U.S. markets were choppy throughout Monday’s action following reports that China was cautioning that the phase one trade agreement with the U.S. was not a deal at all, but simply represented progress toward a deal.
Treasury Secretary Steve Mnuchin tried to downplay that view, acknowledging that while the deal hadn’t been fully documented and signed, he viewed it as a substantial agreement which he expects to be signed before tariffs scheduled for December take effect.
The major indexes recovered from the opening weakness and showed some intraday strength before settling lower on light volume with the the bond market being closed.
Volatility fell for the 4th-straight session and is giving an ongoing bullish reading for the market after closing below a key level of support.
The Russell 2000 fell 0.4% after trading in negative territory throughout the session while tapping a morning low of 1,499.
Current and upper support at 1,500-1,485 was breached but held with a move below the latter signaling additional weakness towards 1,475-1,460 and lows from earlier in the month.
The S&P 500 slipped 0.1% following the opening pullback to 2,962.
Near-term and key support at 2,950 held with risk towards 2,925-2,900 and the 50-day moving average on a close back below this level.
The Dow dipped 0.1% after trading in a 125-point range while testing a 1st half low of 26,749.
Current and upper support at 26,800-26,600 was breached and failed to hold with a close below the latter leading to a possible retest towards 26,400-26,200 and the 50-day moving average.
The Nasdaq also edged down 0.1%, following the intraday backtest to 8,036. Upper support at 8,050-8,000 was tripped and failed to hold with a close below the latter getting 7,975-7,925 and the 50-day moving average back in focus.
Real Estate and Financials were the only sectors winners after nudging up 0.2% and 0.1%, respectively. Materials and Utilities lead sectors losers after falling 0.7% and 0.6%, respectively.
The Empire State manufacturing index rose 2 points to 4 in October, after falling 2.8 points to 2.0 in September.
The employment sub-index dipped to 7.6 from 9.7, while the workweek jumped to 8.3 versus 1.7.
New orders were flat at 3.5. Prices paid slid to 23.1 versus 29.4, while prices received fell to 6.3 from 9.2.
The 6-month outlook index improved to 17.3 from 13.7, with employment rising to 14.5 from 12.1 and new orders bouncing to 23.5 from 21.9. Prices paid were steady at 42.5, with prices received rising to 21.3 from 17.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 3-session slide after testing an intraday high of $141.51.
Lower resistance at $141.50-$142 with cleared but held with more important levels of recovery at $143 and the 50-day moving average
Current support is at $141-$140.50.
A close below the $140 level would be a renewed bearish signal with near-term risk towards $138.50-$138.
Market Analysis – The S&P 400 Mid Cap Index ($MID) had its 3-session winning streak snapped following the morning pullback to 1,902.
Upper support at 1,900-1,880 and the 50-day moving average was challenged but held with a close below the latter and the 200-day moving average being a bearish development.
Current resistance is at 1,920-1,940.
Continued closes above the latter would be a more bullish development for additional strength towards 1,960-1,980 with the mid-September peak at 1,976.
RSI is flatlining with support at 50.
A close below this level would signal additional weakness towards 45-40 and the latter representing the early monthly low. Resistance is at 55-60.
The Materials Select Sector (XLB) fell for the 1st time in 4 sessions after testing an intraday low of $56.91. Near-term and upper support at $57-$56.75 was tripped and failed to hold.
A close below the latter and the 50-day moving average reopens downside risk towards $56.50-$56.
Resistance is at $57.50-$57.75.
Continued closes above the $58 level would be a renewed bullish signal with upside potential towards $58.50-$59.
RSI has leveled out with support at 50.
A move below this level could lead to additional weakness towards the 45-40 area. Resistance is at 55-60.
Volatility Index – The S&P 500 Volatility Index ($VIX) fell for the 4th-straight session despite tapping a high of 16.50 shortly after the open. Fresh and lower resistance at 16-16.50 and the 50-day moving average was breached but held.
Backup help is at 17-17.50 and the 200-day moving average with a close back above the latter being a bearish development for the market.
Lower support at 15-14.50 was challenged but held on the fade to 14.64 afterwards and close below the 15 level. A close below 14.50 would signal a further pullback towards 14-13.50 and September lows.
We are allocating the portfolio as follows:
60% in ZIV closed on Monday at 66.26
40% in EDV closed on Monday at 139.13
All the best,
Roger Scott.