U.S. markets rebounded on Thursday following another round of mostly positive 3Q earnings and upbeat comments on the China trade deal. Larry Kudlow, Director of the National Economic Council, said US Trade Representative Robert Lighthizer has been speaking to high-level Democrats about a trade deal with China.
Kudlow also added although there are skeptics, there is a lot of momentum on both sides toward finalizing a trade deal with China.
The major indexes once again pushed near-term resistance levels with Tech and the small-caps tapping higher highs for the week.
The Russell 2000 showed the most strength after jumping 1.1% and tapping an intraday high of 1,542. Upper resistance at 1,530-1,345 was challenged but held with the close back above the 200-day moving average being a bullish signal.
The Nasdaq rose 0.4% following the 2nd-half push to 8,183. Prior and lower resistance from mid-September at 8,150-8,200 was cleared and held with a move above the latter keeping mid-July barriers at 8,250-8,300 in play.
The S&P 500 added 0.3% after trading to an morning high of 3,008. Major and lower resistance at 3,000 was cleared bur held with a close above 3,025 and the record peak at 3,027 being an ongoing bullish development with blue-sky territory towards 3,050-3,075.
The Dow nudged up 0.1% with the opening high reaching 27,112. Fresh and lower resistance at 27,200-27,400 easily held with a close above the latter and the all-time high 27,398 getting 27,600-27,800 in focus.
Healthcare and Real Estate were the strongest sectors after rising 0.7% while Communication Services gained 0.6%. Technology was the only sector laggard, despite the higher Nasdaq close, after giving back 0.2%.
Global Economy – European markets closed mixed following news a Brexit deal has been finally achieved although uncertainty loomed over whether the deal will pass the UK’s Parliament.
The Belgium20 advanced 0.4% and UK’s FTSE 100 edged up 0.2%. France’s CAC 40 declined 0.4% while Germany’s DAX 30 and the Stoxx 600 dipped 0.1%.
UK retail sales came in flat month-over-month in September, as expected, but better than the previous month’s reading of -0.3%. Meanwhile, the Core Retail Sales, less auto motor fuel sales, unexpectedly rose 0.2% versus a decline of 0.3% the previous month.
On an annualized basis, UK Retail Sales rose 3.1% in September versus 3.2% expected and 2.6% prior, while the Core Retail Sales advanced 3% in the reported month versus 2.8% expected and 2.2% previously.
Asian markets closed mostly lower after Hong Kong’s leader Carrie Lam announced measures to ease a housing shortage and calm anti-government protests.
Australia’s S&P/ASX 200 was lower by 0.7% while South Korea’s Kospi nudged down 0.2%. Japan’s Nikkei and China’s Shanghai slipped 0.1%. Hong Kong’s Hang Seng added 0.7%.
The Australian Bureau of Statistics revealed seasonally-adjusted employment in the country grew by an estimated 14,700, below forecasts of 15,000.
Jobless Claims rose 4,000 to 214,000 following the previous 10,000 drop to 210,000 the prior week, but below forecasts of 219,000.
The 4-week moving average edged up to 214,750 versus 213,750. Continuing claims declined 10,000 to 1,679,000 after rebounding 349,000 to 1,689,000 previously.
Housing Starts stumbled 9.4% to 1,256,000 in September after surging 15.1% to 1,386,000 in August. Expectations were at 1,300,000.
Building permits declined 2.7% to 1,387,000 after a revised 8.2% gain to 1,425,000.
All of the weakness was in multifamily starts which plunged 28.2% after jumping 41.4% previously. Single family starts edged up 0.3% following the prior 5.1% increase.
Philadelphia Fed Business Outlook Survey for October fell 6.4 points to 5.6, after dropping 4.8 ticks to 12 in September, and a little weaker than forecasts for a print of 7.1. The employment component doubled to 32.9 from 15.8.
New orders rose to 26.2 from 24.8. Prices paid dropped to 16.8 from 33.0 while prices received slipped to 16.4 from 20.8.
The 6-month outlook jumped to 33.8 from 20.8 with employment at 22.4 from 30.6 and new orders at 39.9 versus 35.2. Prices paid were at 36.2 versus 48.7 and prices received came in at 29.7 from 36.3 on the 6-month forecast.
Industrial Production for September declined 0.4%, weaker than expectations for a dip of 0.2%, and follows the 0.8% rebound in August.
This represented the largest monthly decline since April with weaker auto production a major culprit. Capacity utilization fell to 77.5% after rising to 77.9% previously.
Manufacturing production slipped 0.5% versus the 0.6% bounce, with motor vehicle and parts production dropping 4.2% from -0.9%.
Machinery production declined 1.4% while computer/electronics rose 1%. Utility production was up 1.4% from the prior 0.2% gain. Mining declined 1.3% from the the prior rise of 2.4%.
Market Sentiment – Chicago Fed President Charles Evans said the last two interest rate cuts were appropriate but doesn’t see the need for additional cuts through the end of 2020.
He voted in favor of the September 18th interest rate cut, but said policy probably is in a good place right now.
The median forecast for Federal Open Market Committee members was for no more cuts through the end of 2020. Evans called his assessment pretty much in line with that outlook, which calls for one 25-basis-point cut in 2021 and another in 2022.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after testing an intraday high of $140.38.
Lower resistance at $140.50-$141 was challenged and held with a close above $142.50-$143 and the 50-day moving average being a more bullish signal of a near-term bottom.
Current support is at $139.50-$139. A close below the latter would signal additional weakness towards $138.50-$138.
Market Analysis – The Spider S&P 500 ETF (SPY) showed strength for the 2nd time in 3 sessions and 5 of the past 7 after trading to an intraday high of $300.24.
Upper resistance at $299.50-$300 was cleared with both levels holding.
A close above the latter would be an ongoing bullish signal with fresh hurdles at $302-$302.50 with the mid-September all-time high at $302.63.
Current support is at $298.50-$298. A move below the latter would signal a possible backtest towards $296.50-$296.
RSI remains in a slight uptrend with resistance at 60.
A close above this level would signal additional strength towards 65-70 with the latter representing the June and July peak. Support is at 55-50.
The iShares MSCI Emerging Markets Fund (EEM) traded to a fresh monthly high of $42.39 while topping the September peak at $42.35.
Prior and lower resistance from mid-June at $42.25-$42.50 was cleared but held. A close above the latter would be a very bullish signal for a possible trip towards $43-$43.25 and July resistance levels.
The 50-day moving average is back in a nice uptrend after falling below the 200-day moving average in early September.
Current support is at $42.25-$41.75 and the 200-day moving average.
A close back below the latter would signal a false breakout with backtest potential towards $41.50-$41.25.
RSI is in an uptrend with resistance at 65-70 and the latter representing the September peak.
A close above the latter would signal additional strength towards 75-80 and January 2018 highs. Support is at 60 with a move below this level signaling additional weakness towards 55-50.
We are allocating the portfolio as follows:
Long 30% in XLF closed on Thursday at 28.04
Long 20% in XLK closed on Thursday at 81.69
Long 30% in XLU closed on Thursday at 63.61
Short 20% in XLE closed on Thursday at 57.33
Option Traders… the following regular MONTHLY options meet our criteria:
XLF – 20DEC $28 Strike Price CALL (Expires December 20, 2019)
XLK – 20DEC $82 Strike Price CALL (Expires December 20, 2019)
XLU – 17JAN $63 Strike Price CALL (Expires January 17, 2020)
XLE – 17JAN $58 Strike Price PUT (Expires December 20, 2019)
All the best,