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Wednesday, April 10, 2019 

Market Action

U.S. markets traded in a tight range and slightly mixed ahead of the release of the Fed minutes on Wednesday. There was no real surprises in the meeting minutes with the majority of the Fed members seeing no change in rates this year.

The major averages were unaffected by the news and closed higher to keep near-term resistance levels in play. Volatility slightly eased but remains above key levels of support.

The Russell 2000 showed the most strength after rallying 1.4% and closing at its session high of 1,581. Major resistance at 1,575 and the 200-day moving average was reclaimed with fresh hurdles at 1,585-1,600 on continued strength.

The Nasdaq gained 0.7% following the intraday push to 7,965. Prior and lower resistance at 7,950-8,000 was cleared and held with a move above the latter leading towards 8,100-8,150 and new all-time highs.

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The S&P 500 rose 0.4% while reaching an late day peak of 2,889. Lower resistance at 2,900-2,925 was challenged but held with a move above the latter getting 2,950-2,975 and fresh all-time highs in play.

The Dow traded in a 108-point range while rising 6 points, or 0.03%, and tapping a high of 26,209 ahead of the closing bell. Lower resistance at 26,250-26,500 held with a close above the latter being a more bullish development.

Real Estate and Technology led sector strength after rising 0.8% and 0.7%, respectively. Consumer Discretionary added 0.5%.

Utilities were the weakest sector after giving back 0.3%. Materials and Industrials were down 0.05% and 0.03% to round out the losers.

Global Economy 

European markets closed mixed after the ECB left rates unchanged and will remain at present levels at least through 2019.

Germany's DAX 30 was up 0.5% while France's CAC 40 and the Stoxx 600 Europe climbed 0.3%. The Belgium20 nudged down 0.3% and UK's FTSE 100 slipped 0.1%.

The European Central Bank decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.

ECB President Mario Draghi said continued deterioration of inflation expectations reflected in 5yr/5yr rates is due to negative risk premium. He stated the ECB has plenty of instruments and he wants to dispel the market view that the ECB would tolerate low inflation. Draghi added the threat of tariffs on European goods by U.S. President Trump undermines general confidence.

Asian markets also settled mixed with South Korea's Kospi rising 0.5% and China's Shanghai edging up 0.1%. Australia's S&P/ASX 200 was up nearly 2 points, or 0.03%. Japan's Nikkei declined 0.5% and Hong Kong's Hang Seng dipped 0.1%.

U.S. Economy

MBA Mortgage Applications sank 5.6%, while the purchase index rose 0.5% and the refinancing index fell 11.4%. The average 30-year mortgage rate rebounded 4 basis points to 4.40% after tumbling about a quarter-point in March.

CPI rose 0.4% in March, with the core rate edging up 0.1%, close to expectations of 0.4% and 0.2%, respectively. There were no revisions to February's respective gains of 0.2% and 0.1%. The 12-month headline rate accelerated to 1.9% year-over-year versus 1.5%, and the ex-food and energy component slowed to 2% year-over-year from 2.1%. Energy prices climbed 3.5% on the month, after February's 0.4% rise. Transportation costs also increased 1.5%, tobacco was up 1.6%, while apparel prices dropped 1.9%. The rest of the components were marginally firmer. Services costs increased 0.3% last month. Housing rose 0.3% as well, with food/beverage prices up 0.2%. Commodity prices were 0.7% higher. Real average hourly earnings declined 0.3% on the month from 0.2% previously, and were 1.3% year-over-year higher from 1.9%.

April Atlantic Fed Business Inflation Expectations was up 1.9% for the year.

The Treasury Budget for March checked in at -$146.9 billion versus estimates for a deficit of -$179 billion.

Market Sentiment

Minutes from the last Federal Reserve meeting revealed the Fed continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2% objective as the most likely outcomes over the next few years. Underlying economic fundamentals continued to support sustained expansion, and most Fed participants indicated that they did not expect the recent weakness in spending to persist beyond the first quarter. Nevertheless, the Fed generally expects the growth rate of real GDP this year to step down from the pace seen over 2018 to a rate at or modestly above their estimates of longer-run growth.

The minutes cited various factors as likely to contribute to the step-down, including slower foreign growth and waning effects of fiscal stimulus. A number of Fed members judged that economic growth in the remaining quarters of 2019 and in the subsequent couple of years would likely be a little lower, on balance, than they had previously forecast. Reasons cited for these downward revisions included disappointing news on global growth and less of a boost from fiscal policy than had previously been anticipated.

Fed Vice Chair Randal Quarles is urging migration away from Libor by the banking industry, and encouraging a acceleration away from its use as a lending benchmark. He noted that Fed supervisory teams are closely scrutinizing bank efforts in this transition as part of broader monitoring discussions.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th time in 5 after testing an intraday high $124.52. Upper resistance at $123.75-$124.25 was cleared and held with a continued closes above $124.50 signaling additional strength.

Support is trying to move up to $124-$123.50.

Volatility Index

The S&P 500 Volatility Index ($VIX) tested a high of 14.29 shortly after the open before spending the majority of the session underwater. Resistance at 14.50-15 and the 50-day moving average held.

Upper support at 13.50-13 was breached and held on the midday fade to 13.27 with a close below 12.50 being a more bullish signal for the market.

Market Analysis

The Spiders Dow Jones Industrial Average ETF (DIA) snapped a 2-session slide after trading to a late session high of $262.07. Prior and lower resistance at $262-$262.50 was challenged but held. Continued closes above the latter would confirm another run towards $264.50-$265 with last Friday's peak at $264.84.

Current support is at $261.50-$261. A close back below the $260 level would be a bearish signal with risk towards $258-$257.50.

RSI is in an uptrend with resistance at 65-70 and the latter representing the late February peaks. Continued closes above the 70 level would be a bullish development for additional strength towards 75-80 but also signaling slightly overbought levels. Support is at 60.


The Consumer Discretionary Select Spiders (XLY) was up for the 5th time in 6 sessions following the intraday run to $117.44. Fresh and lower resistance at $117.50-$118 held with the recent all-time high at $118.13. Continued closes above the $118 level keep upside potential towards $119.50-$120 in play.

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Near-term support at $116.50-$116. A move below the latter opens up risk towards $115-$114.

RSI is trying to level out with resistance at 75. A close above this level would signal additional strength towards 80 and the monthly peak. Support is at 65-60.

All the best,

Roger Scott