U.S. markets showed weakness throughout Thursday’s session despite a pick-up in trade optimism. Specifically, China has invited U.S. negotiators to Beijing for additional talks, and the U.S. may delay the December 15th tariffs.

The upbeat reports soothed worries of a breakdown in talks and President Trump’s threat to increase levies. However, the major indexes settled lower across the board after trading in rather tight ranges with volatility continuing to hold a key level of resistance.

The Russell 2000 fell 0.4% following the intraday backtest to 1,581. Current and upper support at 1,585-1,570 was breached and failed to hold with risk towards 1,560-1,545 and the 50-day moving average on a move below the latter.

The Nasdaq was down 0.2% after trading to a midday low of 8,487. Current and upper support at 8,450-8,400 easily held with a move below the latter signaling risk towards 8,350-8,300.

The S&P 500 extended its losing streak to 3-straight sessions after giving back 0.2% while tapping a first half low of 3,094. Near-term and upper support at 3,100-3,075 was breached but held with a move below the latter opening up risk towards 3,050-3,025 and the 50-day moving average.

The Dow also dipped 0.2% following the intraday pullback to 27,708.

Near-term and upper support at 27,750-27,500 was breached but held with a close below the latter getting 27,250-27,000 and the 50-day moving average in play.

Energy surged 1.6% to lead sector strength while Healthcare and Communications Services added 0.3% to round out the winners.
Real Estate paced laggards after tanking 1.4% while Technology and Consumer Staples dropped 0.5%.

Global Economy – European markets settled lower over the impasse in trade negotiations.

The Belgium20 stumbled 0.6% and the Stoxx 600 fell 0.4%. UK’s FTSE 100 was down 0.3% while Germany’s DAX 30 and France’s CAC 40 were lower by 0.2%.

Asian markets settle lower following reports President Trump is expected to sign a bill supporting Hong Kong protesters and that a phase one trade deal between the U.S. and China may not be agreed to by the end of 2019.

Hong Kong’s Hang Seng sank 1.6% and South Korea’s Kospi tanked 1.4%. Australia’s S&P/ASX 200 declined 0.7% and Japan’s Nikkei gave back 0.5%. China’s Shanghai fell 0.3%.

Initial Jobless Claims were steady at 227,000, topping forecasts for a print of 215,000. The 4-week moving average rose to 221,000 versus the prior 217,500 reading. Continuing claims rose 3,000 to 1,695,000, after dropping -1,000 to 1,692,000 previously.

Philadelphia Fed Business Outlook Survey rose 4.8 points to 10.4 in November after dropping -6.4 points to 5.6 in October. The components were mixed and mostly counter the better than expected headline. The November employment index fell to 21.5, after doubling to 32.9 in October.

New orders plunged to 8.4 after after edging up to 26.2 previously. Prices paid dropped to 7.8 from 16.8 and are down from 33 in September, with prices received at 12.2 from 16.4 in the prior month, and 20.8 in September.

The 6-month index rose to 35.8 versus October’s 33.8, with most of the real components improving, including prices, though capex declined.

Existing Home Sales tracked estimates with a 1.9% October bounce to a 5,460,000 pace.

The median price continued to post a seasonal unwind of the all-time high in June, leaving a firm 6.2% year-over-year rate. Inventories fell for a fourth consecutive month to 1,770,000 that translated to a 3.9 month supply.

Leading Indicators for October were down -0.1% versus forecasts of -0.2% for the month.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streak snapped following the intraday pullback to $139.12. Current support at $139.50-$139 was breached but held on the close back below the 50-day moving average.

A close below $139 would signal additional weakness towards $138-$137.50.

Resistance remains at $140.50-$141.

Market Analysis – The S&P 400 Mid Cap Index ($MID) extended its losing streak to 2-straight sessions after trading to a low of 1,978. Near-term and upper support at 1,980-1,970 was breached but held by a half-point.

A close below the latter would signal a near-term top with pullback potential towards 1,960-1,950 and the 50-day moving average.

Current resistance is at 1,990-2,000. Continued closes above the latter and the early November 52-week high of 2,009 would be a bullish signal for a breakout towards 2,040-2,060.

The all-time high is at 2,053 from August 2018.

RSI is in a downtrend with support at 50 and a level that has been holding since early October.

A move below this level would signal additional weakness towards 45-40. Resistance is at 55-60.

The Health Care Select Sector Spider (XLV) was up for the 2nd time in 3 sessions after trading to an all-time high of $97.98. Blue-sky and lower resistance at $97.50-$98 was cleared and held. Continued closes above the latter would be an ongoing bullish signal for a run towards $99.50-$100.

Current support is at $97.50-$97. A close below the latter would likely signal a possible near-term top with additional selling pressure towards $96-$95.50.

RSI has been flatlining with resistance at 75 and the June high. Continued closes above this level would be a bullish development for additional strength towards 80-85 but overbought levels from August 2018.

Support is at 70 with a move back below this level signal additional weakness towards 65-60.

We are allocating the portfolio as follows:

30% in QCOM closed on Thursday at 85.14

30% in STX closed on Thursday at 59.48

30% in URI closed on Thursday at 152.47

10% in TMF closed on Thursday at 28.43

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.