U.S. markets surged to fresh all-time highs on Thursday following news high ranking trade negotiators have offered to cut existing tariffs by as much as half on roughly $360 billion of Chinese-made goods as well as to cancel a new round of tariffs set to take effect this weekend.

The tariff reduction offer was likely made earlier in the week, and in exchange, the U.S. has demanded that China make firm commitments to purchase large quantities of U.S. agricultural and other products, to better protect U.S. intellectual-property rights and to allow greater access to China’s financial services sector.

The S&P 500 soared 0.9% after trading to a new record high of 3,176. Fresh and lower resistance at 3,150-3,175 was cleared and held with a close above the former leading towards uncharted territory at the 3,200 level.

The Dow gained 0.8% following the intraday run to 28,224 and fresh record high. New and lower resistance at 28,200-28,400 was cleared but held with a close above the latter leading towards blue-sky territory at 28,600-28,800.

The Russell 2000 rallied 0.8% after trading to a 52-week peak of 1,654. Key resistance at 1,650 was cleared but held with a close above this level keeping 1,660-1,675 in play.

The Nasdaq climbed 0.7% with the all-time intraday high tapping 8,745. New and lower resistance at 8,700-8,750 was cleared but held with a close above the former signaling additional momentum towards 8,800-8,850.

Energy and Financials were the strongest sectors after surging 2% while Materials and Technology were higher by and 1.4% and 1.1%, respectively. Real Estate was down 1.2% to led sector weakness while Utilities and Consumer Staples gave back 0.4% and 0.1%, respectively, to round out the losers.

Global Economy – European markets settled higher after the ECB kept its rates unchanged with the announcement being new President Christine Lagarde’s first monetary policy meeting.

UK’s FTSE 100 rose 0.8% and Germany’s DAX 30 added 0.6%. France’s CAC 40 was up 0.4% while the Belgium20 and the Stoxx 600 added 0.3%.

The ECB Governing Council voted to keep the main deposit rate at the historic low of -0.5%, in line with expectations. Additionally, the ECB forecasted annual real GDP growth for the eurozone at 1.2% in 2019, 1.1% in 2020, and 1.4% in 2021 and 2022. This was an upward revision of 0.1% for 2019 and a downward dip of 0.1% for 2020 versus September’s projections.

Asian markets were mixed ahead of the positive trade developments between the U.S. and China.

South Korea’s Kospi leaped 1.5% and Hong Kong’s Hang Seng advanced 1.3%. Japan’s Nikkei nudged up 0.1%. Australia’s S&P/ASX 200 dropped 0.7% and China’s Shanghai lost 0.3%.

Initial Jobless Claims surged 49,000 to 252,000, well above estimates for a print of 212,000, after dropping 10,000 to 203,000 in the prior week.

The 4-week moving average climbed to 224,000 versus 217,750. Continuing claims fell -31,000 to 1,667,000 following the 56,000 jump to 1,698,000 previously.

November PPI was flat, versus expectations for a rise of 0.2%, while the core rate fell -0.2%. There were no revisions to the respective October gains of 0.4% and 0.3%.

The 12-month headline rate was steady at the 1.1% year-over-year from October, the ex-food and energy rate slowed to 1.3% year-over-year compared to 1.6% previously.

Goods prices were up after rebounding 0.7% previously. This included a 1.1% increase in food costs versus the prior 1.3% rise. Energy prices rose 0.6% from 2.8% previously. Services costs dropped -0.3% from 0.3% in October.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streak snapped after plunging to an intraday and fresh monthly low of $136.61.

Prior and upper support from early November at $137-$136.50 was breached but held. A close below the latter would be an ongoing bearish development with additional risk towards $135.50-$135.

New and lowered resistance is at $138-$138.50 followed by more important recovery hurdles at $139-$139.50 and the 50-day moving average.

Market Analysis – The S&P 400 Mid Cap Index ($MID) was up for the 2nd-straight session after testing a fresh 52-week peak of 2,040. Prior and lower resistance from August 2018 at 2,040-2,060 was cleared by nearly a point but held.

Continued closes above the former and the all-time high just north of 2,050 would be an ongoing bullish signal for a continued breakout towards 2,080-2,100.

Current support is at 2,020-2,000. A close below the latter would signal a further backtest towards 1,980-1,960 and the 50-day moving average.

RSI is in an uptrend with resistance at 65-70. A close above the latter and the November high would be a bullish signal for additional strength towards 75-80 and overbough levels from February. Support is at 60 with risk towards 55-50 on a move back below this level.

The Consumer Staples Select Spiders (XLP) remained in a 5-session trading range despite testing a record high of $63.02. Near-term and lower resistance at $63-$63.50 was cleared but held.

A close above the former would be an ongoing bullish signal with additional upside potential towards $64.50-$65.

Current support is at $62.25-$61.75.

A close below the $61.50 level and the 50-day moving average would be a slightly bearish signal with downside risk towards $60.75-$60.25 and prior lows from early November.

RSI has flatlined with resistance at 70 and the monthly peak that has been holding since July. A close above this level would signal additional strength towards 75 and the April high.

Support is at 60 with weakness towards 55-50 on a move back below this level.

We are holding the following positions:


Options Traders – the following regular MONTHLY options meet our criteria:

ATKR – 17APR Expiration $45 Strike Price Call

BLDR – 21FEB Expiration $26 Strike Price Call

CMC – 20MAR Expiration $23 Strike Price Call

DIOD – 20MAR Expiration $50 Strike Price Call

GSB – 20MAR Expiration $12.5 Strike Price Call

TVTY – 21FEB Expiration $22.5 Strike Price Call

All the best,
Roger Scott.