Markets Rebound, But...
10-year Spikes to 4.59!
KR Opinion
We're entering a crucial market phase as we conclude the second week of April. Last week, we observed an outside reversal, a pattern suggesting potential further declines. Today's closing prices will likely clarify whether we should expect continued lower prices.
I'll delve deeper into this in the S&P section below, but it's important to note that we are witnessing a technical breakdown every week. Short-term indicators hint at a slight upward bias for the next two or three days, possibly leading to a moderate rebound.
In yesterday's analysis, I predicted that the S&P might find a low around the S2 level of 5173. This prediction was accurate, as it turned out to be the reaction low following better-than-expected Producer Price Index (PPI) data. It's common for one report to counteract another seemingly, and that's precisely what happened last Thursday.
We are essentially continuing a sideways trading range, locked between 5150 and 5350, a pattern observed for several weeks. While we have occasionally reached new highs, we invariably return to this range.
This week was similar. We saw a move lower, and the daily patterns across all indices deviated from the usual patterns seen since the start of the year, with minor downward 'stair-stepping' patterns emerging.
In the upcoming section on the WaveTech database, I will discuss ongoing minor attrition in the short-term database as we approach our weekly analysis. I anticipate that the immediate models will begin to show some selling activity, and the percentage of bullishness will start to decline.
While we're not on the brink of a complete collapse, significant changes occur, particularly in short-term model ownership.
As we move into next week, I expect these shifts to become more pronounced in the intermediate-term models.
Looking Back on Thursday’s Action
The stock market opened mixed today after a significant drop yesterday triggered by the Consumer Price Index (CPI) data. The S&P 500 and Nasdaq Composite saw slight increases, driven by mega-cap stocks and semiconductors gains.
In contrast, the Dow Jones Industrial Average experienced a minor decline. However, the markets gained momentum in the afternoon, with the major indices approaching their session highs.
This improvement in the afternoon was partly a reaction to the previous day's downturn and was supported by today's cooler-than-expected inflation data. The inflation rate rose by only 0.2% month-over-month, lower than the expected 0.3%.
Despite this, March's total Producer Price Index (PPI) increased to 2.1% from February's 1.6%.
The market's early resistance to further declines and the steady performance in the Treasury market also contributed to the afternoon gains. The yield on the 10-year Treasury note increased by two basis points to 4.58%, while the 2-year note yield decreased by one basis point to 4.96%. The Treasury market reacted minimally to a weak $22 billion 30-year Treasury bond auction.
Major contributions to the market's rise came from mega-cap and semiconductor stocks. The Vanguard Mega Cap Growth ETF (MGK) rose by 1.6%, and the PHLX Semiconductor Index (SOX) surged by 2.4%.
Sector performance in the S&P 500 was mixed, with five sectors advancing and six declining. The financials sector was the weakest, dropping by 0.6% ahead of tomorrow's earnings announcements from major banks.
A sharp decrease influenced this drop in Morgan Stanley's shares, which fell by 5.3% after The Wall Street Journal reported on a federal investigation into its wealth management unit.
Reviewing Thursday’s economic data:
Weekly Initial Claims were reported at 211K, lower than the KR Forecast consensus of 218 K. The figure for the previous week was revised up to 222K from 221 K.
- Weekly Continuing Claims stood at 1.817 million, with last week's figure revised to 1.789 million from 1.791 million.
- The key takeaway from the report is that claims are maintaining a steady level of around 210,000, indicating no significant weakening in the labor market.
- The March Producer Price Index (PPI) increased by 0.2%, below the KR Forecast consensus of 0.3%; February's PPI was 0.6%.
- March Core PPI, which excludes volatile food and energy prices, also rose by 0.2%, aligning with the KR Forecast consensus and marking a decrease from February's 0.3%.
- The significant insight from the PPI report is that despite smaller-than-expected monthly increases, the annual growth rates for both PPI and core PPI have accelerated.
Friday's economic calendar:
- At 8:30 AM ET: March Import Prices (previously 0.3%), Import Prices excluding oil (previously 0.2%), Export Prices (previously 0.8%), and Export Prices excluding agriculture (previously 0.8%).
- At 10:00 AM ET: Preliminary April University of Michigan Consumer Sentiment (KR Forecast consensus 78.8; previous 79.4).
S&P 500
Yesterday, the S&P 500 fell to a low of 5173.50, which perfectly aligned with the S2 support level at 5173.21, marking a precise hit. A major reversal followed this as the index rallied nearly 70 handles to reach 5257. This significant move reversed much of the sharp decline from the previous day.
Two key developments occurred during this rally: firstly, the index rebounded from the S2 level, and secondly, it touched the 40-day moving average, which continues to trend upward.
