U.S. markets opened in negative territory as Wall Street awaited the semi-annual testimony from Fed Chair Powell and his comments before the Senate Banking committee.

There was little reaction from the market as the major indexes got a lift ahead of the event on a super Consumer Confidence number.

The choppy action afterwards lasted into the closing bell with the market giving back its gains to finish slightly lower. Despite the pullback, the consolidation phase following the Monday morning breakout is looking bullish for higher highs as near-term support levels held.

The Russell 2000 was the weakest link after falling 0.7% while closing at its session low of 1,577.

Fresh and upper support at 1,575-1,565 held on the close back below the 200-day moving average.

The Nasdaq was down 0.1% after testing an opening low of 7,524.

Upper support at 7,525-7,475 was breached and failed to hold with a close below the latter and the 200-day moving average signaling additional weakness.

The Dow dipped 0.1% following morning pullback to 25,966.

Fresh and upper support at 26,000-25,750 held with a close below the latter being a slightly bearish signal.

The S&P 500 also slipped 0.1% after testing to a low of 2,789. Current and upper support at 2,775-2,750 with a close below the latter and the 200-day moving average signaling a possible near-term top.

Technology led sector strength after adding 0.2%. Consumer Discretionary and Consumer Staples were up 0.1% to round out the winners.

Materials paced sector weakness after declining 0.6%.

Healthcare dropped 0.4% while Energy and the Financial were lower by 0.3%.

Global Economy – European markets closed mostly higher despite ongoing Brexit concerns. the British opposition Labour party indicated that it would seek a People’s Vote on the U.K.’s impending departure from the European Union, if Parliament vetoed the party’s alternate Brexit proposal.

The Belgium20 rose 0.5% and the Stoxx 600 Europe advanced 0.4%. Germany’s DAX 30 was higher by 0.3% and France’s CAC 40 nudged up 0.1%. UK’s FTSE 100 declined 0.5%.

Asian markets settled lower as investors awaited more new developments concerning U.S./ China trade talks.

Australia’s S&P/ASX 200 sank 0.9% while Hong Kong’s Hang Seng and China’s Shanghai fell 0.7%. Japan’s Nikkei gave back 0.4% and South Korea’s Kospi was down 0.3%.

December housing starts dropped 11.2% to 1,078,000, missing expectations for a print of 1,260,000. On a 12-month basis, starts are contracting at a 10.9% year-over-yea pace from the prior -6.8%.

Single family starts declined 6.7%, with multifamily starts down 20.4%.

Starts were mostly lower regionally, with the West falling 26.3%, the Midwest down 13.2%, the South off 6%, and the Northeast unchanged. Permits rose 0.3% to 1,326,000.

FHFA home price index edged up 0.3% to 270.2 in December with housing prices up 5.6% year-over-year. Gains were registered in 7 of the 9 regions, led by the Mountain and Pacific, while the East South Central and West South Central declined.

For Q4, prices are 1.1% higher and are 5.7% year-over-year higher versus Q4 2017.

S&P Case-Shiller 20-City Composite Home Price Index was up 4.7% year-over-year versus forecasts of 4.8%. The 12-month rate slowed to 4.18% year-over-year versus 4.58%.

The 10-City index fell 0.23% to 226.61 and is up 3.76% year-over-year versus 4.16%.

All 20 cities posted annual gains, led by Las Vegas at 11.39%, Phoenix at 7.97%, and Atlanta at 5.93%.

Consumer Confidence zoomed to 131.4 in February after falling to 121.7 in January, and topping expectations for a print of 125.

The present situations component was at 173.5, up from 170.2.

The expectations index improved to 103.4 from 89.4. The labor market differential rose to 34.3 from 34.1 and the 12-month inflation gauge slipped to 4.3% from 4.4%.

Richmond Fed’s manufacturing index checked in at 16 in February, better-than-expectations for a reading of 3. Employment was 15 from 19, with wages at 29 from 31.

Redbook Store Sales were up 5.2% for the year in the week ending February 23rd.

Market Sentiment – Fed Chairman Jerome Powell said in his written testimony that the outlook for current conditions remains “healthy” and “favorable,” though acknowledged that over the last few months there have been “crosscurrents and conflicting signals.”

The report cited that the financial markets became more volatile toward year-end, and financial conditions are now less supportive of growth than they were earlier last year, while growth has slowed in some major foreign economies, particularly China and Europe.

These factors warranted a “patient” approach with the report also reiterating the readiness to adjust the balance sheet if necessary.

Powell said he’s seeing more slack in the labor market this year, as a result of more people coming back into the labor market.

He added if they weren’t coming back into the market, the unemployment rate would be “substantially lower.”

As far as the debt ceiling, Powell said the failure to increase it creates uncertainty and distractions as analysts get to the point where they think the government can’t pay its bills.

So far that’s never happened, and he doesn’t want to really contemplate that event. He closed the subject by saying it would be a “very big deal” were the government to not pay its bills.

The iShares 20+ Year Treasury Bond ETF (TLT) continued its 5 session see-saw pattern after trading to a high of $121.82. Near-term resistance at $121.50-$122 was split on the close above the former.

Support remains at $121-$120.50 and the 50-day moving average with a close below $119.50 being a slightly bearish signal.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) traded to a low of $259.60 shortly after the open with rising support at $259.50-$259 holding.

Backup help is at $258-$257.50 with a move below the latter being a slightly bearish signal.

Late September resistance is at $261.50-$262. Continued closes above the latter gets $262.50-$265 back in focus.

RSI has been hovering around the 70 level with near-term resistance at 75-80 and the latter representing the September peak. Support is at 65.

A move below this level would signal additional weakness towards 60-55.

Communication Services (XLC) settled unchanged following the opening backtest to $45.85. Near-term and upper support at $46-$45.50 was breached but held into the closing bell with a move below $45 signaling additional weakness.

Near-term and major resistance is at $46.50-$47 and the 200-day moving average.

Continued closes back above the latter would be a bullish signal for a possible push towards $48 and early October resistance.

RSI has leveled out with resistance at 60.

A close above this level would be a slightly bullish development with additional strength towards 65-70 and the latter representing the July peak. Support is at 55-50.

All the best,
Roger Scott.