U.S. markets opened lower to start Wednesday’s session as Wall Street prepared for the public impeachment inquiry proceedings along and comments from Fed Chairman Jerome Powell.
There was nothing surprising in Powell’s prepared remarks although the market rebounded off its lows and into positive territory while he was speaking.
Weakness ensued afterwards on reports the U.S./ China trade talks have hit a snag over farm purchases. The mixed close continues to signal near-term and overbought levels for the major indexes with possible consolidation and trading ranges forming.
The Dow added 0.3% after tapping a fresh all-time and intraday high of 27,806.
Major resistance at 27,750 was cleared and held with continued closes above this level keeping blue-sky territory towards 28,000 in play.
The S&P 500 added 2 points, or 0.1%, while tapping a midday high of 3,098.
Major resistance at 3,100 was challenged but held for the 4th time in 5 sessions with upside potential towards 3,125-3,150 on a close above this level.
The Russell 2000 was down 0.4% after trading in negative territory throughout the session with the low reaching 1,581. Current and upper support at 1,585-1,570 was breached but held.
The Nasdaq was off 4 points, or 0.1%, following the intraday backtest to 8,451. Current and upper support at 8,450-8,400 held by a point with a close below the latter opening up risk towards 8,350-8,300.
Utilities and Real Estate paced sector leaders after rising 1.5% and 1%, respectively.
Financials and Materials led sector losers after dropping 0.6% while Energy and Industrials gave back 0.4%.
Global Economy – European markets closed lower despite better-than-expected economic news.
The Belgium20 fell 0.5% and the Stoxx 600 was lower by 0.3%. Germany’s DAX 30 was off 0.4% while France’s CAC 40 and UK’s FTSE 100 slipped 0.2%.
UK consumer prices for October rose at an annual rate of 1.5%, down from 1.7% in September and lower than forecasts of 1.6% forecast.
Eurozone industrial production exceeded expectations to increase for the second consecutive month in September, rising 0.1% as output from France and the Netherlands offset declines in Germany and Italy.
Asian markets closed lower across the board as ongoing uncertainty over the outlook on U.S./ China trade combined with escalating social unrest in Hong Kong weighed on sentiment.
Hong Kong’s Hang Seng sank 1.8% while South Korea’s Kospi and Japan’s Nikkei fell 0.9%. Australia’s S&P/ASX 200 dropped 0.8% and China’s Shanghai declined 0.3%.
MBA Mortgage Applications surged 9.6% last week, after dipping -0.1% in the prior week. Refinancings paced the gain, climbing 12.9% following a 1.8% gain previously.
The purchase index rebounded 5.1% after a -2.5% drop previously. On a 12-month basis, the applications index is at an 83.2% year-over-year rate, with refis at 187.9% year-over-year, while purchases are up 15.1%. The average 30-year fixed rate rose to 4.03% after dipping to 3.98% previously.
Consumer Price Index for October increased 0.4%, and the core rose 0.2%, with the former beating expectations. This follow September’s unchanged print on the headline and 0.1% gain on the core.
On a 12-month basis, the headline clip rose to a 1.8% year-over-year pace versus 1.7% in September, though the ex-food and energy component slipped to 2.3% year-over-year from the prior month’s 2.4% rate.
Energy prices bounced 2.7% following the prior -1.4% drop.
Transportation and medical costs jumped 1% while food/beverage prices were up 0.2% after the prior 0.1% gain. Apparel prices dove -1.8%.
November Atlantic Fed Business Inflation Expectations were up 2% for the year.
Market Sentiment – There was nothing new in Fed Chairman Jay Powell’s testimony as he reiterated the economy remains in a good place as long as the economy remains on track.
Risk to the financial system remain moderate, he said, but added that the debt load of businesses is historically high.
Powell warned about fiscal policy, and that the Federal budget is on an unsustainable path. He noted the debt is growing faster than the economy (nominally), and that’s unsustainable by definition. He added, even with decent growth and lower rates, there will still be a need to reduce deficits over time.
He said low rates may limit the Fed’s ability to support the economy in another downturn, and that fiscal policy would have to support. On the positive side, he said household consumption has continued to rise solidly, supported by a healthy job market, rising incomes, and favorable levels of consumer confidence.
Powell added residential investment has turned up in Q3 thanks to the drop in mortgage rates.
Powell thinks Congress needs to focus on longer run matters, including labor force participation and productivity, which are closely linked to education.
Although he sidestepped political questions, on the shale revolution, he said it’s been a miracle, and shutting it down would probably not be a good thing for the economy.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 3rd-straight session following the intraday run to $136.96. New and lower resistance at $137-$137.50 was challenged but held.
Continued closes above the $138 level would confirm near-term bottom and be a bullish signal for additional strength towards $139.40-$140 and the 50-day moving average.
Rising support is trying to move up to $136-$135.50.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) fell for the 2nd time in 3 sessions following the intraday pullback to $69.37. Fresh and upper support at $69.50-$69 was breached but held with the former representing key resistance from late October and early September.
Current and lowered resistance is at $70-$70.50.
A close above the latter and last week’s 52-week high of $70.78 would signal a return of momentum with upside potentials towards $72-$72.50.
RSI is in a downtrend with upper at 55-50 holding.
A move below the latter would signal additional weakness towards 45-e0 and early October lows. Resistance is at 60 with a move below this level signaling another possible push towards 65-70.
The Technology Select Sector Spiders (XLK) extended its winning streak to 5-straight sessions with the session high reaching $86.72. Fresh and lower resistance at $86.75-$87.50, along with Tuesday’s the all-time peak at $86.77, was challenged but held.
Continued closes above the $87 level would signal a possible run towards $88-$90 over the near-term, depending on momentum.
Current support is at $86-$85.50. A close below the latter would signal a near-term top with additional risk towards $84-$83.50.
RSI remains in an uptrend but slightly overbought after clearing and holding July resistance at 70.
Continued closes above this level would signal additional strength towards 75-80 and the latter representing the late April peak.
Support is at 65-60 with a close below the latter signaling additional weakness towards 55-50.
We are allocating the portfolio as follows:
28% in AMGN closed on Wednesday 219.67
28% in CTXS closed on Wednesday 111.94
28% in KLAC closed on Wednesday 176.35
16% in TMF closed on Wednesday 26.52
Option Traders – the following (regular monthly) options meet our criteria:
28% in AMGN – 17JAN $215 Strike Price CALL (Expires January 17, 2020)
28% in CTXS – 17JAN $110 Strike Price CALL (Expires January 17, 2020)
28% in KLAC – 17JAN $170 Strike Price CALL (Expires January 17, 2020)
16% in TMF – 21FEB $30 Strike Price CALL (Expires February 21, 2020)
All the best,