Weekly Market Analysis – 14 January 2019 BMO

WEEK IN REVIEW – January 07 to 11 :
Stocks Extend Rally into Earnings Season

The S&P 500 gained 2.5% this week, rising for the third straight week and extending its rally to 10.4% since its Christmas Eve low. The Dow Jones Industrial Average gained 2.4%, the Nasdaq Composite gained 3.5%, and the Russell 2000 gained 4.8%.

All 11 S&P 500 sectors finished higher with industrials (+4.1%), real estate (+4.0%), consumer discretionary (+3.7%), energy (+3.4%), and information technology (+3.4%) outperforming the broader market.

Many have characterized the market’s rally to be a technical rally from a deeply oversold condition. The market, however, has benefited from improved investor sentiment that has been lifted by the stronger than expected December employment report, the assurance from Fed Chair Powell that the Fed will be patient with its policy approach, and reports U.S.-China trade talks among deputy officials went well.  Those developments have fostered a propensity to buy the intraday dips and have made the market resilient to selling efforts.

The buy-the-dip mentality lifted the market whenever it was down and allowed the S&P 500 to flirt with its 2600 level, which approximates the bottom end of the trading range that persisted for most of 2018.

Strikingly, this week’s gains were forged in the face of earnings warnings from Macy’s (M), American Airlines (AAL), Apple (AAPL) supplier Skyworks Solutions (SWKS), and Samsung Electronics.

It was this resilience to selling efforts amid bad news that presumably drew in sidelined participants fearful about missing out on further gains and pushed out weak-handed short sellers expecting a downturn after a 10% increase in the S&P 500 from its December 24 low.

Investors saw some room for trade optimism this week when a scheduled two-day trade meeting in Beijing extended into a third day. In addition, China’s Vice Premier Liu He is reportedly expected to visit Washington for further trade talks at the end of the month.

Separately, the Federal Reserve released its minutes from its December policy meeting. The minutes revealed a view that the path of U.S. monetary policy is “less clear” than before, and a contention that the Fed can “afford to be patient” about future rate hikes.

In light of more recent remarks from many Fed officials discussing a more patient-minded approach, including Fed Chair Powell, the view communicated in the minutes wasn’t altogether surprising. Still, it is this rhetoric from the Fed that is contributing to the fed funds futures market’s belief that there won’t be another rate hike in 2019.

U.S. Treasuries lost ground amid the gain in equities, pushing yields higher across the curve. The 2-yr yield increased seven basis points to 2.55%, and the 10-yr yield increased four basis points to 2.70%. The U.S. Dollar Index lost 0.5% to 95.68, and WTI crude rose 7.8% to $51.68/bbl.

The fourth quarter earnings reporting period will get its official start in the coming week and will be closely watched to see if the market got ahead of itself with concerns about an earnings slowdown in 2019.  Additionally, there will be a key Brexit vote in the UK Parliament and continued attention to the partial government shutdown in the U.S., which is about to become the longest on record.

(Economic Excerpts from Briefing.com)

Monday 07 January:

ISM Non-Manufacturing Index decelerates in December 

The ISM Non-Manufacturing Index slipped to 57.6% in December (consensus 58.8%) from 60.7% in November.  The dividing line between expansion and contraction is 50.0%, so the December reading reflects a deceleration in non-manufacturing business activity in the final month of 2018.

The key takeaway from the report is that it follows form with the ISM Manufacturing Index in showing a slowdown in activity in December.  That is in keeping with the market’s perception of economic matters and threatens to bleed into a slowdown in earnings growth.

Tuesday 08 January:

Consumer Credit sees nice expansion in November 

Total outstanding consumer credit increased by $22.2 billion in November after increasing a downwardly revised $24.9 billion (from $25.4 billion) in October.

The key takeaway from the report is that the healthy expansion in consumer credit is a good portent for consumer spending activity when matched with good feelings about job security and income growth.

Thursday 10 January:

Initial claims keep toeing solid labor market line

Initial claims decreased by 17,000 to 216,000 (consensus 225,000) for the week ending January 5. Continuing claims for the week ending December 29 decreased by 28,000 to 1.722 million.

The key takeaway from the report is that it fits neatly with the market’s latest awareness that the labor market has held up fine despite the burgeoning concerns about the economy slowing.

Friday 11 January:

December CPI supports Fed’s patient-minded stance 

The Consumer Price Index (CPI) for December was right in-line with the consensus estimates that called for a 0.1% month-over-month decline in total CPI and a 0.2% increase in core CPI, which excludes food and energy.

The key takeaway from the report is that it supports the Fed’s born-again belief that it can be patient with its policy approach given that the core inflation trend is stable around the longer-run target at a time when data here and abroad is revealing some softening in economic activity.


FOMC minutes for December meeting released

Key Excerpts :

FOMC Minutes:






Friday 11 January 2019
Stocks Close Mixed Ahead of Earnings Season

The S&P 500 (-0.01%) finished just a hair below its flat line on Friday. The benchmark index never traded in positive territory but did close at its session high. It also finished the week with a gain of 2.5%.

The Dow Jones Industrial Average (unch), the Nasdaq Composite (-0.2%), and the Russell 2000 (+0.1%) closed mixed, finishing with weekly gains of 2.4%, 3.5%, and 4.8%, respectively.

The S&P 500 sectors also finished mixed with energy (-0.6%), utilities (-0.4%), and materials (-0.4%) weighing on the broader market. Conversely, the consumer staples (+0.3%) and health care (+0.3%) sectors finished atop the standings.

The benchmark index came into the session up 10.4% from its Christmas Eve low, suggesting to many that the broader market had gotten overbought on a short-term basis and was due for a pullback. The S&P 500 was down 0.7% in the early going with weakness presumably being a function of profit-taking as opposed to any news-driven catalyst.

In addition, given the number of earnings warnings already announced this week, and with earnings season set to kick off next week, some took this as another reason to take some profits. Nevertheless, some buying interest throughout the session slowly recouped the broader market’s losses.

General Motors (GM) for its part jumped 7.1% after it increased its adjusted fiscal 2018 and 2019 earnings above consensus. Its strength, however, was not enough to lift the consumer discretionary space (unch).

The lack of a distinctly positive reaction in the market to GM’s upbeat earnings news, in light of the market overcoming prior earnings warnings this week, was reflective of a tired market preferring to take a breather.

U.S. Treasuries closed out the week on a higher note, pushing the 2-yr yield down two basis points to 2.55% and the 10-yr yield down three basis points to 2.70% in the wake of a market-friendly consumer inflation report. The U.S. Dollar Index gained 0.1% to 95.67. WTI crude, meanwhile, snapped its nine-day winning streak, losing 1.9% to $51.68/bbl.

Market Internals – Friday 11 January 2019

Dollar: Weakness Persists

The U.S. Dollar closed lower yet again for the week at $95.66 from $96.20 the previous week. 

Other currency pairs;

Bonds: Sideways Week Ends on Higher Note

US Treasuries ended the week on a higher note, but intraday action featured a modest pullback from highs that were notched two hours after the start of the cash session. The early gains took place after economic data from Europe showed a decline in November industrial production in the UK (-1.5% year-over-year), Italy (-2.6% yr/yr), and Spain (-2.6% yr/yr) on top of contracting output in Germany (-4.7% yr/yr) and France (-2.1% yr/yr), which was reported earlier in the week. Treasuries extended their opening gains as the stock market struggled at the start of the session, but it wasn’t long before equities climbed off their opening lows while Treasuries backed off their highs and spent the remainder of the session near the midpoint of the day’s trading range. The 2s10s spread tightened by three basis points to 15 bps since last Friday while the 2s30s spread remained unchanged at 49 bps. The yield curve remains kinked at the front end with the 52-week bill yield (2.59%) sitting higher than the 2-yr yield (2.55%), the 3-yr yield (2.51%), and the 5-yr yield (2.53%).

The flanks of the yield curve rose to flatten the curve somewhat while inverting the 2yr against the 5yr. The spread on the 2s5s inverted to -2bpsThe spread between the 5s10s narrowed to 17bps from 18bps the previous week while the 10s30s widened to 34bps from 31bps the previous week. The spread that matters most, the 2s10s, narrowed by 3bps to 15bps from 18bps the previous week.


The Bloomberg Commodity Index settled at 79.66, higher than 78.34 the previous week as Energy and Gold settled higher.

WTI oil closed at $51.59 p/b, higher than the week before at $47.96. The spread between WTI and Brent narrowed to $8.89 from $9.10 the previous week as Brent settled at $60.48 p/b.

EIA petroleum data for the week ended January 04

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.7 mln barrels from the previous week. At 439.7 mln barrels, U.S. crude oil inventories are about 8% above the five year average for this time of year. Total motor gasoline inventories increased by 8.1 mln barrels last week and are about 5% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 10.6 mln barrels last week and are about 5% below the five year average for this time of year. Propane/propylene inventories decreased by 1.9 mln barrels last week and are about 3% below the five year average for this time of year. Total commercial petroleum inventories increased last week by 13.3 mln barrels last week.

Natural gas inventory showed a draw of 91 bcf vs a draw of 20 bcf in the prior week. Working gas in storage was 2,614 Bcf as of Friday, January 4, 2019, according to EIA estimates. This represents a net decrease of 91 Bcf from the previous week. Stocks were 204 Bcf less than last year at this time and 464 Bcf below the five-year average of 3,078 Bcf. At 2,614 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count remained unchanged at 1075 following last week’s decrease of -8.

Metals: Gold and Copper gain, Silver corrects

Agriculture: Soy and Corn correct, Wheat strengthens


Week 03 (14 to 18 
January 2019)

According to our 5, 10 and 15 year seasonal models:

Benchmarks Indices (21 year average) for wk03:

Week 03 Key Economic Dates

Important releases in the coming week include US preliminary reading of Michigan consumer sentiment, industrial output, and producer and foreign trade prices; UK inflation; China trade figures; and Japan inflation. Investors will also react to UK parliamentary vote on Brexit deal and OPEC’s monthly report.

Sun 13 January

Mon 14 January

Tue 15 January

Wed 16 January

Thu 17 January

Fri 18 January


It looks like the securities have switch their earnings dates for 2019 with four DOW components featured in the first week of Quarter 4 Earnings Season. This is because the SEC allows companies a larger window to file their annual reports relative to quarterly updates. As a result, we will see pre-announcements throughout January and fourth quarter earnings season will drag on into March. Notable earnings out next week include:



January is normally a very bullish month. But we’ve had a few horrible Januarys in the last half decade to knock that confidence off. So be cautious, stay hedged and get ready to be very nimble.

The “First Five Days” indicator has spoken:

Apparently, if the first five days are up, the year is likely to finish up with an 83% reliability over the last 66 years when 35 out of 42 first-five-days finished up. Then again, how much credence would you put on it? This is like the lowest form of analysis but it does have a high probability, doesn’t it? There are those that will rubbish it and those who will swear by it.

Me? I never discount anything. But I never take any one thing wholesale either. This is just one part of a multi-layered risk management technique. So there’s much more to this than just a five day indicator. So stick around till the end of the month and the end of the quarter when more of such indications should make it clearer to read the market’s intention for the rest of the year.

This has been the best opening two weeks since before the sub-prime (2006) and has dragged the DOW and S&P500 out of Correction Territory. But before we get ahead of ourselves, be reminded that Earnings Season begins in the coming week and this bullish open to 2019 could be nothing more than the market pricing-in some protection/buffer ahead of earnings.

And although it isn’t likely, I am not discounting the possibility that this mini rally was also prompted by short-covering after selling down more than 15% in December. After all, if you’re pricing-in upwards to buffer a bearish earnings season ahead, it would make sense to cover shorts that are massively profitable, wouldn’t it? The market internals haven’t been all that convincing when the market was running up. More than half of the opening eight days have been largely divergent with one of the convergent sessions being the 3rd of January when the market sold down.

The bond market is not suggesting anything new even if it did steepen a tad this week. More ominous is the closing of the spread between the Fed Funds Rate and the 10-year bond yield to only 24bps, indicating that any bull run may be near its end.

Happy Hunting!



Date: 24th January 2019, Thursday
Time: 07:00PM to 10:00PM
(Registration starts at 06:30PM)


With 14 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to retail individuals, institutional professionals, businesses and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive environment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life and get the most value for your education investment, there’s no better choice than the time-tested and well reputed Pattern Trader™ Tutorial.

Register for the Introductory Workshop NOW!

Download our promo slides here:
The Pattern Trader™ Tutorial 2019


The schedule for the FEBRUARY 2019 Batch is here:
Pattern Trader™ Tutorial – February 2019


Screen Shot 2017-10-01 at 1.38.39 PM

Connect with me at LinkedIn


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.


No comments yet.

Sorry, the comment form is closed at this time.