U.S. markets closed in the red across the board for the first time in six sessions after showing weakness throughout Wednesday’s session. The losses were minimal with the Dow, Nasdaq and S&P 500 falling 0.1% while holding near-term support.

The Russell 2000 slipped 0.02%, or less than a third-point, after recovering much of the morning losses into the closing bell.

Financials were strong after advancing 0.8% and were the only sector to finish in the green. Real Estate and Utilities were weak after sinking 1.5% and 1.1%, respectively.

Global Economy- European markets settled mixed with the Belgium20 rising 0.4% and
UK’s FTSE 100 adding 0.2%. Germany’s DAX 30 was down 0.8% while the Stoxx Europe 600 and France’s CAC 40 fell 0.4%.

UK November industrial production rose 0.4% month-over-month, matching expectations. November manufacturing production rose 0.4% month-over-month, topping expectations of 0.3%.

Asian markets also closed on both sides of the ledger with Hong Kong’s Hang Seng adding 0.2% to extend its winning streak to 12-straight sessions.

China’s Shanghai also gained 0.2% while Australia’s S&P/ASX 200 dropped 0.6%. South Korea’s Kospi slipped 0.4% and Japan’s Nikkei Stock dipped 0.3%.

China December CPI rose 1.8% year-over-year, weaker than expectations of 1.9%. December PPI rose 4.9% year-over-year, stronger than expectations of 4.8%.

MBA Mortgage Applications were up 8.3% for the week ending January 5th.

December import prices rose 0.1% in December while export prices dipped 0.1%. Expectations were for a rise 0.2% for both import and export prices.

The Atlanta Fed Business GDPNow model forecast for real GDP growth in the fourth quarter of 2017 is now at 2.8%, up from 2.7% on January 5th.

December Wholesale Trade was up 0.8% versus forecasts of 0.7% for the month.

Market Sentiment- Fed’s Chicago Fed Charles Evans said inflation remains the challenge that policy makers are facing, though he expects tax cuts to boost investment this year and sees accommodative policy to helping to boost inflation.

He views the labor market as vibrant, while anticipating that investment will pick up as the economy gets stronger and stronger with 2.5% growth seen this year and next.

Evans went on to say the economy is at full employment, though it hasn’t overshot on the jobs front yet. He had wished to delay the December hike until the middle of this year, while awaiting a stronger signal on inflation.

He doesn’t anticipate anything besides recent tax cuts that risk growth accelerating beyond forecasts And noted if inflation surpasses its objective, analysts would know how to handle it.

Fed’s Kaplan expects more wage pressures this year and believes cyclical inflationary pressures are building, though cautioned that technology is creating some headwind to prices.

He said this year should be a pretty good year for the economy and believes global growth is a good tailwind.

Kaplan also added that three hikes are his base case scenario, though he worries the FOMC is at risk of playing catch-up. He said the Fed must be vigilant about the risk of overheating and thinks the economy is going to overshoot on employment this year or next.

St. Louis Fed dove Bullard mulled price level targeting, but noted it would take a decade of above-target 2.5% inflation to make up for 5-years of shortfalls.

He said that the U.S. economy is about 4.6% below where it would be in nominal terms if the Fed had met its inflation target in recent years, warning that inflation expectations have drifted below the Fed’s target.

Bullard went on to say to shift from the current target to a price level approach would take a lot of planning, but could be more optimal. In the meantime, he argues for letting inflation rise above the target in order to make up for past shortfalls.

The iShares 20+ Year Treasury Bond ETF (TLT) showed continued weakness after falling for the fifth-straight session while testing a low of $122.66. Support at $122.75-$122.50 and the 200-day moving average held into the closing bell.

Lowered resistance is at $124-$124.25.

Market Analysis- The Spider S&P 500 ETF (SPY) traded to an all-time high of $275.25 on Tuesday but spent today’s session underwater after trading down to $272.92.

Fresh support is at $272.75-$272.50 with a close below the latter signaling additional weakness. Resistance is at $274.75-$275.25 with continued closes above the latter getting $277-$277.50 in the mix.

RSI is pushing October resistance near the 80 level and is signaling slightly oversold conditions.

A move back below 75-70 would be a slightly bearish development and would signal additional upcoming weakness.

The iShares PHLX Semiconductor ETF (SOXX) is in the process of pulling back from a double-top after falling 1.2% while testing a low of $175.55.

Short-term support at $175.50-$175 held with risk to $174 and the 50-day moving average on a move below the latter. Current resistance is at $177-$177.50.

RSI is back in an downtrend after failing November resistance at the 70 level. Near-term support is at 50 on continued weakness.

We are allocating the portfolio as follows:

25% in MAR closed on Wednesday at 137.70
25% in JBHT closed on Wednesday at 120.11
25% in TXN closed on Wednesday at 109.70
25% in TMF closed on Wednesday at 20.51

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

MAR – APRIL 130 CALLS (Expiration Date APR 20, 2018)
JBHT – FEBRUARY 110 CALLS (Expiration Date FEB 16, 2018)
TXN – MARCH 100 CALLS (Expiration Date MAR 16, 2018)
TMF – FEBRUARY 22 CALLS (Expiration Date FEB 16, 2018)

All the best,
Roger Scott