U.S. markets settled mixed on Thursday despite good news on the trade front. China said it will buy $20 billion of U.S. farm goods in a year if a preliminary trade deal is signed and would also consider boosting purchases further in future rounds of trade talks.
Disappointing earnings weighed on the blue-chips along with a number of weak reports from the Tech sector. Volatility continues to give a bullish reading for the overall market after closing below a key level of support?
The Nasdaq gained 0.8% after trading in positive territory throughout the session while reaching an intraday peak of 8,187. Prior and lower resistance at 8,150-8,200 was cleared and held with more important hurdles at 8,250 and the mid-September high at 8,243.
The S&P 500 added 0.2% after trading in a 16-point range while testing a session high of 3,016. Major resistance at 3,025 held with a close above this level getting 3,050-3,075 and fresh all-time highs in play.
The Russell 2000 slipped 0.2% following the midday pullback to 1,544. Current and upper support at 1,550-1,535 was breached but held with a move below the latter and the 200-day moving average being a slightly bearish development.
The Dow dipped 0.1% after testing an intraday low of 26,714. Near-term and upper support at 26,750-26,500 was breached but held 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.
Technology led sector winners after jumping 1.5% while Utilities, Materials and Consumer Staples were up 0.3%. Communication Services was the biggest loser after tumbling 1.1% while Healthcare declined 0.5%.
Global Economy – European markets settled higher after the ECB left key interest rates unchanged along with weaker-than-expected economic news.
UK’s FTSE 100 advanced 0.9% while the Belgium20 gained 0.8%. The Stoxx 600, France’s CAC 40 and Germany’s DAX 30 were up 0.6%.
Eurozone’s IHS Markit October flash services PMI (Purchasing Managers’ Index) estimate for October came in at 51.8, slightly below forecasts for 51.9, while the manufacturing counterpart came in at 45.7 against a forecast of 46.0. October’s composite PMI flash estimate was at 50.2, up from 50.1 in September but lower than the 50.3 forecast.
The IHS Markit flash German manufacturing PMI inched up to 41.9 in October from September’s print of 41.7 while the flash German services PMI fell to 51.2 in October from 51.4.
The manufacturing data was in line with forecasts, while the services figures lagged expectations of a 51.7 reading.
The Governing Council of the European Central Bank decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The
Asian markets closed mostly despite a slowdown in South Korea’s economy that showed growth in the third quarter nudged down to 0.4%.
Hong Kong’s Hang Seng rallied 0.9% and Japan’s Nikkei rose 0.6%.
Australia’s S&P/ASX 200 advanced 0.3% and South Korea’s Kospi climbed 0.2%. China’s Shanghai was down less than a point, or 0.02%.
Jobless Claims dropped 6,000 to 212,000 versus forecasts for a print of 214,000. The 4-week moving average dipped to 215,000 from 215,750. Continuing claims fell 1,000 to 1,682,000 after dropping 6,000 to 1,683,000 the previous week.
Durable Goods Orders for September declined -1.1% in September, after a revised gain of 0.3% in August. Orders remained soft on a 12-month basis at a -4% year-over-year clip.
Much of the September weakness was in transportation orders, which dropped -2.7% after the prior 0.2% gain, while vehicles and parts orders slipped -1.6%.
Excluding transportation, orders declined -0.3% after the prior 0.3% gain. The non-defense capital goods orders excluding aircraft component was down -0.5% versus -0.6%.
Shipments fell -0.4%, with non-defense capital goods shipments ex-aircraft -0.7% lower. Inventories rose to 0.5% from 0.2% while the inventory-shipment ratio edged up to 1.70 from 1.69.
PMI Composite Flash climbed to 51.5 in October from 51.1 in September, topping estimates of 50.9. Both employment and new orders improved versus their September prints. The services PMI came in at 51 in the preliminary October reading after edging up to 50.9 in September.
The employment sub-index fell to 47.5 from 48.6 in September. The flash composite index improved to 51.2 from 51 while employment fell to 48.2 from 49.
New Home Sales for September fell 0.7% to 701,000 versus forecasts of 698,000. Regionally, sales were mostly lower, with 3 of the 4 areas in decline, excluding the Midwest.
The months’ supply of homes was steady at 5.5. Homes for sale dipped to 321,000 from 323,000. The median sales prices dropped 7.9% to $299,400 after climbing 5.7% to $325,200.
Prices are -8.8% year-over-year lower versus the 1.2% growth clip from August.
Kansas City Fed Manufacturing Index for October checked in at -3.
Market Sentiment – President Trump tweeted: “The Federal Reserve is derelict in its duties if it doesn’t lower the Rate and even, ideally, stimulate. Take a look around the World at our competitors.
Germany and others are actually GETTING PAID to borrow money. Fed was way too fast to raise, and way too slow to cut.”
The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after testing an intraday high of $140.24. Near-term and lower resistance at $140-$140.50 was cleared but held for the 2nd-straight session.
Support remains at $139-$138.50.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) had its 3-session winning streak snapped following the pullback to $68. Near-term and upper support at $68-$67.75 held.
A close below the $67.50 level would be a slightly bearish development with downside risk towards $67-$66.50. A golden cross has formed just above the latter with the 50-day moving average clearing the 200-day moving average. This is typically a bullish signal for higher highs.
Near-term resistance is at $68.50-$68.75. Continued closes above the $69 level would be an ongoing bullish signal for a retest towards $69.50-$70.
The September high reached $70.01 with the February all-time peak at $70.65.
RSI is holding support at 60. A move below this level would signal a retest towards 55-50.
Resistance is at 65 with a move above this level getting 70-75 and February highs in play.
The Dow Jones Transportation Average ($TRAN) showed weakness for the 2nd-straight session after testing an intraday low of 10,626. Fresh and upper support at 10,600-10,500 was challenged but held.
A close below the latter would signal additional weakness towards 10,400-10,300 and the 200/50-day moving averages.
Near-term resistance is at 10,750-10,850.
A close above the 10,900 level would be a very bullish development and would signal a breakout above the prior peaks from July and September.
RSI is in a slight downtrend with support at 60. A close below this level would signal additional weakness towards 55-50. September resistance is at 65 and this month’s high.
A close above this level would be a bullish signal for additional strength towards 70-75 with the latter representing the February peak.
We are allocating the portfolio as follows:
Long 30% in XLF closed on Thursday at 28.50
Long 20% in XLK closed on Thursday at 81.93
Long 30% in XLU closed on Thursday at 64.82
Short 20% in XLE closed on Thursday at 59.04
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,