U.S. markets showed continued volatility with heavy losses on the open and a continued backtest towards November support levels.
The major moving averages held with choppy trading afterwards before a surge to the upside into the closing bell.
The Dow gained 2.3% after testing a low of 23,778 and dipping below its 100-day moving average before recovering to close just below the 25,000 level.
The S&P 500 jumped 1.7% to finish just below the 2,700 level following an 108-point intraday swing and a low of 2,597.
The Nasdaq was up 2.1% after trading to a low of 6,824 while holding its 100-day moving average and closing back above the 7,000 level.
The Russell 2000 rallied 1.1% after falling to a low of 1,461 and coming within a fifth-point of breaching its 200-day moving average while closing back above the 1,500 level.
Materials and Technology were sector standouts after surging 3.2% and 2.8% while Consumer Discretionary was up 2.6%. Utilities fell 1.2% while Real Estate slipped 0.2% and were the only sector laggards.
Global Economy – European markets were down for a third-straight session with heavy losses capped at under 3%.
UK’s FTSE 100 stumbled 2.6% and the Belgium20 declined 2.5%. France’s CAC 40 and the Stoxx Europe 600 tumbled 2.4% while Germany’s DAX 30 gave back 2.3%.
The German January Markit construction PMI rose 6.1 to 59.8.
German December factory orders rose 3.8% month-over-month, stronger than expectations for a rise of 0.7%.
Asian markets took a nosedive with Hong Kong’s Hang Seng getting crushed for 1,650 points, or 5.1%. Japan’s Nikkei was punished for 1,072 points, or 4.7%. China’s Shanghai sank 3.4% while Australia’s S&P/ASX 200 was blistered with a 3.2% loss. South Korea’s Kospi fell 1.5%.
December International Trade Balance Level checked in at a deficit of $53.1 billion and ahead of forecasts for a deficit of $51.9 billion.
Redbook Store Sales were up 3% for the year in the week ending February 3rd.
December JOLTS Job Openings came in at 5,811,000, below expectations for a print of 5,900,000.
Market Sentiment – Atlanta Fed’s Q1 GDPNow estimate was cut to 4% from 5.4% previously after catching up to payrolls and a number of other economic indicators.
Fed funds futures are still reflecting expectations for a 25 basis-point increase in March, though the probability has fallen to about 75% from nearly 90% earlier last week.
The futures are showing about a less than 50-50 chance on the second tightening in June, and is now seeing a better bet the tightening is pushed off into August.
There’s reduced probability for a third tightening by December, with the chance down to about 38% from a little over 50% previously.
St. Louis Fed President James Bullard said an inflation scare may have triggered some of the sell off in stocks and warned that nominal wages are not good at predicting inflation.
He does not believe the Fed has to do much now with the funds rate. Bullard is the first Fed official to speak in the wake of the market turmoil, and as expected, he tried to calm investor’s nerves a bit.
The iShares 20+ Year Treasury Bond ETF (TLT) traded lower for much of the session with the low reaching $119.72. Support at $119.50 held with backup help at $118-$117.50. Lowered resistance is at $121.50-$122 on continued closes back above $120.
Market Analysis – The Spider S&P 500 ETF (SPY) opened below the $260 level while bottoming at $258.70 shortly afterwards. Late November support at $258.50-$258 held before the rebound to $270 into the closing bell.
Continued closes above this level keeps lowered resistance at $271-$271.50 and the 50-day moving average.
We mentioned late last month RSI had been extremely elevated and overbought at the 90 with the plunge and close below 30 yesterday now signaling oversold levels.
Resistance is at 40 on a rebound with continued closes back above this level signaling a possible short-term bottom.
The Technology Select Sector Spiders (XLK) traded to a low of $62.48 shortly after the open with December support at $62.50-$62 holding. This area also represent the late October breakout above this level.
A close below $62-$61.75 could lead to a continued backtest towards $61-$60. Lowered resistance is at $66-$66.25 with today’s close back above the 50-day moving average being a slightly bullish development.
RSI rebounded after bottoming near 30 yesterday.
Resistance is at 50 with continued closes above this level signaling a short-term bottom.
We are allocating the portfolio as follows:
25% in ROST closed on Tuesday at 78.33
25% in STX closed on Tuesday at 48.68
25% in DLTR closed on Tuesday at 107.62
25% in TMF closed on Tuesday at 18.68
Option Traders.. the following (regular monthly) options meet our criteria:
ROST – MAY 77.5 CALLS (Expiration Date MAY 18, 2018)
STX – MARCH 50 CALLS (Expiration Date MAR 16, 2018)
DLTR – MAY 105 CALLS (Expiration Date MAY 18, 2018)
TMF – MARCH 20 CALLS (Expiration Date MAR 16, 2018)
All the best,
Roger