« Is Oil Price Rally Sustainable or Short-covering? | Main | OPEC Set for Production Cut Extension, but Will it Be Enough? »

"Nothing to See Here Folks"

Friday, May 19, 2017

Today's Spotlight Market

Treasury Bond futures rallied sharply in contrast to the sell-off on Wall Street on Wednesday, as potential political issues in the U.S. as well as Brazil were given as catalysts for investors moving assets from Equities to Bonds. However, some solid economic data on the labor front, with weekly jobless claims declining and data from the Philadelphia Fed that the manufacturing sector in the region was strengthening, could convince the Fed that another interest rate hike at the June Federal Open Market Committee Meeting may be justifiable. A look at the daily chart for Treasury Bond futures shows the market in a consolidation phase similar to that for the S&P 500, so while the Bond market rally on Wednesday was the largest in nearly a year, no overall change in technical picture for the market occurred.

Fundamentals

While the financial news media was in a frenzy on Wednesday as the U.S. equity market finally had a up-move in volatility, with the S&P 500 down over 40 points for the session, a look at the "big picture" shows the market continuing to trade in a rather narrow price band that began back in February of this year. Whether continuing concerns regarding Russia's involvement in the U.S. Presidential elections or fears that the business-friendly agenda from the Trump administration will face difficulties being implemented due to the wide divide between Republicans and Democrats on Capitol Hill were behind the sell-off on Wednesday or not, ultimately the equity markets will look towards how corporate earnings are faring as well as the trajectory for economic growth. What is more likely the case for Wednesday's sell-off is that the market was in need of a long overdue correction, which happened to occur on the day following a move to new all-time highs for the S&P on a rather light volume trading day. So until we see prices trade below some key technical levels, such as the 200-day moving average or the uptrend line drawn from the 2009 lows, there is still scant evidence that the over 9-year bull-market run is ready to call it quits.

Technical Notes

Looking at the daily continuation chart for the E-mini S&P 500 futures, we note that Wednesday's sell-off took the market below the 20-day moving average for the first time in nearly a month and prices closed the chart gap that occurred on April 24 following the first round of the French election. The price decline took the 14-day RSI from readings above 60 to a much weaker 43.01 as of this writing. The next major support level is seen at the March 27 low of 2317.75, with major resistance found at the contract high of 2404.50 made on May 16.

Mike Zarembski, Senior Commodity Analyst