Friday's overnight ES session was very balanced and Friday's cash market session seemed more mechanical than usual. The point of control is 2704.50 and that area is also central to Monday morning's overnight session as of this note.
A very strong nonfarm payrolls report for January came with downward revisions for December's report, leaving the three month average at 241,000/month and hourly earnings of 0.1% or 3.2% y/y. AMZN beat on earnings but offered a weaker outlook for the coming quarter and put a drag on tech leadership. The VIX is quite subdued, lower relative to its futures term structure and at a level that both bulls and bears are eyeing carefully.
As of last Monday, 2650 on the SPX was the base support and the bulls were targeting 2712. They got it on Friday and then they then sold as SPX backed up to close at 2706.53. The NDX is still dealing with its declining 100 day moving average. The DJIA is above the 61.8% retrace and 100 day average. With a huge index like the SPX, technical standards can become a self-fulfilling influence. Keep that in mind when viewing that ‘overbought’ oscillator readings. The indices are still fragile in the technical sense, and major influencers know it. That is less a half-baked conspiracy theory than a simple respect for those technicals. There are things that can happen that can obviate those levels, but all things being equal they should apply. While 2640/2650 is a key area, overall price action in the indices is bullish. The bulls will see pullbacks to 2650 as tolerable and the bears will probably still be nervous about anything other than intraday foraging unless that latter level is consistently violated.
Levels to watch: For Monday, the first SPX support is 2690 and there is also a confluence of opposing interest at 2695 and resistance at 2720. Large weekly support comes in at 2650 and 2640 followed by a contingency support near 2625. Since 2700 is central to the week, first resistance is around the 2710/2714 area followed by 2725 and 2740 as near term targets. There could be subtle changes to those levels early in the week but that is the basic situation as of Fridays' close.
A heavy NYSE sell Imbalance of -1.7B going into the reveal Friday indicated further rebalancing but it flipped to positive at the close: +476M to buy. Kind of sneaky.
Comment
The US president said last week that there was no wiggle room on a timeline for the March imposition of tariff increases for Chinese imports; but the SCMP sources seem to think otherwise. We all understand this to be gamesmanship but some feel that inconsistent messaging is best reserved for the seedy side of the real estate world. Conflicting statements from within the administration are simply a way of keeping risk assets buoyed while maintaining pressure on China. But in the larger sense and in matters of greater importance, doublespeak and intentional chaos may not be the best recipe for international relations. It's becoming more acceptable by many who were previously embarrassed by such behavior. We're getting used to it but it seems a risky and depressing adaptation in the longer run. We've been fortunate in the past to see institutional norms weather political squalls and hopefully this will continue. The Federal Reserve has done some adapting of its own and has now altered its posture substantially in an attempt to accommodate what many see as a delicate but navigable situation.
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