U.S. markets showed continued strength on Thursday following news that U.S. and Chinese trade officials will meet early next month. Chinese Vice Premier Liu He agreed to a visit in early October during a telephone call with U.S.
Treasury Secretary Mnuchin and U.S. Trade Representative Lighthizer.
The gains helped the major indexes clear major resistance levels and prior support from late July.
Volatility continued to ease after closing below major support levels and is suggesting continued upside ahead of Friday’s jobs report and comments from Fed Chairman Powell.
The Nasdaq zoomed 1.8% after testing a morning high of 8,134 and closing back above the 50-day moving average.
Prior and lower resistance at 8,100-8,150 was cleared and held with a move above the latter getting 8,200-8,250 in play.
The S&P 500 soared 1.3% following the intraday push to 2,985 and close back above the 50-day moving average.
Early July and lower resistance at 2,975-3,000 was recovered with a move above the latter getting 3,025 and all-time highs in focus.
The Dow surged x% after trading to a 1st half high of 26,836 while also recovering its 50-day moving average.
Near-term and lower resistance at 26,800-27,000 was cleared but held with a close above the latter signaling additional strength towards 27,250-27,500.
The Russell 2000 rallied 1.8% following the opening run to 1,521 and close back above the 1,500 level.
Prior and lower resistance at 1,515-1,530 and the 200-day moving average held with a close above the latter and the 50-day moving average being an ongoing bullish signal.
Technology led sector strength with a gain of 2.1% while Financials and Consumer Discretionary advanced 2% and 1.9%, respectively. Utilities and Real Estate fell 1.1% and 0.9%, respectively, to led sector laggards while Consumer Staples declined 0.6% to round out the losers.
Global Economy – European were mostly higher as reports of progress in the attempts to block a no-deal Brexit scenario along with a new government in Italy fueled sentiment.
France’s CAC 40 rallied 1.1% while Germany’s DAX 30 and the Belgium20 added 0.9%. The Stoxx 600 rose 0.7% while UK’s FTSE 100 fell 0.6%.
Asian markets settled mostly higher after China said that U.S. trade officials had agreed to meet in early October for another round of negotiations.
Japan’s Nikkei jumped 2.1% and China’s Shanghai gained 1%.
Australia’s S&P/ASX 200 advanced 0.9% and South Korea’s Kospi rose 0.8%. Hong Kong’s Hang Seng slipped 7 points, or 0.03%.
Challenger Job-Cut Report announced layoffs rose 14,600 to 53,500 in August after falling 3,100 to 38,800 in July. Announced job cuts are up 39% year-over-year, versus the 43.2% clip from July.
The report noted employers are beginning to feel the effects of the trade war and imposed tariffs as trade difficulties were cited as the reason for over 10,000 job cuts in August.
Technology led with 13,900 in planned layoffs, followed by government at 5,800. Announced hirings rose 8,600 to 24,900 with retail leading at 9,200.
ADP Employment Report announced private payrolls increased 195,000 in August after rising 142,000 in July, and topping forecasts for a print of 150,000.
The goods sector increased 11,000, with an 8,000 rise in manufacturing and 6,000 gain in construction. The service sector added 184,000 jobs, led by education with a 58,000 jump, followed by a 42,000 gain in leisure, and a 39,000 pop in trade/transport.
Initial Jobless Claims edged up 1,000 to 217,000, versus forecasts for 215,000. This moved the 4-week moving average to 216,250from 214,750.
Continuing claims dropped 39,000 to 1,662,000 after bouncing 25,000 to 1,701,000.
Q2 Productivity Growth was unrevised at the same 2.3% clip from the preliminary report, and compares to the 3.5% pace in Q1. Output was steady at the prior 1.9% clip versus 3.9% in Q1. Unit labor costs were revised higher to a 2.6% rate, though it’s a slower pace than the 5.5% from Q1.
Compensation per hour edged up to 4.9% versus 9.4% in Q1. The price deflator was revised up to a 3% clip, from 2.9%, and is up from the unchanged reading in Q1.
ISM Non-Manufacturing Index rose 2.7 points to 56.4 in August, topping expectations of 54, and more than recovers from the 1.4 point drop to 53.7 in July.
The components were mixed, but nearly all remained in expansionary territory. The employment subindex declined 3.1 points to 53.1 from 56.2. New orders surged 6.2 points to 60.3 from 54.1.
New export orders dropped 3 ticks to 50.5 from 53.5. Imports were also down 3 points to 50.5 from 53.5. Prices paid increased to 58.2 from 56.5.
Factory Orders rose 1.4% in July after the 0.5% rebound in June.
Transportation orders increased 7% from the prior 4.1% gain.
Excluding transportation, factory orders were up 0.3% versus -0.1%. Nondefense capital goods orders excluding aircraft inched up 0.2% from 0.9% and represented the 3rd-straight monthly gain. Shipments declined -0.2% after the prior 0.1% gain.
Nondefense capital goods shipments excluding aircraft dropped -0.6% from unchanged. Inventories rose 0.2% after the prior 0.1% gain while the inventory-shipment ratio was steady at 1.38.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) tumbled to an intraday low of $143.89.
Prior and upper support from mid-August at $144-$143.50 was breached but held. A close below the latter reopens risk towards $142.50-$142.
Lowered resistance is at $145.50-$146. RSI is back in a downtrend with support at 55-50 and the latter representing mid-July lows.
Market Analysis – The Wilshire 5000 Composite Index ($WLSH) closed above the psychological 30,000 level for the 2nd-straight session after tapping an intraday high of 30,507.
Fresh and lower resistance at 30,500-30,750 was cleared but held with a move above the latter getting 31,000 in play.The recovery of the 50-day moving average and breakout of the recent trading range were bullish developments.
Near-term and new support is at 30,250-30,000.
A close below the latter would signal a false breakout with risk towards 29,750-29,500.
RSI is in an uptrend with resistance at 60.
A close above this level would signal a retest towards 65-70 with the latter representing the high throughout 2019. Support is at 55-50.
The Consumer Staples Select Spiders (XLP) had its 2-session winning streak snapped despite testing a fresh 52-week and all-time high of $61.92.
Near-term and lower resistance at $61.50-$62 held. A close above the latter would be an ongoing bullish signal with upside potential towards $63-$63.50.
Current and upper support at $61-$60.50 held on the backtest to $61.15 afterwards.
A close below the $60 level would be a slightly bearish signal with downside risk towards $58-$57.50.
RSI is rolling over after failing resistance at 60.
Support is at 55-50 with the latter holding since mid-August.
A close below 50 would signal additional weakness towards 45-40.
We are allocating the portfolio as follows:
30% in AMGN closed on Thursday at 207.65
30% in SNPS closed on Thursday at 145.95
30% in TTWO closed on Thursday at 131.35
10% in TMF closed on Thursday at 32.18
Option Traders – the following (regular monthly) options meet our criteria:
AMGN – 17JAN $220 Strike Price CALL (Expires January 17, 2020)
SNPS – 20DEC $145 Strike Price CALL (Expires December 20, 2019)
TTWO – 17JAN $140 Strike Price CALL (Expires January 17, 2020)
TMF – 21FEB $35 Strike Price CALL (Expires February 21, 2020)
All the best,
Roger Scott.