U.S. markets surged to fresh all-time and closing highs on Friday following optimistic comments from White House economic adviser Larry Kudlow.
He said trade talks with China are coming down to the short strokes and that the U.S. is in communication with China every single day right now.
The latest trade headlines continue to push the major indexes into overbought territory with new money coming in off the sidelines.
However, the action in the VIX is signaling continued near-term market strength before a possible pause or pullback. The Dow jumped 0.8% while closing on a fresh all-time high of 28,004.
Key resistance at 28,000 was cleared and held with continued closes above this level leading to a possible run towards 28,250-28,500. The S&P 500 also soared 0.8% after closing at a record high of 3,120 while holding the 3,100 level throughout the session.
Fresh and lower resistance at 3,125-3,150 held with strength towards 3,175-3,200 on a move above the latter. The Nasdaq was higher by 0.7% following the late day run to 8,540 and closing peak.
Fresh and lower resistance at 8,550-8,600 was challenged but held with un charted territory towards 8,650-8,700 on a move above the latter. The Russell 2000 gained 0.5% after testing an intraday high of 1,598.
Near-term and lower resistance at 1,600-1,615 was challenged but held with a close above the latter and the May 52-week high at 1,618 getting 1,625-1,640 in focus.
For the week, the Dow rose 1.2% and the S&P 500 was up 0.9%. The Nasdaq rose 0.8% while the Russell 2000 was down 0.1%.
Communication Services, Technology and Energy were the strongest sectors on Friday after rising 0.8%. Materials dipped 0.1% and was the only sector in the red.
For the week, the best performing sectors were Healthcare (2.5%), Real Estate (2%), Utilities (1.8%) and Technology (1.3%). Energy (-1%), and Financials (-0.3%) were the only sectors that closed lower. Earnings No update this week…
Global Economy – European markets closed higher Friday amid optimistic sounds out of the White House on a prospective trade deal between the U.S. and China.
France’s CAC 40 was higher by 0.7% and the Belgium20 rose 0.6%. Germany’s DAX 30 added 0.5% and the Stoxx 600 climbed 0.4%.
UK’s FTSE 100 nudged up 0.1%. Eurozone inflation slowed to 0.7% on the year in October from 0.8% in September.
The EU trade surplus grew to 18.7 billion euros ($20.6 billion) in September, up from 12.6 billion euros in September 2018.
Asian markets settled mostly higher on reports a phase 1 deal on tariff roll backs could be imminent after China’s commerce ministry said in-depth discussions were ongoing.
China also affirmed that it has ended a near 5-year ban on imports of U.S. poultry meat. South Korea’s Kospi rallied 1.1% and Australia’s S&P/ASX 200 rose 0.9%.
Japan’s Nikkei rallied 0.7% and Hong Kong’s Hang Seng was up 3 points, or 0.01%. China’s Shanghai fell 0.6%. Empire State Manufacturing Survey declined 1.1 points to 2.9 in November, missing estimates for a print of 5, and follows October’s 2 point gain to 4. The employment component was at 10.4 after dipping to 7.6 in October.
New orders rose 2 points to 5.5 from 3.5 in the prior two months. Prices paid were at 20.5 versus 23.1, with prices received at 6.2 from 6.3.
The 6-month general business index rose 2.3 to 19.4 versus 17.1, with employment at 12.5 from 14.5. The future new orders index edged up to 24.2 from 23.5, with prices paid at 42.5 from 42.5, and prices received at 26 from 21.3. The capex index surged to 19.2 from 8.8.
Retail Sales advanced 0.3% in October, topping estimates of 0.2%, with the ex-auto component rising 0.2%, after respective declines of -0.3% on the headline and -0.1% ex-autos.
Sales excluding autos, gas, and building materials rose 0.2% after an unchanged print in September. Strength was seen in clothing, rising 1.3%, along with a 0.6% gain in furniture, which offset a 1.4% drop in department store sales and a 1% decline in building materials.
October import prices dropped -0.5%, with export prices slipping -0.1%. The 0.2% gain in September import prices was revised to 0.1%, while the -0.2% decline in export prices was not revised.
The 12-month rates saw import prices contracting at a -3% year-over-year pace versus -2.1%, and export prices at -2.2% versus -1.6% year-over-year.
Petroleum import prices dropped -3.7% after rebounding 1.5% in September. Excluding petroleum, import prices dipped -0.1% versus unchanged. Import prices with China fell -0.1% versus -0.1%, and dropped -1.5% with Canada versus September’s 0.4%.
For exports, agricultural prices rebounded 1.9% versus -1.7%. Excluding ag, prices were down -0.3% from -0.1%. Industrial Production dropped -0.8% in October, weaker than forecasts for a dip of -0.3%, after sliding -0.3% in September.
The index has declined in three of the past four months, and is contracting at a -1.1% year-over-year pace. Capacity utilization fell to 76.7% from 77.5%, the lowest since September 2017.
Manufacturing dropped -0.6% following the -0.5% slide in September, as a result of a -7.1% plunge in vehicles and parts. Machinery was up 0.2% versus -2.2% previously. Computer/electronics manufacturing slipped -0.5% from the prior 1.8% gain.
Utility production declined 2.6% from the prior month’s 1.9% gain, with a -4% drop in electricity while mining fell -0.7%. Business Inventories were flat in September, versus expectations for a rise of 0.1%, with sales slipping -0.2%.
The inventory/sales ratio was steady at 1.40 for a fifth straight month. Baker-Hughes Rig Count reported the U.S. rig count was down 11 rigs from last week to 806, with oil rigs down 10 to 674, gas rigs down 1 to 129, and miscellaneous rigs unchanged at 3. The U.S. offshore rig count is down 1 rig to 22 and unchanged year-over-year.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) had its 4-session winning streak snapped following the pullback to $137.43.
Near-term and upper support at $137.50-$137 was breached but held. A move below the latter would signal additional weakness towards $136-$135.50.
Resistance remains at $138-$138.50. A close above the latter would signal renewed strength with upside potential towards $139.50-$140 and the 50-day moving average.
RSI has level out with resistance at 50. A move above this level would signal additional strength towards 55-60 with the latter representing the early October peak. Support is at 45-40.
Market Analysis – The Spider S&P 500 ETF (SPY) broke out of a 6-session trading range after surging to a fresh record high of $311.84.
Blue-sky resistance and lower resistance at $312-$312.50 held with a move above the latter leading to a run towards $314.50-$315, depending on momentum.
New support is at $310-$309.50. A move below the the latter would signal a false breakout with backtest potential towards $308-$307.50.
RSI is back in an uptrend after clearing April resistance at 75. Continued closes above this level would signal additional strength towards 80-85 and overbought levels from January 2018.
Support is at 70 with weakness towards 65-60 on a close back below this level.
The Spider Gold Shares (GLD) fell for the first time in 4 sessions following Friday’s fade to $137.97. Upper support at $138-$137.50 was breached but held with a close below the latter reopening risk towards the $136 area.
Resistance is at $138.50-$139 with more important hurdles at $140-$140.50 and the 50-day moving average.
RSI is showing signs of curling lower with support at 40.
A close below this level would be a renewed bearish development with additional weakness towards 35 and the
monthly low.
The percentage of S&P 500 stocks trading above the 200-day moving average closed at a session high of 74.35% on Friday, up 2.39%. Key but overbought resistance at the 75% held with the monthly peak at 75.54%.
A close above these levels would be an ongoing bullish signal with potential momentum towards 77.5%-80% and January 2018 highs. Support is at 72.5%-70%. A move below the latter would signal additional weakness towards 67.5%-65%.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 73.26%, up 5.94%. Current resistance is at 72.5%-75% was cleared and held.
A close above the latter would be an ongoing bullish signal with strength towards 77.5% with the monthly peak at 78.64%. Near-term support is at 70%.
A close below this level would be a slightly bearish signal for additional weakness towards 67.5%-65%.
We are allocating the portfolio as follows:
30% in QCOM closed on Friday at 90.81
30% in STX closed on Friday at 59.08
30% in URI closed on Friday at 154.34
10% in TMF closed on Friday at 27.28
Option Traders – the following (regular monthly) options meet our criteria:
30% in QCOM– 17Jan $92.5 Strike Price CALL (Expires January 17, 2020)
30% in STX – 17Jan $57.5 Strike Price CALL ( Expires January 17, 2020 )
30% in URI – 17Jan $155 Strike Price CALL ( Expires January 17, 2020 )
10% in TMF – 21FEB $30 Strike Price CALL (Expires February 21, 2020)
All the best,
Roger Scott.