U.S. markets were sluggish throughout Monday’s first half of action as Wall Street awaited developments from trade talks with China on Thursday and the light start to the 3Q earnings season.
The major indexes turned positive midday following comments by White House economic advisor Larry Kudlow who said the U.S would be open to anything China brings to the table, including a short-term deal.
More enthusiasm came later in the day after the Chinese Commerce Ministry confirmed China is ready to do a deal on the parts of the negotiations both sides agree upon with a timetable for the harder issues to be worked out next year.
Despite the positive news, the major indexes settled lower after pushing prior resistance levels with volatility settling back above a key level of support.
The S&P 500 fell 0.5% after trading in a 24-point range and testing an morning low of 2,935.
Upper support at 2,950-2,925 failed to hold with the close back below the 50-day moving average being a cautious signal.
The Dow was down 0.4% following the morning backtest to 26,424.
Fresh and upper support at 26,400-26,200 held with the close back below the 50-day moving average also being a slightly bearish signal.
The Nasdaq was lower by 0.3% despite testing an intraday high of 8,013.
Lower resistance at 8,000-8,050 and the 50-day moving average was cleared but held for the 2nd-straight session.
The Russell 2000 slipped 0.2% after testing a 2nd half high of 1,507 but failing to hold the 1,500 level into the closing bell. Near-term and lower resistance at 1,510-1,525 was challenged but held with a close above the latter and the 50/200-day moving averages being more bullish developments.
There was no sector strength with Communication Services closing flat for the session.
Energy and Consumer Staples led sector weakness after giving back 0.9% and 0.8%, respectively, while Industrials and Finance declined 0.5%.
Global Economy – European markets showed strength despite weak economic data out of Germany that added to worries over the growth outlook in Europe, and globally.
Germany’s DAX 30 and the Stoxx 600 rallied 0.7% while France’s CAC 40 and UK’s FTSE 100 rose 0.6%. The Belgium20 advanced 0.5%.
German Factory Orders for August fell 0.6%, versus forecasts for a decline of 0.3%.
Eurozone Sentix fell to -16.8 in October from -11.1 in September, its lowest level since April 2013.
Asian markets settled mixed in limited action following reports Chinese officials are increasingly reluctant to agree to a broad-based trade deal with the U.S. when trade talks resume on Thursday,
Australia’s S&P/ASX 200 gained 0.7% and South Korea’s Kospi edged up 0.1%. Japan’s Nikkei slipped 0.2%. Hong Kong’s Hang Seng and China’s Shanghai were closed for a holiday and will reopen on Tuesday.
Consumer Credit was at $17.9 billion for August following July’s unexpected $23 billion surge. Non-revolving credit jumped to $19.8 billion from $12.7 billion while revolving credit fell -$1.9 billion to $7.5 billion after rising to $9.4 billion in July.
Baker Hughes announced the international rig count for September was at 1,131, down 7 from the 1,138 in August, and up 127 from 1,004 in September 2018.
The international offshore rig count for September came in at 242, down 2 from the 244 counted in August, and up 38 from 204 in September 2018.
The average U.S. rig count for September was at 878, down 48 from the 926 in August, and down 175 from 1,053 in September 2018.
TD Ameritrade IMX for September came in at 4.51
Market Sentiment – Kansas City Fed Esther George continued to argue for an unchanged policy stance and said the moderation in growth this year has been in line with her outlook while reiterating the economy is still in a good place.
She hasn’t been as concerned about the Fed missing its 2% inflation target since she doesn’t think it’s a concern for ordinary Americans.
She said he might rethink her position if she saw the consumer losing confidence.
The iShares 20+ Year Treasury Bond ETF (TLT) had its 7-session winning streak snapped following the intraday pullback to $144.71.
Fresh and upper support at $145-$144.50 was breached and failed to hold with a close below the $144 level signaling a possible near-term top.
Resistance from mid-August remains at $146-$146.50.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) had its 2-session winning streak snapped following the morning pullback to $264.19. Upper support at $264.50-$264 and the 50-day moving average was breached but held.
A close below the latter would be a renewed bearish signal with risk towards $262.50-$262.
Resistance is at $266-$266.50. Continued closes above $268 would be a more bullish signal near-term selling pressure has abated.
RSI is in a slight downtrend with support at 45-40.
A move below the latter would be a bearish signal for a retest towards 35-30 and the August lows.
Resistance is at 50 with a close above this level signaling additional strength towards 55-60.
The iShares PHLX Semiconductor ETF (SOXX) was also lower for the first time in 3 sessions after testing a late day low of $212.13.
Current and upper support at $212-$211.50 as challenged but held with backup help at $210.50-$210 on a move below the latter.
A close below the $210 level would signal a false breakout from last week.
Resistance is at $214.50-$215. Continued closes above the latter would be a renewed bullish signal with additional strength towards $216-$216.50.
RSI is in a slight downtrend with support at 50.
A move below this level reopens weakness towards 45-40 with the latter representing the monthly low. Resistance is at 55-60.
We are allocating the portfolio as follows:
Long 25% in XLP closed on Monday at 60.90
Long 25% in XLRE closed on Monday at 39.33
Long 25% in XLU closed on Monday at 64.52
Short 25% in XLE closed on Monday at 56.90
Option Traders… the following regular MONTHLY options meet our criteria:
XLP – 20DEC $62 Strike Price CALL (Expires December 20, 2019)
XLRE – 21FEB $40 Strike Price CALL (Expires February 21, 2020)
XLU – 17JAN $65 Strike Price CALL (Expires January 17, 2020)
XLE – 20DEC $57 Strike Price PUT (Expires December 20, 2019)
All the best,