U.S. markets were tentative to start Thursday’s session as Wall Street awaited disappointing news that came out shortly after the open that reaffirmed weakness in the manufacturing sector.

The major indexes tapped session lows shortly afterwards but sharply reversed course and moved into positive territory after President Trump said China was on track to meet with U.S. trade officials next week at the White House.

Nervousness was also attributed to reports the U.S. will impose tariffs on European Union goods after getting a victory from the World Trade Organization.

The major indexes held August support levels before pushing new resistance levels into the closing bell with volatility settling a tad lower.

The Nasdaq soared 1.1% following the 172-point trading range that reached a low of 7,700. Major support levels at 7,750-7,700 and the 200-day moving average were triggered but held on the close back above lower resistance at 7,850-7,900.

The S&P 500 gained 0.8% while closing back above the 2,900 level after trading in a 55-point range and an intraday low of 2,855.

Prior and lower support from late August at 2,875-2,850 was challenged but held with a move below 2,840 and the 200-day moving average being an ongoing bearish development.

The Dow added 0.5% despite testing a first half low of 25,743. Crucial and lower support 26,000-25,800 and the 200-day moving average was breached but held on the 2nd-straight close above the former.

The Russell 2000 was also up 0.5% after kissing a morning low of 1,462. Upper support at the 1,465 level was breached but held with a close below key and lower support at the 1,450 level signaling additional weakness.

Lowered resistance at 1,480-1,500 was reclaimed into the closing bell with the high reaching 1,487.

Technology and Real Estate led sector strength after rallying 1.2% while Energy and Communications Services rallied 1.1% and 1%, respectively. There were no sector laggards.

Challenger Job-Cut Report announced layoffs declined 11,900 to 41,600 in September after jumping 14,600 to 53,500 in August. Compared to last year, planned cuts are down -24.8% year-over-year after a 39% pace in August.

Retail led all sectors with announced reductions of -8,100, followed by industrial goods manufacturing at -5,100, including -2,300 from steel manufacturers.

Announced hirings surged 443,300, including 299,200 from retail as holiday hirings begin. Transportation hirings rose 150,200.

Initial Jobless Claims rose 4,000 to 219,000, versus expectations for a print of 216,000, while representing the 3rd-straight weekly gain. The 4-week moving average was steady at 212,500.

Continuing claims dropped 5,000 to 1,651,000 following the 9,000 drop to 1,656,000 in the prior week.

PMI Services Index edged up to 50.9 in the final September reading, from 50.7 in August, and matching expectations. The employment index, however, dropped to 48.6 from 50.4 previously and is the lowest since December 2009.

Four of the seven components were in contraction for a 2nd-straight month, with the input prices posting the sharpest contraction in the history of the report. The composite index rose to 51 from 50.7 previously and was at 53.9 a year ago.

Employment also declined to the lowest since December 2009. New orders dropped to the lowest on record.

ISM Non-Manufacturing Index fell 3.8 points to 52.6 in September, weaker than expectations of 55.5, after rising 2.7 points to 56.4 in August. The employment component fell to 50.4 from 53.1 and new orders declined to 53.7 from 60.3.

New export orders rose to 52 versus 50.5 while imports dropped to 49 from 50.5 and was the only component in contraction. Prices paid climbed to 60 from 58.2.

Factory Orders edged down 0.1% in August, missing forecasts for a rise of 0.4%, after advancing 1.4% in July.

The 0.2% gain in Advance durable orders was not revised. Transportation orders declined -0.4% after jumping 7.3% previously.

Excluding transportation, orders were unchanged following the prior 0.2% gain. Nondefense capital goods orders excluding aircraft dropped -0.4 % from unchanged. Shipments dipped -0.1% from -0.3%.

Nondefense capital goods shipments ex-aircraft rose 0.3% from -0.7% while inventories were unchanged from 0.1%.

Market Sentiment – Fed policy outlook shows futures are pricing in another 25 basis point easing at the upcoming October 29th, 30th FOMC meeting.

Chances for a cut have jumped to nearly 75% after the market largely priced out the move after the hawkish cut in the September policy meeting.

The market is also suggesting about 35% chance for additional stimulus in December, though that’s more dependent on the September jobs report.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 6-straight sessions after testing an intraday peak of $145.67.

Lower resistance from late August at $145-$145.50 was breached but held with fresh hurdles at $146.50-$147 on a close above the latter.

Rising support is at $144.50-$144 with additional help at $143-$142.50.

Market Analysis- The Spider Small-Cap 600 ETF (SLY) snapped a 2-session slide despite the morning tumble to $64.32. Prior and upper support from early September at $64.50-$64 was challenged but held.

A move below the latter reopens downside risk towards $63.50-$63 with the August low at $63.33.

Lower resistance at $65.50-$66 and the 200-day moving average held on the rebound to $65.43 later in the day.

Continued closes back above the $66.50 level and the 50-day moving average would be a more bullish signal selling pressure has eased.

RSI has flatlined with support at 35-30 and the latter representing the late May bottom.

Resistance is at 40 with a move above this level signaling a retest towards 45-50.

The Health Care Select Sector Spider (XLV) was up for the 1st time in 3 sessions despite trading to a 4-month and morning low of $87.20. Longer-term support from late May at $87.50-$87 was split but held.

A close below the latter would likely signal additional selling pressure towards $86-$85.50.

Current resistance at $88.50-$89 was recovered on the bounce to $88.77 afterwards.

Continued closes above $89.50-$90.50 and the 200/50-day moving averages would be more bullish signals a near-term bottom has been established.

RSI showed 2nd half strength after clearing resistance at 40.

Continued closes above this level would be a slightly bullish development for additional strength towards 45-50.

Support is at 35-30 with the latter representing the early August low.

Volatility Index – The S&P 500 Volatility Index ($VIX) kissed a morning peak of 21.44 and just below the prior session high of 21.46.

Lower resistance at 21.50-22 held for the 2nd-straight session with a close above the 22.50 level signaling another wave of panic selling.

Upper support at 19-18.50 was challenged but held on the fade to 19.03 afterwards with more important recovery levels at 17-16.50 and the 50/200-day moving averages.

While it is too early to say a near-term “double-top” has formed, a lower close ahead of the weekend would be a bullish signal to start next week.

We are allocating the portfolio as follows:

60% in ZIV closed on Thursday at 63.50
40% in EDV closed on Thursday at 143.80

All the best,
Roger Scott.