Summary:

• US stocks little changed at the beginning of the cash session
• US500 looking to halt a run of 3 consecutive declines
• Stock buybacks could support markets going forward

It’s been a relatively benign day for equities so far with the US500 trading little changed on the Wall Street open. The market has dipped below recent lows to make a new low at 2742, but buyers have stepped in around this level. Price has been declining for 3 consecutive sessions now and the moves lower have seemingly come in steps with two separate occasions showing the market break support, retest the level from below and then head lower once more.  

 

 US500 has been respecting support and resistance nicely this week with breaks of support retesting from below before heading lower. Source: xStation

 Looking at a H4 chart the market has been making a series of higher highs and higher lows since the double bottom at 2534 at the beginning of last month. The 8 and 21 EMAs have done a fairly good job of marking the moves higher and lower during this recovery with only one false signal. There has recently been a negative cross between these two (8 moving below 21) and this could be seen to suggest that the medium term trend is lower and price is due to pullback a little further. 

 

 The 8 and 21 EMAs have shown a bearish cross and this could be seen to suggest that the market has moved into a medium term downtrend. Source: xStation

One fundamental aspect of the market that hasn’t been mentioned too much is that of buybacks, with the large selling seen around 6 weeks ago coinciding with a blackout period during which firms were unable to purchase their own stock. A month ago Goldman Sachs stated that they’d had their “busiest week ever” when buybacks were allowed following the mini-crash and BoFA have now followed suit saying that the last week was one of the largest for buybacks in their data’s history.

 US corporate buybacks have risen strongly in recent weeks. Source: Zerohedge, UBS

Given the tax cuts passed by the Trump administration US corporate’s may well have larger profits on their hands and if these are reinvested in their own stock then this could provide a good source of buying power for the market. 

It’s a pretty quiet day of economic releases with some 2nd tier US data the only pieces of note. Initial jobless claims fell slightly to 226k from 230k previously and the Philly Fed manufacturing index declined more than expected, in dropping from 25.8 to 22.3. The decline comes not long after the sizable drop in its Chicago equivalent although it should be noted that today’s Empire state manufacturing index beat forecasts in rising to 22.5. 

 Both the Philadelphia and Chicago PMIs have dropped in their latest readings, after a strong run higher. Source: XTB Macrobond

A technical overview of Gold can be found here, with the precious metal falling back below 1320 this afternoon as the uS session gets underway.