Weekly Market Update – 08 January 2018 BMO

Screen Shot 2017-06-28 at 3.00.52 PM

Week in Review: Bang! Off to the Races

The stock market began 2018 with a bang, advancing to new record highs in each of this week’s four trading sessions. The Nasdaq Composite jumped 3.4% to 7136.56, the S&P 500 climbed 2.6% to 2743.15, and the Dow Jones Industrial Average rose 2.3% to 25295.87. Markets were closed on Monday in observance of New Year’s Day.

This week’s rally followed an impressive 2017 campaign for Wall Street, during which the S&P 500 surged nearly 20%, and defused the belief that the new lower tax rates, which took effect on Monday, would invite some profit taking at the start of the new year.

Cyclical sectors, which typically do well when the outlook for the economy is favorable, set the pace this week with the technology (+4.2%), materials (+4.0%), and energy (+3.9%) groups being the top performers.

Energy shares benefited from an increase in the price of crude oil, which touched a three-year high amid anti-government protests in Iran–although the protests weren’t expected to have an impact on the country’s oil production. Oil prices were also supported by the Department of Energy’s weekly inventory report, which showed that U.S. crude stockpiles declined by 7.4 million barrels last week. West Texas Intermediate crude futures gave back some gains on Friday but still ended with a weekly gain of 1.7% at a price of $61.47 per barrel.

Meanwhile, in the top-weighted technology sector, chipmakers had a solid week, bouncing back from some profit taking at the end of 2017; the Philadelphia Semiconductor Index ended the week higher by 5.8%. Intel (INTC) struggled, however, following reports that its chips contain security flaws. INTC shares finished the week lower by 3.1%.

The minutes from the December FOMC meeting were released on Wednesday, showing that most FOMC members backed a continued path of gradual rate hikes. Some members even saw the possibility for more aggressive tightening due to the new tax code, which Fed officials expect will boost consumer and capital spending.

Investors also received the Employment Situation Report for December, which bucked the longstanding trend of above-consensus headline growth and lagging wage growth. Nonfarm payrolls increased less than expected (148,000 actual vs 188,000 consensus), but the November reading was revised to 252,000 from 228,000. Average hourly earnings came in as expected, showing a month-over-month increase of 0.3%.

With the labor market believed to be approaching full employment, disappointing headline readings could become more commonplace. This would be indicative of employers struggling to find workers with the right skillset, which in turn should translate into upward pressure on wages.

The market dialed up its rate-hike expectations following this week’s economic data. The CME FedWatch Tool points to the March FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 68.1%, up from 51.7% last week.

(Excerpts from Briefing.com)

Reviewing Friday’s economic data, which included the Employment Situation Report for December, the December ISM Services Index, November Factory Orders, and the November Trade Balance:

Dollar: Dollar Index Fights for Green Finish

The U.S. Dollar Index is up 0.1% at 91.96, looking to remain above its flat line after pulling back from its morning high. The greenback rallied in early-morning action, but surrendered that entire gain immediately after the release of the December Employment Situation Report, which missed headline expectations (actual 148,000; consensus 188,000), but showed in-line average hourly earnings growth (+0.3%). The dollar swiftly recovered its post-NFP loss, but could not sustain that rebound, sliding back toward its flat line in the early afternoon.

Bonds: First Week of 2018 Ends on Lower Note

U.S. Treasuries ended Friday in the red with the long end showing relative weakness. The Treasury complex saw some impulse buying in the wake of the December Employment Situation Report, which was headlined by below-consensus payroll growth (actual 148,000; consensus 188,000), but showed in-line average hourly earnings growth (+0.3%)—a figure that will be watched very closely due to the belief among policymakers that the labor market is at or near full employment. The post-NFP advance was reversed in short order, and 5s, 10s, and 30s slid to new lows after the second batch of economic data showed better than expected Factory Orders in November (actual 1.3%; consensus 1.4%) and an upward revision to the October figure. The 10-yr note and the 30-yr bond spent the afternoon session near their morning lows while the 5-yr note ticked to a fresh low in the early afternoon. The yield curve compared to Thursday, but for the week, the 2s10s spread and the 2s30s spread tightened by a basis point apiece to 52 bps and 86 bps, respectively.

The yield curve flattening trend persisted with the shorter maturities’s yields rising faster against the longer maturities. The 5s10s spread is now 19bps.

Crude: WTI tops $62p/b in the new year

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 7.4 million barrels from the previous week. At 424.5 million barrels, U.S. crude oil inventories are in the middle of the average range for this time of year. Total motor gasoline inventories increased by 4.8 million barrels last week, and are above the upper half of the average range.

Metals: Precious continues strength on seasonal run, Copper corrects

Agriculture: Corn continues to consolidate, Wheat and Soy continue to strengthen

THE WEEK AHEAD

The coming week is the start of Q4 Earnings Season. Friday is the eve of a three-day weekend ahead of Martin Luther King Jr. Day on Monday, January 15 – Markets will be closed

Tuesday 08 to 12 January (Week 02)

The second week of 2018 (wk02) is moderately bearish across all time-frames on the SPY and DIA.

The 2018 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 02;

Key Economic Dates

In the US, the most important releases will be inflation rate, retail trade, producer prices, consumer credit and government budget. Investors will also be waiting for: China trade balance, consumer and producer prices; UK foreign trade and industrial production; ECB meeting minutes; the Eurozone business survey, retail trade, industrial production and unemployment.

Mon 08 January

Tue 09 January

Wed 10 January

Thu 11 January

Fri 12 January

Earnings Calendar for Week of January 8

Monday (January 8)

Tuesday (January 9)

Wednesday (January 10)

Thursday (January 11)

Friday (January 12)

SUMMARY

With the first day of January up and looking like the first five day are likely to be up, 2018 is starting to look promising. For now, I remain bullish on equities and most commodities but only in the short term. I wouldn’t dare commit anything long term yet or buy into any investment/property ideas now. The big-money long-term stuff will have to wait because I don’t like buying highs.

Before I wrap up, here’s an interesting observation … take a look at these two charts and see if you find them familiar. Hint: They’re both very recent.

Comp1

They both share the same pattern that looks like a reversed version of the Stalled Pattern. Whatever you call it, its definitely Parabolic. Have you figured out which securities you’re staring at?

Comp2

The one on the left was Bitcoin in the first week of December as it broke record gains. The one on the right is the Dow Jones as of Friday’s close. The Dow Jones made a record 220 points in its first four days of the new year.

For the week, the Dow rose 2.3%, the S&P 500 gained 2.6%, while the Nasdaq is up 3.4%. The Dow notched the biggest weekly gain since the period ended Dec. 1, 2017, the S&P 500 recorded its best weekly rise since Nov. 11, 2016, and the Nasdaq logged its best climb over the same period since Dec. 9., 2016.

The small-cap focused Russell 2000 index (RUT; +0.28%) and the Dow Jones Transportation Average (DJT; +0.53%) also closed at all-time highs.

So for a hint of what might follow, let’s recap where Bitcoin went after that amazing run …

Bit3

I am not saying that the same will happen to the DOW in the coming weeks (and I hope it stays bullish) but there is no denying that history tends to repeat itself very reliably in the market. Plus, if our Seasonal Models are any indication, it is likely that the DOW will look like this in a month’s time.

We’ll check back on this in a month and see where it took us. I think, if anything, this takes the boredom out of trading. Heh!

And don’t forget to join me this Wednesday at 7pm if you’re interested in knowing how REAL TRADERS do their business.

Click here to get the details and register for the three-hour Introductory Session.

Happy Hunting!

Screen Shot 2017-10-01 at 1.38.39 PM

Connect with me at LinkedIn

Share

If you enjoyed this post, please consider to visit Pattern Trader Tools, leave a comment or subscribe to the feed and get future articles delivered to your feed reader.

Comments

No comments yet.

Sorry, the comment form is closed at this time.