March 22, 2019 – Major indices ended the week with modest gains. It was a pretty quiet week, both in terms of news volume, and actual trading volume.
It’s not a shock to see a pause after the massive rally the market has staged since bottoming out on Dec. 24. That the bottom occurred so near the end of the quarter means that the first quarter of 2019 shows a pretty incredible return. Major indices are all ending the quarter with double-digit percentage gains. Having a great quarter is nice, but major indices lost more ground in the fourth quarter of 2018 than they gained in the first quarter of this year, meaning most investors are down from that point as well.
We’re several weeks away from the start of earnings season. The Fed didn’t meet this week and there was no real progress in the trade talks between the U.S. and China, making this one of the quietest weeks in a while. The newest reports on the trade deal had negotiators going through English and Chinese versions line by line after the U.S. accused China of leaving out things that had already been agreed to. The market largely shrugged that report off as it raises a number of contradictory questions: Does it mean a final deal is being polished? Or has trust between the two sides broken down so badly that they’re auditing the work of translators midway through the process?
Turning to Brexit, which was originally scheduled for today. The news this week was that of a full bus heading for a cliff while the occupants repeatedly voted down a series of possible evasive manoeuvres. No one seems certain where today’s defeat, for the third time, of Prime Minister May’s exit plan, means, but at this point the most likely scenarios seems to be either a long-term delay, or a hard-Brexit, where Britain crashes out with no deal about what comes next. The market would almost certainly prefer the long-term delay, but at this point we’re unwilling to speculate about what Parliament might choose.
All told this week, the S&P rose 1.2%, the Nadsaq added 1.13%, and the Dow Jones gained 1.67%.
After a day of heavy selling last Friday, it was discouraging to see the S&P 500 (chart above is six months) drop below the 2,800 level of support (dotted line) Monday. Luckily, the 2,800 level had help from the 20-day moving average (blue line) and was able to hold, although it was tested nearly every day this week. The 8-day moving average (red line) served as resistance, hindering any upward momentum the S&P was able to muster for most of the week. After gapping up at the open Friday, the 8-day moving average served as support. The S&P has numerous levels of strong support should it decline next week, with the strongest being 2,800. The 2,760 level will also provide good support with the convergence of its 50 and 200-day moving averages (green and purple lines). There is slight resistance at 2,840, but the next level of heavy resistance will be located around 2,860 (solid line).
The Russell 2000 took the biggest hit last Friday. With strong support running thin, it was encouraging to see the index rebound this week. After bouncing from the 1,500 level of support, the Russell faced resistance at 1,520 and at its 8 and 50-day moving averages. The Russell ran out of steam Friday when it encountered the 20-day moving average, but the support from the 8 and 50-day convergence will hopefully give the Russell the boost it needs to power through the 20-day moving average and technical support at 1,550.