U.S. markets showed slight weakness to start Thursday’s session following news out of China suggesting the visit to the U.S. by the Chinese delegation may be cut short.
However, a sharp turnaround occurred shortly afterwards when President Trump confirmed he would meet with Chin’s Vice Premier on Friday at The White House.
The higher highs and retest of prior resistance levels were slightly bullish signals but the major indexes are still showing losses for the week.
Volatility eased for the 2nd-straight session and is still giving a neutral reading after failing to recapture near-term support levels.
The S&P 500 gained 0.6% after tapping a 1st half high of 2,948.
Major and lower resistance at 2,950-2,975 was challenged but held on the close back above the 50-day moving average.
The Dow was also up 0.6% following the intraday run to 26,603.
Prior and lower resistance at 26,600-26,800 was breached but held with the blue-chips also recovering and holding the 50-day moving average into the closing bell.
The Nasdaq was higher by 0.6%, as well, after reaching a morning peak of 7,982.
Near-term and lower resistance at 7,950-8,000 was cleared and held by nearly a point but not the 50-day moving average which is halfway up the ladder at 7,979.
The Russell 2000 climbed 0.4% after testing a high of 1,491 shortly after the open.
Prior and lower resistance at 1,485-1,500 was cleared and held by nearly a half-point with more important hurdles remaining at 1,510-1,525 and the 50/200-day moving averages.
Energy and Financials were the strongest sectors after rallying 1.3% and 1%, respectively, while Industrials and Materials soared 0.9%. Utilities was the only sector laggard after slipping 0.1%.
Global Economy – European markets settled higher across the board as the latest Brexit news improved after Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar say they now see a pathway to a possible Brexit deal.
The Belgium20 jumped 1.4% and France’s CAC 40 rallied 1.3%. The Stoxx 600 gained 0.7% and Germany’s DAX 30 rose 0.6%. UK’s FTSE 100 added 0.3%.
UK GDP rose 0.3% in the three months to August, topping expectations for a flat reading, with July’s growth revised up from 0.3% to 0.4%. The numbers put the United Kingdom on track to avoid a recession in the third quarter.
Asian markets finished mostly higher following news President Trump’s administration could grant licenses that would allow American firms to sell nonsensitive supplies to a major but skeptical Chinese Tech company that has been preciously banned.
China’s Shanghai advanced 0.8% and Japan’s Nikkei was up 0.5%.
Hong Kong’s Hang Seng edged up 0.1% while Australia’s S&P/ASX 200 rose a half-point, or 0.01%. South Korea’s Kospi fell 0.9%.
Initial Jobless Claims dropped 10,000 to 210,000 versus forecasts for a print of 219,000. The 4-week moving average edged up to 213,750 from 212,750.
Continuing claims climbed 29,000 to 1,684,000 after slipping 1,000 to 1,655,000.
The Consumer Price Index for September was flat and matched forecasts, with the core up 0.1%, and a little shy of estimates of 0.2%.
The 12-month headline and core rates were steady at 1.7% year-over-year and 2.4%, with the latter holding above the Fed’s 2% target.
Energy costs were down 1.4% following the 1.9% prior slide, with gasoline off 2.4%. Used car prices dropped 1.6%. Food prices dipped 0.1% and apparel fell 0.4%.
Market Sentiment – Dallas Fed Robert Kaplan said any rate adjustments should be restrained and moderate and doesn’t think the Fed has to chase market moves.
He said it is not his job to satisfy the markets and comes on the heels of the FOMC minutes that a showed a discussion of whether the markets were pricing in too much easing.
Kaplan warned against over-telegraphing the rate path given so much uncertainty.
He also noted the impact of uncertainty on business investment has been substantial, and the jury is out in terms of the slowdown.
Minneapolis Fed Neel Kashkari said he is not sure how much further the Fed has to go while reiterating the economy is in a decent place. however, he added that risks have absolutely increased to the downside and he thinks rates are roughly neutral to slightly contractionary currently.
Kashkari thinks the Fed should provide more support if downside risks are increased. He also concurred with other Fed officials that the repo problems over the end of the quarter were an issue.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 2nd-straight session after tumbling to a low of $141.73 while falling out of a 5-day trading range.
Prior and upper support from late September at $142-$141.50 was breached but held on the close back below the 50-day moving average. A close below $141.50 would signal additional weakness towards $140.50-$140 and support levels from mid-September.
Lowered resistance is at $142.50-$143 with additional hurdles at $144-$144.50 and the bottom of the previous trading range.
Market Analysis – The Invesco QQQ Trust (QQQ) extended its sinning streak to 2-straight after trading to an intraday high $189.43. Lower resistance at $189.50-$190 held with the close back above the 50-day moving average being a slightly bullish signal.
Continued closes above the $190 level would signal a possible retest towards $191.50-$192 and early September hurdles.
Current support is at $188-$187.50.
A move below the latter would be a renewed bearish signal for a further pullback towards $186-$185.50.
RSI is in an uptrend after clearing 50.
There is upside potential towards 55-60 on continued closes above this level with the latter representing the September high.
Support is at 45-40 with the latter representing this month’s low.
The Communication Services Select Sector Spider (XLC) was also up for the 2nd-straight session and 5 of the past 6 following the intraday push to $49.37.
Near-term and lower resistance at $49.25-$49.50 was cleared but held. A move above the latter and the 50-day moving average would be a more bullish signal for a retest towards the $50 level and prior resistance from early September.
Current but shaky support is at $48.75-$48.50. A close below the latter would be a remewed bearish signal with downside risk towards $48-$47.75 and the 200-day moving average.
RSI is in an uptrend and has cleared lower resistance at 45-50.
A close above the latter would be a bullish signal for additional strength towards 55-60 and September peaks.
Support is at 40-35 with the latter representing the monthly low.
We are allocating the portfolio as follows:
30% in DG closed on Thursday at 160.52
30% in HAS closed on Thursday at 119.45
30% in WDC closed on Thursday at 57.34
10% in TMF closed on Thursday at 30.15
Option Traders – the following (regular monthly) options meet our criteria:
30% in DG – 20DEC $165 Strike Price CALL (Expires December 20, 2019)
30% in HAS – 17JAN $125 Strike Price CALL (Expires January 17, 2020)
30% in WDC – 17JAN $65 Strike Price CALL (Expires January 17, 2020)
10% in TMF – 21FEB $32 Strike Price CALL (Expires February 21, 2020)
All the best,