[MM_Member_Data name=’firstName’],

U.S. markets started the month of October and the beginning of 4Q on a strong note with the Dow breaking out to a fresh all-time high. The S&P 500, Nasdaq, and Russell 2000 continued their record runs along with the mid-caps that are also showing strong momentum.

This is suggesting a broader based rally and is typically a bullish signal for the market. Health Care, Materials and the Financial sectors led the way higher with the laggards being Real Estate, Consumer Staples and Energy.

Global Economy – European markets traded higher despite rising tensions in Spain after a violence-marred vote in Catalonia spurred the regional government there to press for independence. UK’s FTSE 100 was higher by 0.9% and Germany’s DAX 30 added 0.6%. The Stoxx Europe 600 rallied 0.5% while the Belgium20 and France’s CAC 40 advanced 0.4%.

The Eurozone September Manufacturing PMI was revised downward to 58.1 from the originally reported 58.2.

ECB Governing Council member Georghadji said a pickup in inflation is still largely dependent on the ECB’s accommodative monetary policy stance and that only a sustained adjustment in the path of inflation would warrant the gradual withdrawal of its exceptional degree of monetary policy accommodation.

Asian markets closed higher with Hong Kong, China, South Korea and India all closed for holiday. Australia’s S&P/ASX 200 jumped 0.8% while Japan’s Nikkei gained 0.2%. Singapore’s Straits Times index surged 1.3%.

China’s official PMIs for September were strong with the manufacturing reading coming in at 52.4, and stronger than expectations of 51.6. Meanwhile, the non-manufacturing number rose to 55.4 from 53.4 in August.

The Japan Q3 Tankan large manufacturing business condition rose 5 to 22, stronger than expectations for a gain of 1 point to 18.

September ISM Manufacturing Index rose 2 points to 60.8 versus a forecast of 58.

August Construction Spending was up 0.5% versus expectations for a rise of 0.3% for the month.

U.S. Markit PMI rose 0.3 points to 53.1 in the final read for September. The employment sub-index increased 1.2 points to 54.3. Input prices also climbed and hit the highest level since December 2012.

Market Sentiment- Dallas Federal Reserve Bank Robert Kaplan said analysts have room to raise rates, but not as much as people might think. He cautioned that he and his colleagues will have to take a hard look at raising rates in December, while expecting the Fed to remain patient in its policy approach. Kaplan said he is concerned about small business failures in Texas following the damage from hurricane Harvey, noting that nearly half of Houston’s construction workers are undocumented. He also estimates that much of the $75-100 billion in hurricane losses may be uninsured.

Minneapolis Fed dove Kashkari warned that Fed tightening has led to low inflation and the Fed should proceed with caution before tightening further, waiting until inflation reaches 2%. He added that job growth, wage growth and inflation was weaker than it would have been had the Fed not hiked rates and he finds the transitory explanation of low inflation tenuous. He blamed labor market slack and falling inflation expectations for persistently low inflation.

The rise in implied rates now suggests about a 70% chance for a 25 basis-point hike at the December 12-13 FOMC meeting.

Atlanta Fed’s Q3 GDPNow estimate was boosted to 2.7% from 2.3% following today’s economic news.

The iShares 20+ Year Treasury Bond ETF (TLT) tested a high of $125 shortly after the open with upper resistance at $124.75-$125 holding. Upper support at $124.25-$124 held on the backtest to $124.24 with a move below $123.75 being a bearish signal for continued weakness. RSI is curling lower with risk to the low 30’s and early July support.

 

 

Market Analysis- The Spiders S&P MidCap 400 ETF (MDY) traded to a fresh all-time high of $329.39 into the closing bell following the recent breakout above the $325 level and mid-July resistance. Continued closes above $328 would be bullish for a possible run towards $330-$332.

Rising support is at $326-$325.50 with a move below $324 signaling a possible short-term top. RSI cleared major resistance at the 70 level and could reach the low 80’s on continued momentum. This area represents the highs in November and December 2016.

 

The Utilities Select Spider (XLU) has been in a nasty downtrend throughout September and it trying to build a base of support after bottoming near the $52.50 area last week.

A close below this level would be a bearish development with additional risk to $52 and late July support. Current resistance is at $53.25-$53.50 followed by $53.75 and the 50-day moving average. RSI is above the 40 level with risk to 35-30. The latter represents early July support and oversold levels.

 

Existing / New Position Update

ADBE made higher high but didn’t close higher. Tech is weaker than Broad market and I’m looking at 3 other positions, 2 of which are defensive.

I should have alert tomorrow after noon – assuming market goes south – which is needed for us to jump into other assets.

SPY now has RSI above 70 and I’m not expecting too much upside from broader market and will see if money is moving back into tech, which is typical, since tech tends to lead – on the way up and down.

Will update you tomorrow and if we see minor downside, we will have another position as well.

All the best,
Roger Scott