U.S. markets settled higher following the “official” start to the 3Q earnings season, which saw better than expected results from the Healthcare and Financial sectors.
The solid start to the earnings season trumped concerns about a report that China aims to have the U.S. roll-back some existing tariffs before committing to added agricultural purchases.
The major indexes once again push near-term resistance levels with the technical picture improving following the 4th day of gains in the past 5 sessions. Volatility also settle below another milestone and is signaling continued market momentum.
The Russell 2000 was higher by 1.2% following the 2nd half push to 1,528 and 3rd-straight close above the 1,500 level. Prior and lower resistance at 1,515-1,530 and the 50-day moving average was cleared and held with a close above the latter and the 200-day MA getting 1,545-1,560 back in play.
The Nasdaq also gained 1.2% after testing an afternoon high of 8,166.
Prior and lower resistance from mid-September at 8,150-8,200 was breached but held by just over a point with a close above the latter getting mid-July hurdles at 8,250-8,300 in focus.
The S&P 500 soared 1% following the midday run to 3,003.
Upper resistance from early last month at 2,975-3,000 was cleared and held with fresh hurdles at 3,025-3,050 and the record peak at 3,027 on continued closes above the 3,000 level.
The Dow jumped 0.9% after testing an intraday high of 27,120.
Fresh and lower resistance from early September at 27,000-27,200 was cleared and held with a close above the latter signaling additional strength towards 27,400-27,600 with the all-time high from July at 27,398.
Healthcare and Communication Services were the strongest sectors after rallying 1.8% and 1.7%, respectively, while Financials and Technology advanced 1.4% and 1.1%. Consumer Staples and Utilities were the only sectors that showed weakness after falling 0.4% and 0.3%, respectively.
Global Economy – European markets rebounded from Monday’s losses and showed mostly strength after EU negotiator Michel Barnier said a Brexit deal is still possible this week. However, there are reports that EU diplomats want more concessions from Prime Minister Boris Johnson.
The Belgium20 and Germany’s DAX 30 gained 1.2% while France’s CAC 40 and the Stoxx 600 rose 1.1%. UK’s FTSE 100 slipped 2 points, or 0.03%.
U.K.’s unemployment rate rose by 22,000 in the third quarter, with the jobless rate edging up from 3.8% to 3.9%.
The International Monetary Fund cut its 2019 growth forecast to 3% from 3.2% in its prior view in July, while the 2020 projection was cut to 3.4% from 3.5% previously.
Asian markets settled mixed after weak economic news out of China and concerns over the U.S./ China partial trade deal.
China’s Shanghai was down 0.6% and Hong Kong’s Hang Seng slipped 0.1%.
Japan’s Nikkei surged 1.9% while Australia’s S&P/ASX 200 added 0.1% and South Korea’s Kospi was up less than a point, or 0.04%.
China’s consumer price index for September increased 3% year-over-year, versus expectations for of 2.9%, and the highest in nearly six years. Meanwhile, China factory prices fell by 1.2%, matching forecasts.
Redbook Store Sales were up 4.1% for the year in the week ending 10/12.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 4th time in 5 sessions after tapping an intraday low of $139.55. Upper support at $140-$139.50 was breached and failed to hold.
A close below the latter would signal additional risk towards $138.50-$138 with the mid-September low at $136.54.
Lowered resistance is at $140.50-$141 followed by $142.50-$143 and the 50-day moving average
Market Analysis – The Spider Small-Cap 600 ETF (SLY) was up for the 4th time in 5 sessions following the intraday run to $67.19. Near-term and lower resistance at $67-$67.25 was cleared but held.
Continued closes above the $67.50 level would be an ongoing bullish signal for additional strength towards $68-$68.50.
Current support is at $66.25-$66 and the 200/50-day moving averages. A move below the $65.75 level would be a renewed bearish signal with downside risk towards $65.50-$65.
RSI is in an uptrend with resistance at 55-60.
A close above the latter would signal additional momentum towards 65-70 and September peaks. Support is at 50 with a move below this level signaling a retest towards 45-40.
The Financial Select Sector Spiders (XLF) extended its winning streak to 5-straight sessions after testing a high of $28.26. Lower tesistance at $28-$28.25 was cleared and held.
Continued closes above the latter would signal additional strength towards $28.50-$28.75 and July highs.
Rising support is at $27.75-$27.50 with a backup help at $27.25-$27 and the 50-day moving average that is starting to curl higher.
RSI in a uptrend with resistance at 60.
A close above this level opens would be a bullish signal for additional strength towards 65-70 with the latter representing the early July peak. Support is at 55-50.
We are allocating the portfolio as follows:
30% in DG closed on Tuesday at 162.07
30% in HAS closed on Tuesday at 121.96
30% in WDC closed on Tuesday at 60.82
10% in TMF closed on Tuesday at 28.56
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,