U.S. markets were choppy throughout Tuesday’s session following a number of crosscurrents, including trade headlines that U.S. and Chinese trade negotiators are laying the groundwork for a delay of tariffs.
Additionally, a USMCA deal was announced with a completed deal expected to be signed in Mexico.
In other political news, House Democrats announced that they will vote this week on whether to impeach President Trump on two articles – abuse of power and obstruction of Congress.
The bevy of headlines led to a mixed finish for the major indexes with volatility settling a neutral reading.
The Dow dipped 0.1% after trading to an intraday low of 27,804.
Current and key support at 27,800 was challenged but held with a close below this level being a bearish development for a further backtest towards 27,600-27,400.
The Nasdaq gave back 0.1% following the late day fade to 8,600. Current and upper support at 8,600-8,550 held with a close below the latter signaling additional weakness towards 8,500-8,450.
The S&P 500 also slipped 0.1% after testing an intraday low of 3,126.
Near-term and upper support at 3,125-3,100 held with a close below the latter being a opening up risk towards 3,075-3,050 and the 50-day moving average.
The Russell 2000 bucked the trend after edging up 0.1% while testing a session high of 1,633. Near-term and lower resistance at 1,635-1,650 was challenged but held.
Energy and Healthcare showed strength with gains 0.2% while Technology added 0.1%. Real Estate and Materials led sector weakness with losses of 0.7% and 0.6%, respectively.
Global Economy – European markets closed mostly in the red but off sessions lows following news the U.S. will possibly delay implementing additional tariffs on Chinese goods.
The Belgium20 fell 0.4%. The Stoxx 600, Germany’s DAX 30 and UK’s FTSE 100 were all down 0.3%. France’s CAC 40 added 0.2%.
Asian markets closed mixed following another round of economic news out of China.
South Korea’s Kospi was up 0.5% and China’s Shanghai edged up 0.1%. Australia’s S&P/ASX 200 was lower by 0.3% and Hong Kong’s Hang Seng was off 0.2%. Japan’s Nikkei slipped 0.1%.
China’s Consumer Price Index for November jumped 4.5% year-over-year, as food prices zoomed 19.1%. Meanwhile, China’s Producer Price Index (PPI) for November fell 1.4% year-on-year.
NFIB Small Business Optimism Index climbed 2.2% to 104.7 in November after a 0.6% gain to 102.4 in October. Gains were broadbased, with the percentage of those expecting a better economy rising to 13% from 10%, and plans to hire increasing to 21% from 18%.
Q3 productivity was revised up to a -0.2% rate versus the preliminary -0.3%, while unit labor costs were revised sharply lower to a 2.5% pace from 3.6% previously.
Those compare to Q2 rates of 2.5% and 0.1%, respectively, with the former unrevised and the latter bumped down from 2.4%.
Q3 productivity was boosted by an increase in output to 2.3% from 2.1% in the preliminary report, after a 1.9% increase in Q2.
Employee hours were at 2.5% rate from 2.4% previously, and Q2’s -0.5%. Compensation per hour was revised down to 2.3% versus 3.3% in the preliminary and 2.5% in Q2.
Real Q3 compensation was lowered to 0.5% from the 1.4% preliminary pace, and compares to Q2’s -0.4% reading, with a 1.1% deflator for Q3, unchanged from the preliminary, and versus 3.1% in Q2. On a 12-month basis, productivity edged up to a 1.5% year-over-year clip from Q2’s 1.8% clip.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after testing an intraday high of $139.35 with lower resistance at $139-$139.50 getting cleared but holding for the 2nd-straight session.
A close above the latter and the 50-day moving average would signal additional strength towards $140.50-$141.
Near-term and shaky support is at $138.50-$138. A close below the $137.50 level would be a renewed bearish development with additional risk towards $136.50-$136.
Market Analysis – The Invesco QQQ Trust (QQQ) fell for the 2nd-straight session following the opening pullback to $203.44. Current and upper support at $203.50-$203 was tripped but held. A move below the latter would signal additional weakness with backtest potential towards $202.50-$202.
The rebound to $204.25 afterwards held lower resistance at $204-$204.50. Continued closes above the $205 level would be a more bullish signal for a retest towards $206-$206.50 with the late November all-time high at $206.05.
RSI has flatlined with resistance at 60.
Continued closes above this level would signal additional strength towards 65-70. Support is at 55-50 with the latter holding since mid-October.
The Real Estate Select Sector Spider (XLRE) had its 5-session winning streak snapped following the 2nd-half pullback to $38.20. Current and upper support at $38.25-$38 was breached but held.
A close below the latter would be an ongoing bearish signal with additional downside risk towards $37.75-$37.50.
Near-term resistance is at $38.50-$38.75 and a downward sloping 50-day moving average.
RSI is in a slight downtrend with support at 45-40. A move below the former would signal additional weakness towards 35-30 and the latter representing the November low.
Resistance is at 50 and a level that has been holding since late October.
We are allocating the portfolio as follows:
30% in SWKS closed on Tuesday at 104.39
30% in QRVO closed on Tuesday at 109.86
30% in CVS closed on Tuesday at 73.22
10% in TMF closed on Tuesday at 27.75
Option Traders – the following (regular monthly) options meet our criteria:
30% in SWKS – 21FEB $100 Strike Price CALL (Expires February 21, 2020)
30% in QRVO – 21FEB $105 Strike Price CALL (Expires February 21, 2020)
30% in CVS – 21FEB $77.5 Strike Price CALL (Expires February 21, 2020)
10% in TMF – 21FEB $28 Strike Price CALL (Expires February 21, 2020)
All the best,
Roger Scott.