Talking Points:
- Risk assets broadly deflated Thursday, but a rebound saved the Dow from breaking the longest over-200SMA charge in 30 years
- Though the Dollar is still significantly oversold relative to 2017's tumble, weeks of rally put bulls at short-term risk
- Trade wars, political instability and risk trends still hum in the background, but April NFPs is Friday's top event risk
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The S&P 500 and Dow Came Closer to Conviction Breakdown Than Some May Appreciate
At what point can we definitively say that the US equity indices have shifted to a full-fledged bear trend? There is considerable ambiguity behind that particular designation, but we know that there will be serious implications attached to that eventuality and further that the markets are paying closer and closer attention to exactly this milestone. First, the importance. US equity indices have been the symbolic champions of the 'risk on' appetite that has led us on a nine-year global bull trend to compensate for the Great Financial Crisis. The size of the US economy and markets, ubiquity of shares in the average market participant's portfolio and the heavy trading interest in derivates based on the key indices (like the SPY ETF) concentrate everything that has driven speculative appetites. And, just as surely as this group has led the markets to its climb, it can signal the falter to risk aversion. With that said, appreciation for the risks to the market have grown steadily alongside measures of exposure. A technical break like the trendline support for the S&P 500 dating back to the beginning of 2017 and standing around 2,600 would be noteworthy for the tech trader. But for the passive investor who only comes back to check when price action reaches the mainstream, a headline warning about the index's close below the 200-day moving is more accessible. The Dow in particular hasn't closed below its 200-day SMA in 465 trading days - the longest bullish stretch in over 30 years. It nearly did Thursday. Stay alert and remember the panic of the crowds.
Fundamentals Sparks in Trade, Political Stability and Growth
As we keep close tabs on the precarious balance of sentiment and bearing on our market benchmarks, it is important to monitor what can spur speculators to accumulate or flush their exposure. A top theme this past session was trade. The delegation of US officials - Commerce Secretary Ross, Treasury Secretary Mnuchin and Chief Economic Adviser Kudlow - meeting with their Chinese counterparts to discuss trade offered little to build or ease our confidence in this vital source of growth and capital flow. And, in this increasingly cautious market, no news can be registered as bad news. That said, there was a tangible improvement in the actual trade figures for March out of the US. According to the data, the US deficit dropped sharply (15 percent) to a $49 billion shortfall on a record increase in exports. That has obvious positive economic implications, but it can also translate into concern such data will promote further pressure to enforce protectionism. Australia's trade figures offered an impressive surplus beat while Canada - more directly connected to the United States pressures - suffered its biggest trade deficit on record. Tangible data and clear headlines are valuable fo rmarket movement, but don't forget about the constant thrum of fear around political stability and growth concerns growing more and more prevalent.
Dollar Facing Certain Imbalance Heading into NFPs
Through 2017, the Dollar suffered a persistent and strong selling pressure. The discount to the DXY Dollar index and the currency against its most liquid counterparts was significant. That said, the recovery that we have seen start over the past few weeks for the Greenback looks overdue and rather early in its development. On a technical basis, that offers considerable leeway over the medium-term for bulls to exert influence. However, the intensity of the currency's rally over just these past weeks has also been one of the most intense upswings that we have seen in a substantial period. That could also be read as being overbought in the short-term. That is the troubled perspective that the Greenback faces as the April employment data comes into view Friday. Can we really 'impress' on an underlying trend that has shown progressive improvement for years and now registers the most robust readings in over a decade for employment? It may fit the bias, but it won't readily stoke momentum. Alternatively, with the pendulum currently swung heavily to the bulls in the short-term, disappointment can exert far more influence. A single month of net negative jobs or a minor uptick in years of a sliding jobless rate will not turn the big picture, but it can hit the breaks on enthusiasm. Be wary of the Dollar, but also be reasonable.
Overbought Pound and Loonie, Oversold Aussie and Kiwi, Range Bound Commodities
The flashing marqueis for Friday will certainly be the US payrolls data - whether we are talking risk trends or Dollar, surprise or not. Yet, that isn't the only catalyst on tap or opportunity developing. A few currencies are starting to take on more and more of the 'overbought' fundamental perspective as event risk and theme converge. After the record deficit update this past session, the Canadian Dollar's rally is starting to look more and more suspect. I liked the reversal from its low, but after weeks of recovery, it can quickly find itself on the short-list for bears. The Sterling continues to slide with a range of important technical support levels giving way as data adds to the slide in BoE rate forecasts and growing recognition of Brexit troubles. Among my favorite pairs for the Pound is GBP/AUD for the clear contrasting appeal of the Aussie Dollar. The trade data this past session finally earned the currency a bounce after relentless bearish pressure. Let's see if the RBA minutes disrupt or feed into this tentative move. The New Zealand Dollar is a similarly afflicted currency, but without the clear motivation - perhaps without power until the RBNZ decision. If you want something that doesn't tread into the speculative world of early trends and overbought/sold, consider gold and US crude oil. The former doesn't cater to the boundaries very well, while the latter is very consistent yet is the favorite of those hungry for breakouts. We discuss all of this and more in today's Trading Video.
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