Feb. 8, 2019 – This week was relatively quiet in terms of movement from the market as a whole. An early-week rally faded as the trade war re-emerged as a concern for investors.
Earnings season has been relatively quiet this time around. Some results have been better than expected and some worse, but the market’s reactions have been pretty narrowly focused, with the exception of a few cases, such as we saw with video game stocks this week.
Still, earnings, and relative calm in terms of trade rhetoric, was all it took to send the market higher for the first couple of days this week. The State of the Union came and went with the usual amount of fanfare, and the president declined to declare an emergency at the southern border to build his border wall. He could elect to declare an emergency at some point in the future of course, but for now, he seems to be willing to give congressional negotiators a chance to come up with a deal. Of course “deal” implies two sides working together to find a mutually acceptable solution, which will require either the president, or Democrats in Congress to give on what have been up until now pretty unequivocal opposition to the other’s position on the necessity of a border wall. Those negotiations have another week before the government shuts down again.
The market peaked for the week on Wednesday. The reversal from the high-water market seems to have had both technical (see our discussion of the major indices below) and news driven. The White House announced that President Trump would not be meeting with Chinese Premier Xi before March 1, but trade talks would be ongoing. This raises the possibility that tariffs on $200 billion in goods from China could rise to 25% at the start of next month.
President Trump has said that no deal would be finalized until he meets with Xi, but that seems like a somewhat arbitrary condition, as the two leaders are unlikely to be the ones to hammer out the finer points of an agreement about intellectual property, or some of the other sticking points. Also arbitrary is the March 1 deadline itself. Trump initially set a Jan. 1 deadline, but then agreed on Dec. 1 to not impose new tariffs for the next 90 days while talks were happening. Since the tariffs are being enacted under a national security carve out, and not under any sort of legislative process, Trump is free to move the deadline, or just not implement new duties at all, whenever he deems it appropriate.
The economies in China (where markets were close for parts of the week for holidays) and Europe both seem to be slowing in places, which isn’t a good sign globally. So far, none of the data from the U.S. has been particularly alarming, but a lot of data has also been delayed by the government shutdown.
The uncertain global environment, and the looming questions about trade policy seem to have investors in a pretty cautious mood, which we would expect to continue until some of those things have been resolved.
All told this week, the S&P gained 0.01%, the Nadsaq rose 0.39%, and the Dow Jones added 0.13%.
Last week, we looked at the major indices on 1-year charts and 3-month charts. We looked at the 1-year charts to show why support and resistance lines reside where they do. We looked at the 3-month charts to get a closer view of how the moving averages were converging with resistance, and how that could affect the upward momentum we’ve seen in recent weeks.
This week, we will only be looking at the 3-month charts. We will be looking to see how the indices have reacted when encountering strong moving averages intersecting with strong resistance. If you would like to see the 1-year charts from last week, you can see those here.
The 100-day moving average (red line) was putting pressure on the S&P at the end of last week. It was beginning to press the S&P along the 2,700 level of resistance (solid line), to where a breakout was likely in one direction or the other. After breaking about above the 100-day on Monday, the S&P was stopped in its tracks by the 200-day moving average (blue line) running nearly-parallel to technical resistance at 2,740. This level of resistance will be a major hurdle for the S&P to overcome.
After encountering the 200-day, it pushed the S&P back below the 100-day and 2,700 level of convergence, with another breakout in either direction likely. With a loss in momentum, this breakout could possibly be to the downside, but the S&P has gained many levels of support (dotted lines) to help it recover in the event of further pullback.
The Nasdaq faced a similar situation to the S&P. It was also being pressed between the 100-day moving average and resistance around 7,275. After the Nasdaq pulled back from around 7,400, those levels were able to keep the index afloat and allowing it to bounce back, while keeping those levels as support instead of letting them become resistance.
Dow Jones Industrial Average
The Dow Jones looks to be in the best position for continued upwards momentum. Last week, the Dow faced the convergence of the 100-day, 200-day, and technical resistance at 25,000, which temporarily hindered progress. That is not a good triumvirate to oppose. Once the Dow broke out above those levels, it was a very positive sign. Although it pulled back from the 25,400 level of resistance, gaining the 100 and 200-day moving averages as support will likely help to boost the index higher in the near future.
The Russell had a lot of room to maneuver between support at 1,470 and resistance at 1,520, but when the index ran into the 100-day moving average at the 1,520 level of resistance, it was stopped in its tracks. Having two strong areas of resistance so close together, with little in the way of support to help, proved too much for the index to overcome. With little support, we could see the Russell decline or continue to run sideways. It will be easier for the index to tackle those levels of resistance individually than face them simultaneously.