Weekend Technical Market Recap

The S&P 500 finished lower for 5 consecutive days and after achieving resistance around the 2,800 level. This is the 6th, 5-day losing streak for the S&P 500 since the US election in Nov ’16.This is also the first one that didn’t have a single 1% drop on any of the 5 days during the losing streak.

As part of Finom Group’s weekly analysis, we review the technical market indicators and sentiment. Please review our weekly Technical Market Recap by clicking the link (58 minutes in duration).

Coming into last week, Finom Group’s chief market strategist Seth Golden offered the following:

There are a few points that should be extrapolated from the charts and through using our premise that suggests markets appear over extended and found for exhaustion, even with the S&P 500 above the 2,800 level to close out the week.

• Exhaustion is not necessarily a “sell signal”, as the timing of a market retracement is often unknown and to a great degree demands a catalyst.
• Dow Transports have been lower for 6 trading sessions in a row. This might be the first sign that the market is preparing to turn in the near future.
• Consider the 10-week rally has brought the SPX, DOW up by 11%+ YTD and the Nasdaq is up 14% YTD. It is highly probable that if one was to sell their equity holdings Monday, they are likely to be able to recapture certain equities at lower prices and/or not miss out on much more gains in 2019. In other words, if the market rally persists in 2019, it is highly probable that it won’t happen with the markets going up in a straight line.
• When the markets have become this over extended previously, it has generally been a better opportunity to reduce portfolio risks/take profits rather than expanding risk.

To the idea of expanding risk noted in the last bullet point, this is what is front of mind with portfolio managers and with respect to current market conditions. Most portfolio managers have taken to hedging their long portfolio in the past week. During Wednesday’s trading session, there was stealthy Put buying in the ‪SPX options markets. (See Table Below)

With the major indices pulling back from technical resistance levels last week, Seth’s outlook proved prescient… at least for now. More importantly for investors is what happens next. To this extent, we encourage investors/readers to subscribe today and gain access to our Weekly Research Report, our Trading Room and all our trade alerts. (Published every Sunday morning)

This coming week will kick-off with critical economic data in the way of monthly retail sales. The data comes at a time when the previous monthly retail sales report came under scrutiny given the largest it expressed the largest MoM decline since 2009. December 2018 monthly retail sales fell 1.2% MoM, but climbed 2.3% YOY.

The anomaly in the Nonstore sales data, suggesting a decline of -3.9% MoM and only a 3.7% increase YOY seems an impossibility given the reported quarterly results from a number of institutions and chain store retailers. Nonetheless, investors will likely see revisions to the December results alongside the monthly retail sales data to be released on Monday morning.

While many investors will be keying off of this week’s economic data and macro-headlines, they might also be looking forward to the following week where the FOMC will hold its 2-day meeting. While no rate hike is expected and in fact no rate hike is expected throughout 2019, investors will be tuned into what the Fed might indicate with regards to its Quantitative Tightening (QT) program. Will they or won’t they end QT by the fall of 2019, possibly sooner?

Since December of 2017, Total Fed Credit is Down by: $456.76 bil / -10.39 percent. The U.S. Treasury Debt Holdings are Down by: $430.04 bil / -10.18% and currency in circulation is up by: $111.34 bil / +6.96 percent. The Fed desires to maintain financial market stability with relatively liquid conditions. In order to maintain such conditions, the Fed is elevating it’s own risk proposition in how it aims to combat the next fiscal calamity.