U.S. markets were choppy throughout Friday’s action but traded in a much tighter trading range while closing mixed.
The major indexes closed higher for the week for the first time since the end of November but are still down sharply for the month.
The ongoing government shutdown is likely to stretch into January after no progress toward a deal over wall funding was reached. Additionally, President Trump threatened to close the southern border entirely as a new caravan forms in Honduras.
The Nasdaq rose 0.4% extended its winning streak to 3-straight sessions after tapping a high of 6,684.
Fresh resistance at 6,650-6,700 held with continued closes above the latter being a bullish signal.
The Russell 2000 advanced 0.5% after reaching a peak of 1,356.
Lower resistance at 1,350-1,365 was cleared but failed to hold with a close above 1,375 being a more bullish development and confirming a possible near-term bottom.
Tech surged 4% for the week while the small-caps soared 3.6%.
The Dow gave back 0.3% despite trading to a late day high of 23,381.
Resistance at 23,200-24,400 was challenged for the 2nd-straight session with continued closes above 23,500 signaling additional strength.
The S&P 500 slipped 0.1% after trading in a 48-point range. The second-half high reached 2,520 on the close below lower at resistance 2,500-2,525.
For the week, the S&P was up 2.9% while the blue-chips gained 2.8%.
Real Estate and Utilities led sector strength after rising 0.4% and 0.3%.
Energy sank 0.8% and was the weakest sector while Materials gave back 0.5%.
For the week, Healthcare and Materials were up 3.1% and 2.1%. Utilities and Real Estate were down 3.3% and 3.1%, respectively.
Earnings
No update…
Global Economy – European markets rebounded following heavy selling pressure from the previous session to end the week higher.
UK’s FTSE 100 surged 2.3% and the Stoxx 600 Europe jumped 2%. Germany’s DAX 30 and France’s CAC 40 rallied 1.7% while the Belgium20 advanced 1.4%.
Asian markets settled mostly higher with Japan weaker following disappointing economic news.
Australia’s S&P/ASX 200 rallied 1% and South Korea’s Kospi advanced 0.5%. China’s Shanghai was higher by 0.4% and Hong Kong’s Hang Seng added 0.1%. Japan’s Nikkei fell 0.3%.
Japan November industrial production declined 1.1%, a smaller drop than expectations of 1.5%.
Japan November retail sales slipped 1%, missing forecasts for a dip of 0.4%.
The Japan November jobless rate unexpectedly climbed 0.1 to 2.5%, missing estimates for no change at 2.4%.
The November job-to-applicant ratio gained 0.01 to 1.63, matching expectations.
Japan October vehicle production rose 6.3% year-over-year, and the largest increase in a year.
Chicago PMI was down a point in December to 65.4, better than forecasts of 62.4. The 3-month moving average rose to 63.4 from 61.7.
The Pending Home Sales Index was down 0.7% to 101.4, versus estimates for a rise of 1.5% for the month.
The 12-month pace has been in contraction in 11 of the last 12 months (excluding April) and is the weakest pace since April 2014. Regionally, pending sales declined in the South (-2.7%) and the Midwest (-2.3%), and rose in the West (2.8%) and the Northeast (2.7%).
Baker-Hughes reported the U.S. rig count was up 3 rigs from last week to 1,083, with oil rigs up 2 to 885 and gas rigs up 1 to 198.
The U.S. Rig Count is up 154 rigs from last year’s count of 929, with oil rigs up 138 and gas rigs up 16. The U.S. Offshore Rig Count is unchanged at 24 rigs and up 6 rigs year-over-year.
Market Sentiment – New York Fed’s Q4 Nowcast projection remained steady at 2.48% versus last week. There was no new economic news to impact the number given the new home sales and the advance indicators reports were postponed on Friday due to the government shutdown.
The Q1 estimate stands at 2.14%.
The St Louis Fed’s model projects Q4 GDP growth at 2.8%, though it’s down from the prior 2.9% estimate.
Analysts are forecasting Q4 growth of 3.2%, with a modest slowing to 2.7% in Q1.
The iShares 20+ Year Treasury Bond ETF (TLT) had another inside day despite testing a high of $121.05.
Resistance at $121-$121.50 held for the 5th-straight session with a close above $122 being a bullish signal for additional strength.
Support remains at $120.50-$120 with a move below $119.50 signaling a possible near-term top.
RSI is back in a slight uptrend with resistance at 75-80 and the latter representing the monthly peak. Support is at 65-60.
Market Analysis – The Russell 2000 ETF (IWM) extended its winning streak to 3-straight sessions after making a run to $135.01. Fresh and lower resistance at $135-$136 held.
Continued closes above $137.50 would be a slightly bullish development and signal a possible near-term bottom.
Near-term support is at $131.50-$130.50.
A close below $130 would be a bearish signal with risk towards $127.50-$125 and fresh 52-week lows.
RSI is in a slight uptrend with resistance at 40.
A move above this level would signal additional strength and would set up a possible run towards 45-50. Support is at 30.
The Dow Jones Transportation Average ($TRAN) had its 2-session winning streak snapped despite trading to an intraday high of 9,245. Near-term and lower resistance at 9,250-9,350 was cleared but failed to hold.
Continued closes back above the 9,500 level would be a more bullish development and signal a possible near-term trough.
Shaky support is at 9,100-9,000 with a move below the latter signaling additional weakness towards 8,750-8,600 and fresh 52-week lows.
RSI is back in a slight downtrend with support at 35-30.
A move below the latter would be a bearish development and would reopen risk towards 25-20 with the latter representing the monthly low. Resistance is at 40-45.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 15.68% with the session low kissing 12.74. Rising support is at 10%-7.50% and is still signaling oversold levels.
Resistance is at 17.50%-20% with a move above the latter signaling additional strength. Friday’s high reached 19.60.
The percentage of S&P 500 stocks trading above the 50-day moving average settled at 6.97% with the session low tapping 5.17%.
Mid-January 2016 support at 5% remains in play with the weekly low tapping 1.19.
The October 2008 low reached 0.40 and the August 2011 tapped 0.60. Resistance is at 10%-12.50% with Friday’s high reaching 11.55
Position Update
Stock market volatility is persistent.
Expect more range bound trading action ahead.
Very little directional bias.
May be time to increase exposure on the bearish side.
Till China and Trump are in the clear – markets will remain volatile.
We are allocating the portfolio as follows:
Buying 25% in XLU closed on Friday at 52.83
Buying 25% in XLRE closed on Friday at 30.94
Selling 25% in XLB closed on Friday at 50.10
Selling 25% in XLI closed on Friday at 63.77
Option Traders… the following regular MONTHLY options meet our criteria:
XLU – MAR 56 CALL (Expiration Date March 15, 2019)
XLRE – FEB 33 CALL (Expiration Date February 15, 2019)
XLB – MAR 53 PUT (Expiration Date March 15, 2019)
XLI – MAR 70 PUT (Expiration Date March 15, 2019)
All the best,
Roger Scott