A good week for stocks until Friday afternoon where the DOW rolled over and pulled the other indices lower. In fact, the indices were in the midst of breaking out to the upside this week but failed in their effort and were pulled down to the 200 day line, again. What I would also like to point out is that there was a candlestick pattern that emerged as the week ended. You probably aren’t familiar with this type of pattern but there are several that are quite common and helpful in gauging the strength of an uptrend and points of reversal.
The “Evening Doji Star” appears at reversal points and show an uptrend that is too weak to continue higher portending lower prices in the coming sessions.
Now, let’s see if this pattern appears in the chart from this week’s price action in the S&P 500:
The Doji Star pattern normally appears at the very top of an uptrend so its not in a classic position but it is there staring you in the face sitting on the 200 day line so it can’t be ignored. So, we failed to breakout AND this candlestick pattern emerged so breaching the 200 day and testing the February low are back in play. There have been many head fakes these past three weeks so a green open is hard to trust which puts us in a wait and see stock market.
Remember, the technicals we are experiencing are connected to the January 26 top and the ensuing 10%+ pullback. The correction is simply continuing and unresolved at this point. Hence, the unpredictable and choppy price action. Its best not to ask “Why?” or rationalize why we should or shouldn’t go up or down – just recognize we are at a critical juncture and to be careful about preserving your capital.
Ok, so we all know where the new all-time highs are on the chart but how low can we go if things unravel? For that, we need to look at a longer-term chart to find support levels.
What to watch for next week:
- Weakness in stock prices early next week should be heeded with caution that a larger correction may be brewing.
- 10 Year yields. A good barometer of flight to quality. The 10 YR rallied almost 6 basis points on Friday which is one of the larger one day moves we have seen in weeks.
- Volatility. A spike in volatility means the market is expecting lower stock prices.
- Ignore the main stream media. Most of the headlines have blamed tariffs on China for this volatility. The only tariffs in place are on steel and aluminum. All other tariffs will be negotiated over the next 60 days with China and have yet to be implemented. For perspective, the proposed tariffs are 0.1% of GDP.
Chart of the Week
According to Stratfor, the fourth industrial revolution will usher in robotics, 3-D printing, automation, the “internet of things” and other related technologies that will radically change the way economies behave in the decades to come. The 5G communications networks that will underpin numerous applications of these technologies could, like many other areas, become an arena for battles between the United States and China.
Economic & Central Banking Snippets
- Housing Prices: Home prices appreciated year over year for the 69th consecutive month in January, according to Case-Shiller’s national index. However, this was the first time in over a year that home price appreciation decelerated. Since their trough in February 2012, home prices have now climbed 47%, putting them 6% above pre-crisis peak levels.
- Non-Farm Payrolls: March was the 90th consecutive month of job growth, by far the longest streak on record where 103,000 jobs were added last month. However, economists had expected an increase of about 185,000, according to Bloomberg. January payrolls were revised down from +239,000 to +176,000, February was revised up from +313,000 to +326,000 for a net change of -50,00. In addition, the unemployment rate was 4.1% percent for the sixth straight month.
Macro Snippets
- The countdown until Brexit Day has begun, with only a year until the U.K. leaves the EU on March 29, 2019. European leaders have agreed to a transition deal, which extends Britain’s de-facto membership until the end of 2020, but there are still several outstanding difficulties. Those include how the U.K. can leave the single market and customs union, but maintain full economic access, frictionless trade and no physical border in Ireland.
- DocuSign has filed paperwork for an IPO of up to $100M on the Nasdaq under symbol “DOCU.”
- China has said it will impose tariffs on 106 products originating from the US, according to an announcement on state television on Wednesday, in response to tariffs on Chinese imports outlined hours earlier by the Trump administration. The new tariffs on soybeans, automobiles, and chemical products, reported by CCTV, roiled financial markets in Asia and Europe, with Hong Kong and German markets hit particularly hard. Soybeans also fell sharply in commodity trading.
- Facebook founder and CEO Mark Zuckerberg will appear at a House Committee hearing on April 11, lawmakers said. The hearing—before the House Energy and Commerce Committee, which oversees many telecommunications and internet policy issues—will focus on “the company’s use and protection of user data,” according to the announcement. Facebook has been criticized over its handling of data after an analytics firm tied to the 2016 campaign of Donald Trump obtained Facebook data for as many as 50 million users.
That is all for now until next week’s Market Update. If someone forwarded you a copy of this report, you can sign-up directly at www.kiscocap.com.
Please reach out to me if there is anything you want to discuss about the markets, your portfolio (for clients) or if you would like a copy of the firm’s brochure if you are not a client.
Regards,
Paul J. McCarthy, III
President – Kisco Capital
(347) 709-9539