U.S. markets were weak throughout Thursday’s session following reports that Chinese officials are warning that they won’t budge on some issues that have been pushed by the U.S. and that they remain concerned about President Trump’s impulsiveness, casting doubt on the potential to reach a long term trade deal.

Meanwhile, President Trump tweeted that China and the USA are working on selecting a new site for the signing of their phase one agreement, which he identified as about 60% of total deal.

The new location will be announced soon and President Xi and President Trump will do signing, according to the tweet.

The Russell 2000 tumbled 0.7% with the midday low tapping 1,552.

Current and upper support at 1,565-1,550 was breached and failed to hold with a close below the latter leading to a possible retest towards 1,540-1,525 and the 200-day moving average.

The Dow declined 0.5% after trading to a session low of 26,918.

Near-term and upper support at 27,000-26,750 was breached but held with a close below the latter and the 50-day moving average being a bearish development.

The S&P 500 was lower by 0.3% after testing an intraday low of 3,023.

Current and upper support at 3,025-3,000 was breached but held with a close below the latter reopening downside risk towards 2,975-2,950 and the 50-day moving average.

The Nasdaq fell 0.1% to remain in a 4-session trading range following the pullback to 8,248.

Upper support at 8,250-8,200 was breached but held with a close below the latter getting 8,100-8,050 and the 50-day moving average back in play.

Utilities and Communication Services were the only sectors that showed strength after rising 0.6% and 0.3%, respectively.

Materials and Industrials were the weakest sectors after losing 1.1% while Consumer Discretionary and Financials were off 0.5%.

Global Economy – European markets settled lower despite slightly better economic news out of the eurozone.

UK’s FTSE 100 sank 1.1% and France’s CAC 40 fell 0.6%. The Stoxx 600 was down 0.5% and Germany’s DAX 30 declined 0.3%. The Belgium20 dipped 0.1%.

Eurozone GDP grew 0.2% in the third quarter, slightly better than forecasts of 0.1%, while inflation grew 0.7% in October compared to 0.8% in September.

The flash Eurozone CPI reading for October was up 1.1% year-over-year, compared to the 1% growth forecast.

Asian markets settled mixed following soft economic news out of China and ongoing trade turbulence.

Hong Kong’s Hang Seng rallied 0.9% and Japan’s Nikkei added 0.4%. South Korea’s Kospi edged up 0.2% while Australia’s S&P/ASX 200 and China’s Shanghai gave back 0.4%.

China’s Purchasing Managers’ Index came in at 49.3 for October, versus expectations for no change from of September print of 49.8.

The Bank of Japan it would be keeping monetary policy steady, but signaled in its forward guidance a readiness to cut rates if required.

Challenger Job-Cut Report announced layoffs increased 8,700 to 50,300 in October after tumbling 11,900 to 41,600 in September. Announced layoffs were down -33.5% year-over-year, following a -24.8% rate in September.

Announced hirings declined -268,900 to 190,800 following the 434,800 surge to 459,700 in September.

The retail sector paced the action ahead of the holiday season, rising 171,300 versus 299,200 previously.

Initial Jobless Claims rose 5,000 to 218,000, matching forecasts, and recovering the 5,000 drop to 213,000 in the prior week. The 4-week moving average slid to 214,750 from 215,250 previously.

Continuing claims increased 7,000 to 1,690,000, after slipping an unchanged print at 1,683,000 the previous week.

Personal Income rose 0.3% in September, with spending up 0.2%. The 0.4% increase in August income was revised up to 0.5%, with the 0.1% August spending gain bumped up to 0.2%.

Compensation edged up 0.1% versus 0.5% previously. The wage and salary component was flat after the prior 0.6% gain. Disposable income was 0.3% higher after a 0.6% gain.

The savings rate rose to 8.3% from 8.1%. The PCE chain price index was unchanged for a second straight month, while the core rate was flat as well after a prior 0.1% gain.

On a 12-month basis, the headline index slipped to a 1.3% year-over-clip from 1.4%, with the core rate dipping to 1.7% year-over-yer versus 1.8%.

Employment Cost Index increased 0.7% in Q3, matching expectations, after the 0.6% gain in Q2. Q3 wages and salaries were up 0.9% following a 0.7% rise in Q2.

Benefits increased 0.6% versus an 0.5% expansion. On a 12-month basis, the ECI posted a 2.8% year-over-year growth rate from 2.7% previously.

Chicago PMI dropped 3.9 points to 43.2 in October, weaker than expectations of 48.3, after sliding 3.3 ticks to 47.1 in September from August’s 50.4.

This is the lowest reading since Dec 2015. The index was at 59.4 a year ago. The 3-month moving average dropped to 46.9 from 47.3 and was at 52.2 in June.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after surging to an intraday high of $141.68.

Prior and lower resistance at $141.50-$142 was challenged but held. Continued closes above the latter and the 50-day moving average would be an ongoing bullish signal for continued strength towards $143.50-$144.

Rising support is at $140.50-$140.

Market Analysis – The Russell 2000 ETF (IWM) was down for the 2nd-straight session following the intraday pulback to $154.24. Upper support at $154.50-$154 was breached but held.

A close below the latter would be a slightly bearish signal with backtest potential towards $152-$151.50 and the 200/50-day moving averages.

Current resistance is at $156.50-$157.

Continued closes above the $157.50 level would be a more bullish development for a retest towards $158-$158.50 and mid-September hurdles.

RSI is in a downtrend with support at 55-50.

A close below the latter would signal additional weakness towards 45-40 with the latter representing the monthly low. Resistance is at 60-65.

The Spider S&P Retail ETF (XRT) extended its losing streak to 3-straight session after tapping an intraday low of $42.83. Upper support at $43-$42.75 was tripped but held.

A close below the latter and the 50-day moving average reopens downside risk towards $40.25-$40 and the 200-day moving average..

Lowered resistance is at $43.50-$43.75. Continued closes back above the the $44 level would signal selling pressure has abated.

RSI remains in a downtrend with support at 50.

A close above below this level would signal additional weakness towards 45-40. Resistance is at 55-60.

We are holding the following positions:

  1. ARWR
  2. HLX
  3. PETS
  4. RH
  5. STMP
  6. TNK

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

ARWR – 20DEC Expiration $40 Strike Price Call

HLX – 20DEC Expiration $9 Strike Price Call

PETS – 17JAN Expiration $25 Strike Price Call

RH – 17JAN Expiration $210 Strike Price Call

STMP – 20DEC Expiration $100 Strike Price Call

TNK – 21FEB Expiration $2.5 Strike Price Call

All the best,
Roger Scott