-28