U.S. markets showed strength on Tuesday’s on U.S.-China trade optimism following news that China has permitted tariff waivers for U.S. soybean imports.
However, calls for the impeachment of President Trump and his dealings with Ukraine sent the major indexes into a tailspin.
A slight rebound resumed after President Trump responded by saying he would declassify the transcript with the Ukraine President. Nervousness remained into the close as Wall Street awaited further details from House speaker Nancy Pelosi on the impeachment process.
The Russell 2000 plummeted 1.6% after testing an intraday low of 1,530.
Prior and upper support from early August at 1,530-1,515 and the 50-day moving average was challenged but held with risk towards 1,500-1,485 on a close below 1,515 and the 200-day moving average.
The Nasdaq tanked 1.5% following the late day backtest to 7,969.
Prior support from earlier this month at 8,000-7,950 was breached but held with the close below the 50-day moving average and the 8,050 level being a cautious signal.
The S&P 500 fell 0.8% following the 2nd half fade to 2,957.
Prior and upper support at 2,975 failed to hold with a move below 2,950 and the 50-day moving average signaling additional weakness.
The Dow lost 0.5% after testing a late day low of 26,704.
Near-term and crucial support at 26,800 was breached but held with a close below 26,600 and the 50-day moving average being a bearish development.
Utilities and Consumer Staples were the only sectors that showed strength after rising 1.2% and 0.4%, respectively.
Energy and Communications Services were the leading sectors laggards after stumbling 1.6% and 1.5%, respectively.
Global Economy – European markets closed mostly lower after U.K.’s highest court ruled that Prime Minister Boris Johnson’s suspension of parliament for five weeks until October 14th was unlawful, causing more Brexit confusion.
UK’s FTSE 100 was lower by 0.5% and the Belgium20 declined 0.4%. Germany’s DAX 30 gave back 0.3% and France’s CAC 40 slipped 2 points, or 0.04%. The Stoxx 600 was up less than a point, or 0.01%.
Asian markets showed strength as new developments on the trade war eased some concerns, with Chinese importers buying 10 boatloads of U.S. soybeans.
South Korea’s Kospi advanced 0.5% and China’s Shanghai rose 0.3%. Hong Kong’s Hang Seng gained 0.2% and Japan’s Nikkei added 0.1%. Australia’s S&P/ASX 200 dipped a point, or 0.01%.
S&P Corelogic Case-Shiller home price index rose 0.13% to 218 in July after rising 0.38% to 217.72 in June. The 12-month pace slowed to 2% year-over-year versus 2.16%.
The 10-City index inched up 0.03% to 230.74 following June’s 0.26% gain to 230.68. The annual pace also slipped to a 1.6% year-over-year rate versus 1.86%.
Nineteen of the 20 cities surveyed posted annual gains, led by Phoenix (5.77%), while Seattle declined (-0.64%).
FHFA House Price Index increased 0.4% in July to 276.9 after rising 0.2% to 275.8 in June. The index is up 5% year-over-year. All nine regions surveyed posted gains on the month, ranging from 0.1% in the Middle Atlantic to 1.2% in the Mountain.
Additionally, the 12-month changes were all positive too, ranging from 3.6% year-over-year in Middle Atlantic to 7.6% in the Mountain.
Consumer Confidence dropped 9.1 points to 125.1, weaker than expectations of 133, after falling 1.6 ticks in August to 134.2.
The current conditions index declined to 169 from 176 while the expectations index slid to 95.8 from 106.4. The labor market index declined to 33.2 after jumping to 38.3 previously. The 12-month inflation index slowed to a 4.8% rate from 4.9%.
Richmond Fed Manufacturing Index plunged 10 points to -9 in September after surging 13 points to 1 in August.
Expectations were for a print of -1. Weakness was broad based with exceptions in the employment index, which rose 9 points to 3 from -6, with wages rising to 24 from 22.
The workweek tumbled to -10 from 4, and new order volume tumbled to -14 from 2, with capex dipping to 7 from 9.
Prices paid were little changed at a 2.68% rate from 2.69%, but prices received jumped to a 2.59% pace from 1.66%.
The 6-month shipment index dipped to 15 from 18, while the employment and wage components climbed to 16 from 5 for the former, and 56 from 45 for the latter. The 6-month new order volume index fell to 22 from 31, while prices received and paid slowed.
Redbook Store Sales up 5.2% for the year in the week ending September 21st.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 5th time in 6 sessions after trading to an intraday high of $143.73. Near-term and lower resistance at $143.50-$144 was cleared and held.
A close above the latter and prior support from earlier in the month would signal continued momentum towards $145.50-$146.
Rising support is at $143-$142.50.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) fell for the 5th time in 6 sessions following the 2nd half pullback to $67.29. Prior and upper support from late July at $67.50-$67 was breached and failed to hold.
A move below the latter reopens downside risk towards $66.50 and the 50-day moving average.
Lowered resistance is at $68-$68.50.
Continued closes back above the latter would be a slightly bullish signal selling pressure has eased.
RSI is in a downtrend with support at 50. A move below the latter would signal additional weakness towards 45-40 and late August lows. Resistance is at 55-60.
The iShares MSCI Emerging Markets Fund (EEM) broke down out of a 6-session trading range following the backtest to $41.17. Upper support at $41.50-$41.25 and the 200-day moving average was breached and failed to hold.
A close below the $41 level and the 50-day moving average would be an ongoing bearish development with risk towards $40.50-$40 and prior support from early August.
Lowered resistance is at $41.75-$42. A death cross formed earlier this month with the 50-day moving average falling below the 200-day moving average.
This is typically a bearish signal for lower lows.
RSI is in a downtrend with key support at 50 holding.
A close below this level would signal additional weakness towards 45-40. Lowered resistance is at 55-60.
We are allocating the portfolio as follows:
Long 30% in XLF closed on Tuesday at 27.89
Long 20% in XLK closed on Tuesday at 79.79
Long 30% in XLU closed on Tuesday at 64.68
Short 20% in XLE closed on Tuesday at 60.33
Option Traders… the following regular MONTHLY options meet our criteria:
XLF – 20DEC $29 Strike Price CALL (Expires December 20, 2019)
XLK – 17JAN $85 Strike Price CALL (Expires January 17, 2020)
XLU – 17JAN $63 Strike Price CALL (Expires January 17, 2020)
XLE – 20DEC $57 Strike Price PUT (Expires December 20, 2019)
All the best,
Roger Scott.