U.S. markets opened at fresh record highs to start Monday’s action amid increasing optimism on trade. Commerce Secretary Wilbur Ross reiterated over the weekend that good progress was being made on a phase one deal with China and also suggested the U.S may not need to impose EU auto tariffs.
The Nasdaq was up for the 3rd time in 4 sessions after rising 0.6% while trading to an intraday high of 8,451. Fresh and lower resistance at 8,450-8,500 was cleared but held with additional hurdles at 8,600-8,650 on a close above the latter.
The Russell 2000 also gained 0.6% with the session peak reaching 1,602. Fresh and lower resistance at 1,600-1,615 was cleared but held with a close above the latter and the May 52-week high at 1,618 getting 1,625-1,640 in play.
The Dow rose 0.4% after testing an all-time intraday high of 27,517. New and lower resistance at 27,500-27,750 was cleared but held with a close above the latter signaling a possible run towards the 28,000 level.
The S&P 500 was also higher by 0.4% following the record run to 3,085 shortly after the opening bell. Fresh and lower resistance at 3,075-3,100 was cleared and held with melt-up potential towards 3,125-3,150 on a move above the latter.
Energy was the strongest sector after zooming 3.3% while Industrials and Financials added 1.2% and 0.9%, respectively. Utilities and Real Estate were the weakest sectors for the 2nd-straight session after giving back 1.3% and 1.1%, respectively.
Global Economy – European markets closed higher following a slew of PMI data that was slightly disappointing but showed improvement.
Germany’s DAX 30 soared 1.4% and France’s CAC 40 rallied 1.1%. The Stoxx 600 rose 1% while UK’s FTSE 100 and the Belgium20 rose 0.9%.
Eurozone October Manufacturing PMI checked in at 45.9 versus 45.7 in September.
Eurozone October New Orders PMI was at 45.3 versus 43.4 in September.
Eurozone October Final Manufacturing Output PMI was at 46.6 versus 46.1 in September.
German October Manufacturing PMI posted a reading of 42.1 versus 41.9 in September.
Italian October Manufacturing PMI checked in at 47.7 versus 47.8 in September.
Asian markets settled higher on trade optimism with Japan’s Nikkei closed for a holiday.
China’s Shanghai was higher by 1.7% and South Korea’s Kospi advanced 1.4%. Hong Kong’s Hang Seng gained 0.6% and Australia’s S&P/ASX 200 climbed 0.3%.
Factory Orders dropped -0.6% in September, missing forecasts for a rise of 0.3%, and follows the -0.1% dip in August. Transportation orders dropped -2.8% following the 0.2% August gain.
Excluding transportation, factory orders slipped -0.1% versus -0.2% previously. Nondefense capital goods orders excluding aircraft declined -0.6% versus -0.8% previously.
Shipments fell -0.2% versus -0.3% previously, with nondefense capital goods shipments excluding aircraft -0.7% lower versus August’s -0.7%. Inventories rose 0.3% versus -0.1%.
The inventory-shipment ratio was steady at 1.39.
TD Ameritrade IMX Level for October was at 4.84.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 2nd-straight session after testing an intraday low of $138.53. Prior and upper support at $138.50-$138 was challenged but held.
A close below the latter would be a ongoing bearish development with additional weakness towards $137-$136.50.
Lowered resistance is $139.50-$140 followed by $141.50-$142 and the 50-day moving average.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) extended its winning streak to 2-straight sessions after surging to an intraday high of $70.41. Early May and late February resistance at $70.50-$71 was challenged but held.
A close above the latter would signal a quadruple-top breakout with upside potentials towards $72-$72.50 and fresh 52-week peaks.
Near-term support has moved up to $70-$69.50. A close below the latter would signal a false breakout with backtest potential towards $68.50-$68.
RSI is back in an uptrend after clearing lower resistance at 65-70.
A move above the latter gets 75-80 and February highs in play. Support is at 60 with a move below this level signaling additional weakness towards 55-50.
The Communication Services Select Sector Spider (XLC) was up for the 4th-straight session following the intraday push to $51.31. Near-term and lower resistance at $51.25-$51.50 was cleared but held.
A move above the latter would be a bullish signal for a push towards $52-$52.50 with the current July all-time high at $51.87.
Current support is at $51-$50.75.
A close below the $50.50 level would be a slightly bearish signal for a retest towards $50.25-$50 and the 50-day moving average.
RSI is in an uptrend with resistance at 60.
A close above this level would be a bullish signal for additional strength towards 65-70 and July highs. Support is at 55-50 with the latter holding since mid-October.
We are allocating the portfolio as follows:
Long 25% in XLP closed on Monday at 60.56
Long 25% in XLU closed on Monday at 63.27
Long 25% in XLV closed on Monday at 94.58
Short 25% in XLE closed on Monday at 61.21
Option Traders… the following regular MONTHLY options meet our criteria:
XLP – 17JAN $61 Strike Price CALL (Expires January 17, 2020)
XLU – 17JAN $64 Strike Price CALL (Expires January 17, 2020)
XLV – 17JAN $95 Strike Price CALL (Expires January 17, 2020)
XLE – 17JAN $58 Strike Price PUT (Expires December 20, 2019)
All the best,
Roger Scott.