U.S. markets showed strength on Tuesday following 3 sessions of heavy selling pressure as the start of the Fed’s 2-day meeting on interest rates got underway.

While most of Wall Street is expecting a quarter-point rate hike, the hope is the Fed’s language will soften for future rate hikes, or none, in 2019.

If the Fed decides to hold off on a rate hike, it will look as though the Fed caved to President Trump’s tweets on halting rates.

Trump is ticked that the Fed is raising rates while he fights a trade war and the Fed is mad at Trump for waging a trade war while they raises rates. In any event, volatility stayed slightly elevated but held major resistance heading into the decision.

The Nasdaq added 0.5% after reaching a midday peak of 6,847. Lower resistance at 6,850-6,900 held with a move above 6,903 needed to get the index back into positive territory for the year.

The Dow rose 0.4% after testing an intraday high of 23,927.

Near-term and lower resistance at 23,800-24,000 held with a death cross is in play as the 50-day moving average is just 36 points away from falling below the 200-day moving average.

The S&P 500 edged up a fifth-point, or 0.01%, following the run to 2,573. Fresh and lower resistance at 2,575-2,600 held with continued closes above the latter being a slightly bullish development.

The Russell 2000 slipped a point, or 0.1%, despite the opening run to 1,399.

Fresh resistance and prior support at the 1,400 level held by a half-point with continued closes above 1,425 being a more bullish development for a possible near-term bottom.

Real Estate led sector strength after rising 1% while Technology and Consumer Discretionary advanced 0.8%.

Energy led sector laggards after tanking 2.4%. Consumer Staples and Health Care fell 1.2% and 0.9%, respectively.

Global Economy – European markets closed lower following weaker-than-expected economic data and ongoing political uncertainty.

UK’s FTSE 100 dropped 1.1% and France’s CAC 40 fell 1%. The Stoxx 600 Europe was lower by 0.8% and the Belgium20 was off 0.4%. Germany’s DAX 30 slipped 0.3%.

December German IFO business climate fell 1 to a 2-year low of 101, weaker than expectations for a dip of 0.3 to 101.7.

Asian markets settled settled lower following a keynote speech by Chinese President Xi Jinping to mark China’s 40th anniversary of the Reform and Opening Up campaign that offered no fresh commitments to stimulate China’s economy.

Australia’s S&P/ASX 200 sank 1.2% and Hong Kong’s Hang Seng stumbled 1.1%.

China’s Shanghai gave back 0.8% and Japan’s Nikkei was lower by 0.6%. South Korea’s Kospi declined 0.4%.

November Housing Starts rose 3.2% higher to 1,256,000, better than forecasts of 1,225,000. There was a big downward revision to October, where starts dropped 1.6% to 1,217,000, revised from 1,228,000.

On a 12-month basis, starts are down 3.6% year-over-year versus -3.8% year-over-year (revised from -2.9% y/y).

Building permits climbed 5% to 1,328,000 after falling 0.4% to 1,265,000 previously. Much of the strength in starts was in multifamily, which jumped 22.4% to 432,000 after falling 1.4% to 353,000 in October.

Single family starts declined 4.6% to 824,000 after dropping 1.7% to 864,000 previously.

Redbook Store Sales were up 7.1% for the year in the week ending December 15th.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after testing a high of $119.79. Fresh and lower resistance at $119.50-$120 was cleared and held.

Continued closes above the latter would be a bullish development for a possible push towards $120.50-$121 and August highs.

Rising support is at $119-$118.50.

Market Analysis – The Russell 2000 ETF (IWM) fell for the 9th time in 10 sessions testing a high of $139.18 shortly after the open. Fresh and lower resistance at $139.50-$140 easily held.

Continued closes above $142.50 would be a slightly bullish development and signal a possible near-term bottom.

Near-term support at $136.50-$136 held following the fade to $136.39. Longer-term support levels from September/ August 2017 are at $135-$132.50 of $136 fails to hold.

RSI remains in a downtrend with support at 25-20 and October lows. Resistance is at 30-35.

The Financial Select Sector Spiders (XLF) was down for the 9th time in 11 sessions after trading to a fresh 52-week low of $23.75.

Longer-term and upper support from September 2017 at $23.75-$23.50 held with a move below the latter being a continued bearish development.

Lowered resistance is at $24-$24.25 with more important hurdles at $24.50-$25. Continued closes above the latter would signal a possible near-term bottom.

The index is officially in bear market territory as it is down just over 20% from its 52-week peak north of $30.

RSI continues to trend lower with support at the 25 level and the October low.

A move below this area gets 20 and July 2015 lows in play. This would signal severe oversold conditions. Resistance is at 30.

Existing Position Update

Markets were mixed with little directional bias once again.

I’m expecting a bounce to the upside in the near term with very little directional bias till AFTER the FED announcement

Keep eye on volatility via VIX right now…we are above 25.

We need to see VIX below 20 for long term trend to become bullish once again.

Roger Scott.