U.S. markets were choppy throughout Tuesday’s action following mostly better-than-expected earnings and mixed economic news. Late day events on Brexit weighed on the major indexes as the on again, off again, vote remains in flux.
The mixed finish was a throwaway session as near-term support and resistance levels held.
Volatility stayed relatively clam before a spike to session highs into the closing bell with near-term resistance holding.
The Russell 2000 was up for the 2nd-straight sessions after adding 0.1% and testing an intraday high of 1,557.
Lower resistance at 1,560-1,575 was challenged but held with a close above the latter getting 1,585-1,600 back in play.
The Dow dipped 0.2% despite trading to an intraday higher high of 26,946.
Near-term and upper support at 26,750-26,500 held on the opening drop to 26,782 with a close below the latter and the 50-day moving average signaling a possible retest towards 26,250-26,000 and the 200-day moving average.
The S&P 500 fell 0.4% after trading in a 19-point range while testing and closing on the session low of 2,995.
Shaky and upper support at 3,000-2,975 was breached and failed to hold with a close below the latter reopening risk towards 2,950 and the 50-day moving average.
The Nasdaq gave back 0.7% following the late session backtest to 8,101. Upper support at 8,100-8,050 held by a point with backup help at 8,000-7,950 and the 50-day moving average on a close below the latter.
Energy and Industrials were the best performing sectors after rising 1.3% and 0.8%, respectively, while Utilities advanced 0.4%. Technology and Communication Services were the leading laggards after falling 1.4% and 1%.
Global Economy – European markets closed mostly higher as Members of Parliament (MPs) begin a three-day debate for clarification on the Brexit outlook.
British lawmakers rejected a timetable advanced by Prime Minister Borris Johnson after having voted earlier in the day to accept the deal that Johnson had reached with the leadership of the EU regarding Brexit.
After the defeat, Johnson spoke in front of Parliament, stating that he would speak to EU member states about their intentions while saying the UK must now accelerate preparations for the potential for a no-deal Brexit. Johnson added the government policy is not to delay Brexit.
UK’s FTSE 100 rallied 0.7% and France’s CAC 40 climbed 0.2%. The Stoxx 600 and Germany’s DAX 30 edged up 0.1% while the Belgium20 fell 0.4%.
Asian markets settled higher after chief economic adviser Larry Kudlow said he sees the possibility of taking off the threatened December tariff increases, as China requested, if trade talks go well.
South Korea’s Kospi jumped 1.2% and China’s Shanghai was higher by 0.5%. Australia’s S&P/ASX 200 and Japan’s Nikkei rose 0.3% while Hong Kong’s Hang Seng edged up 0.2%.
Existing Home Sales declined 2.2% to 5,380,000 in September, worse than forecasts of 5,440,000. Weakness was in the single family sales index which slid 2.6%, while the condo/coop component rose 1.7%, following respective gains of 1.4% and 1.7% in August.
The months’ supply of homes edged up to 4.1 from 4.
The median sales price declined to $272,100 after falling to $278,900, previously. On a 12-month basis, prices are up 5.9% year-over-year.
Richmond Fed Manufacturing Index rebounded 17 points to 8 in October, versus expectations of -9, and September’s print. The employment sub-index climbed to 13 from 3 while new order volume jumped to 7 from -14. Prices paid slowed to a 2.4% pace from 2.68% previously, with prices received sliding to 1.71% from 2.59%.
The 6-month shipment index rose to 24 from 15. The future employment index improved to 20 from 16, with new order volume at 33 from 22. Prices paid rose to 2.33% from 2.1% and prices received at 1.38% from 1.42%.
U.S. Chain Store Sales rebounded 3.1% last week, nearly recovering the prior week’s 3.4% drop. This helped boost the 12-month pace to a 2.7% year-over-year rate versus 1.6% previously.
Nearly all of the retail segments increased, led by strong sales at electronic stores, while the only component that was weak came from the wholesale clubs.
Redbook Store Sales were up 4.3% for the year in the week ending October 19th.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) rebounded from the prior session plunge after trading to a high of $139.53. Lowered resistance at $139.50-$140 was cleared but held with continued closes above the $141 level being a more bullish signal of a near-term bottom.
Support is at $139-$138.50. A close below the latter would signal additional weakness towards $137-$136.50.
Market Analysis – The Russell 2000 ETF (IWM) mirrored the previous session with the intraday high reaching $155.05. Upper resistance from mid-September at $154.50-$155 was cleared but held on the close below the former.
The latter represents key support from late September with continued closes above the $155 level getting $156.50-$157 back in focus.
Current but unestablished and shaky support is at $154-$153.50.
A close below the latter would be a slightly bearish signal with backtest potential towards $152-$151.50 and the 200-day moving average.
RSI has leveled out with resistance at 60-65.
A move above the latter and the September peak would signal additional strength towards 70-75 and February highs. Support is at 55-50.
The Spider Gold Shares (GLD) has been in an 8-session trading range with Tuesday’s midday low reaching $139.72.
Crucial and upper support at $139.50-$139 easily held with a close below the latter reopening risk towards the $138 area.
Resistance is at $140.50-$141 with more important hurdles at $141.50-$142 and the 50-day moving average.
RSI is showing signs of curling higher with resistance at 50.
There is upside potential towards 55-60 on a move back above the 50 level with the latter representing the September high. Support is at 45-40.
A close below the latter and the monthly low would be a bearish development for additional weakness towards 35-30 and the lows from May.
We are allocating the portfolio as follows:
Long 30% in XLF closed on Tuesday at 28.42
Long 20% in XLK closed on Tuesday at 80.68
Long 30% in XLU closed on Tuesday at 64.34
Short 20% in XLE closed on Tuesday at 58.80
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,