U.S. markets continued a choppy trend on Thursday but avoided lower lows as a flurry of economic news and political rhetoric dominated the headlines.

In the latest twist in the U.S. trade drama with China, a government official is reported to have said that the U.S. is unlikely to extend a waiver allowing American companies to supply a major China Tech company.

The whipsaw action held near-term support levels but the lower highs from the previous session was a slight concern. Volatility was slightly heightened but was able to hold a key level of resistance for the 3rd-straight session.

The Russell 2000 tumbled 1.1% after trading to an intraday low of 1,531.

Upper support at 1,530-1,515 and the 50-day moving average was challenged but held for the 3rd-straight session with a close below the latter getting 1,500-1,495 and the 200-day moving average In focus.

The Nasdaq gave back 0.6% following the morning pullback to 7,991.

Near-term and upper support at 8,000-7,950 held for the 2nd-straight session with the close back below the 50-day moving average and the 8,050 level being a slightly bearish signal.

The Dow dropped 0.3% after failing key resistance at the 27,000 level on the opening run to 27,014.

Near-term and crucial support at 26,800 was challenged but held on the backtest to 26,803 afterwards with a close below 26,600 and the 50-day moving average being a bearish development.

The S&P 500 was lower by 0.2% after tapping a 1st half low of 2,963.

Key support at 2,975 was breached but held with a close below the 2,950 level and the 50-day moving average signaling additional weakness towards 2,925 and support from the beginning of the month.

Real Estate showed the most sector strength after rising 1% while Consumer Staples and Utilities added 0.6% and 0.5%, respectively.

Energy and Communication Services were the leading sector laggards after sinking 1.3% and 1%, respectively, while Healthcare fell 0.6%.

Global Economy – European markets showed strength following upbeat consumer sentiment data out of Germany.

UK’s FTSE 100 rose 0.8% and France’s CAC 40 advanced 0.7%. The Stoxx 600 added 0.6% and the Belgium20 was up 0.5%. Germany’s DAX 30 climbed 0.4%.

German Gfk consumer confidence survey for October came in at 9.9, the 1st gain for 2019, following a reading of 9.7 for September.

Asian markets were mixed despite good news on the trade front with China’s government saying importers have agreed to buy American soybeans and pork of considerable scale.

Hong Kong’s Hang Seng was higher by 0.4% while South Korea’s Kospi and Japan’s Nikkei nudged up 0.1%.

China’s Shanghai dropped 0.9% and Australia’s S&P/ASX 200 lost 0.5%.

Initial Jobless Claims checked in at 213,000, versus forecasts of 211,000, and follows the prior week’s 4,000 increase to 210k. The 4-week moving average dipped to 212,000 versus 212,750.

Continuing claims declined 15,000 to 1,650,000 following the prior 9,000 drop to 1,665,000.

August International Trade in Goods Balance was at -$72.8 billion, better than expectations of -$73.4 billion. Goods imports increased 0.3% to $210.6 billion versus July’s $210.1 billion. Exports edged up 0.1% to $137.8 billion versus $137.6 billion previously. Also,

Advance Retail Inventories were unchanged in the preliminary August report following a revised 0.7% July gain (was 0.8%). Advance August wholesale inventories rose 0.4% after the prior 0.1% increase and topping forecasts for a gain of 0.3%.

Corporate Profits After-tax were up 0.3% for the year.

Q2 GDP growth was steady at the prior 2% pace, versus the 2.1% clip in the Advance report, and follows Q1 and Q4 GDP’s prints of 3.1%, and 1.1%, respectively.

Consumption nudged down to 4.5% versus 4.7% previously, while business investment worsened further to -6.3% versus -6.1%. Government spending was revised up to 4.8% versus 4.5% while inventories subtracted -$46.6 billion versus -$47 billion previously.

Net exports subtracted -$36.7 billion versus -$38.5 billion. The chain price index was unchanged at 2.4% while the core rate rose to 1.9% from 1.7% previously.

Pending Home Sales Index for August bounced 1.6% to 107.3 after falling 2.5% to 105.6 in July. The index was a 104.7 a year ago, and is up 1.1% year-over-year versus 1.7% in July.

Regionally, strength in the West (5.2%) and the South (1.2%), covered the declines in the Midwest (-1.6%) and the Northeast (-1.1%).

Overall, this was another solid report for the housing sector as lower mortgage rates are giving the sector some traction.

Kansas City Fed Manufacturing Index for September was at -2 versus estimates for a print of -3.

Market Sentiment – Fed Vice Chairman Richard Clarida said he believes inflation expectations do reside in a range he considers consistent with the Fed’s price-stability mandate.

He thinks the long-term unemployment rate is probably in the 4% or below range, that includes the current 3.7% pace.

Clarida noted the Fed is looking for answers to the questions of whether the Fed can best meet its goals with existing tools, whether those tools are adequate to meet its dual mandate, as well as how can the Fed’s communications be improved.

He also wonders whether a make-up inflation strategy would really work.

Minneapolis Fed Neel Kashkari said the Fed should lower interest rates further because the U.S. economy has not yet fully reached its potential.

He said he argued for steeper interest rate cuts just because he sees no evidence that the U.S. economy is running at capacity or beyond capacity.

The iShares 20+ Year Treasury Bond ETF (TLT) showed strength after trading to an intraday high of $142.99.

Lower resistance at $142.50-$143 was cleared but held with more important hurdles at $143.50-$144.

Support is trying to move up to $142-$141.50. A move below the latter reopens risk towards $140-$139.50 and the 50-day moving average.

Market Analysis – The Spider S&P 500 ETF (SPY) fell for the 5th time in 6 sessions after trading to an intraday low of $295.45. Current and upper support at $295.50-$295 was breached but held.

A close below the latter would be an ongoing bearish signal with downside risk towards $294-$293.50 and the 50-day moving average.

Current resistance is at $297.50-$298 following the 5th-straight close below the $300 level.

RSI is flatlining with support at 50. A move below this level would signal additional weakness towards 45-40 with the latter representing the mid-August low.

Current resistance is at 55-60 with a move above the latter and the monthly peak being a bullish signal for a run towards 70-75 and July highs.

The Real Estate Select Sector Spider (XLRE) has been in an 8-session trading range but is showing signs of a breakout after reaching a late day peak of $39.63.

Resistance at $39.50 and the top of the current range was cleared and held with additional hurdles at $39.75-$40 and the 52-week from earlier this month at $40.14.

Support is at $39.25-$39 with the latter representing the bottom of the trading range.

There is stretch to $38.75 with a move below this level reopening risk towards $38.50-$38.25 and the 50-day moving average.

RSI is curling higher after clearing resistance at 60.

Continued closes above this level would signaling additional strength towards 65-70 with the latter representing the high from the beginning of the month. Support is at 55-50.

We are holding the following positions:

CELG: +25% Allocation | $90.06 Protective Stop Loss | $111.35 Profit Objective
EXPE: +25% Allocation | $122.65 Protective Stop Loss | $148.25 Profit Objective
KLAC: +25% Allocation | $146.74 Protective Stop Loss | $176.49 Profit Objective
NXPI: +25% Allocation | $99.16 Protective Stop Loss | $118.78 Profit Objective

Option Traders – the following (regular monthly) options meet our criteria:

CELG – 17JAN $100 Strike Price CALL (Expires January 17, 2020)
EXPE 17JAN $140 Strike Price CALL (Expires January 17, 2020)
KLAC 20DEC $160 Strike Price CALL (Expires December 20, 2019)
NXPI 17JAN $110 Strike Price CALL (Expires January 17, 2020)

All the best,
Roger Scott.