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Market Lab Report - Premarket Pulse for Thursday, March 8, 2018

Major market averages began the day yesterday with a big gap-down move, but recovered sharply off their lows with the NASDAQ Composite Index closing up in what is now a four-day rally off the lows of last week. The S&P 500 closed down slightly, with the Dow lagging, but only down -0.33% and well off its lows of the day. The Trump Administration is expected to sign off on new steel and aluminum tariffs, but has given some hints that there will be "carve-outs" and exemptions for certain U.S. trading partners. This was partly responsible for the market's strong recovery towards the end of the day. It is possible that once the tariffs are out and the market knows exactly what they will consist of a rally will ensue. The S&P 500, which has the lion's share of steel-consuming names in it, is sitting in a two-day flag formation just below its 50-dma. Once the tariffs are a known factor and perhaps turn out to be less onerous than originally feared, this could spark a move in the S&P 500 back above the 50-dma.

Futures are up  as the European Central Bank left interest rates unchanged Thursday, but said it would increase asset purchases if economic conditions weakened. As we have written in prior reports, this stance comes as no surprise. The ECB said it would continue its program of asset purchases through September, "or beyond, if necessary." The ECB left its refinancing rate at 0%, while the rate paid on deposits parked overnight at the bank was left at -0.4% and the rate on the deposit facility was left at 0.25%. The ECB repeated that it expects rates to remain at present levels "for an extended period of time, and well past the horizon of the net asset purchases."

The ECB's stance is no different than what other central banks are thinking. In other words, this QE party could continue for much longer than expected. With QE money flows still near record levels, the U.S. market continues to be the primary beneficiary. And despite rates at historically low levels, and negative in some cases, that does not deter the ECB from potentially increasing its asset purchases if necessary. Negative rates in Germany and Japan have been shown to corrupt financial structures. But central banks may have no choice should global economic conditions deteriorate.

Focus List Notes:
Nvidia (NVDA) is sitting right at its 20-dema with volume declining yesterday, putting it in a lower-risk entry position.

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