All US economic stress indicators that we follow continue to drop indicating higher risk appetite in financial markets. Together with a dovish stance from the federal reserve in continuing to hold short term federal fund rates at 2.5% has boosted investor confidence. The only economic stress indicator that wasn't budging much the last couple of weeks - yield spread between 2y/10y and 5y/30y is ultimately also showing signs of reversal with increase in 10y/30y yields last week. The high yield grade (junk bond) index is making new highs.
On the contrary, the economic situation continue to deteriorate. Most economic data is showing signs of weakness. The conference board monthly leading indicators dropped by -0.1% during January. The weekly leading indicator from ECRI has increased from the lows in December' 2018 but has not yet shown sign of steady uptrend. We continue to monitor them to gauge future direction.
S&P continues to make progress on the upside but closed with a marginal gain of only 11 points for the last week. While the trend is still up, the medium term down trending weekly cycles from middle of February continue to limit the upside potential. In-spite of this S&P has been performing very well in limiting the down side and muddling through. If S&P clears 2812, which it should, then next level to target would be 2838. For the next week, the dominant hourly cycles that peaked early friday are down in early part of the week. However, down side should be limited as long as there is no close below 2791.
 |
| S&P Hourly Cycles - 03/01/2019 |
The recent COT report with data till 02/19/2019, showed increase in number of US Dollar net long contracts and a record net short EURO contracts. Last week, US Dollar Index put a daily cycle bottom, reversed, and cleared the important resistance 96.26. For the next week, US Dollar should continue to uptrend as long as there is no close below 96.06.
 |
| US Dollar Index Cycles - 03/01/2019 |