A Familiar Tune

A familiar tune.  It was the all-too-familiar trade tension that crept its way back into the markets yesterday.  Before we move on from the blame game, let’s remember that it was trade-related over-exuberance that propelled the Dow and S&P to new highs last week.  One might call it a double-edge sword of sorts.  However one may avoid getting run through with that sword if we could just focus on the numbers.  That will be very hard to do this week as there is plenty of distraction in the form of noise coming from the UN General Council, the Kavanough hearing, trade rhetoric, the Federal Reserve, Rod Rosenstein, and the list goes on.  So let’s talk numbers. The S&P500 traded down yesterday but closed well off its lows.  The index will only find weak support from its round 2900, so traders will attempt to create a base from which to aim back for the high.  If 2900 is breeched, the next support level will be at 2864 (see chart 4 in my attached daily chartbook).  The Dow Jones Industrials took it on the chin yesterday closing just above its session lows.  It has become the trade war’s proxy index, trading down on fears and up as the fears abate. That being the case, the trend is still quite positive with momentum similar to the 4th quarter of 2017.  The Dow will only get weak support from its 26500 round number with little else until 26000 (see chart 6 in my attached daily chartbook).   Having heard this tune many times, one would expect the tech heavy NASDAQ to be the beacon of hope on a day wrought with trade fear, and that it was.  The NASDAQ 100 traded up yesterday closing near its session high, led by technology stocks.  Speaking of technology, yesterday marked the first day of trade with new sector classifications.  The Global Industry Classification Standard (GICS) classifies companies into ten sectors, and yesterday the telecommunication sector was renamed “communication services” and it will contain companies like Netflix, Facebook, and Alphabet (Google) leaving the more pure play technology companies in the Information Technology sector.  While this reclassification won’t affect the way that major indices like the tech-heavy NASDAQ trade, it will provide investors a more accurate way to track and invest in the different categories that were all formerly lumped into “tech”.  The new sector can best be tracked utilizing ETF’s such as iShare’s XLC.  The change also represents the evolution of telecommunication infrastructure companies, which are fast becoming content providers (AT&T being a good example).  OK back to the numbers.  Crude Oil has been slowly climbing out of its August rut and was helped along by the conglomerate of oil producing nations’ decision to maintain current production levels (see chart 11 in my attached daily chartbook).  What that means, to traders at least, is that the supply decrease from Iran sanctions will not be filled by other oil producers… for now.  On a side note, the Trump administration has been publicly pressuring oil producers to increase production in order to lower crude prices.  China’s cancelling scheduled trade talks leading to yesterday’s fear trade also affected currency markets and the Yuan weakened and traded up to its 6.86 resistance line (see chart 14 in my attached daily chartbook).  In anticipation of a Fed rate hike, bond yields continued to march higher with 10 year yields reaching 3.09% yesterday.  We will start today’s session at 3.10% with the 2/10 yield curve remaining stable at 26 basis points.

Today we will receive the Conference Board’s Consumer Confidence Index which is expected to show a slight easing to 132.1 from last month’s 133.4.  We will also get the Richmond Fed’s Manufacturing Index and it is expected to come in at 20 down from last months 24.  The Federal Reserve’s Open Market Committee will begin its two meetings today which will culminate in a rate decision tomorrow afternoon.  Though a 25 basis point hike is expected many traders will be focused on the chairman’s press release seeking further insights into the Fed’s future policies. Today’s trade will be dominated by the ongoing noise from Washington, New York’s East Side (that is where the UN building is), and the Twittersphere (that is actually a word in the Oxford Dictionary).  The real numbers will ramp up tomorrow and perhaps we can start to hear the music over the noise.

daily chartbook 2018-09-25