U.S. markets resumed their run at record highs on Thursday following news the U.S. and China have agreed in principle to roll back some tariffs amid progress on the Phase One trade deal.
Solid earnings continue to pour in with 77% of companies now topping 3Q estimates as better-than-expected numbers also helped the rally.
The Transportation sector broke out to a fresh 52-week peak and has been confirming the recent strength in the blue-chips. Meanwhile, volatility continues to consolidate and is still showing signs of lower lows following a major technical development despite a slightly higher close.
The Dow closed higher for the 5th time in 7 sessions after rising 0.7% while testing a fresh all-time high of 27,774. New and upper resistance at 27,500-27,750 was cleared but held on the close above the former with a move above the latter signaling a possible run towards the 28,000 level.
The S&P 500 gained 0.3% with the midday peak and new record high reaching 3,097. Fresh and key resistance at 3,100 was challenged but held with blue-sky territory towards 3,125-3,150 on continued closes above this level.
The Nasdaq was up for the 4th time in 5 sessions after also rising 0.3% while trading to an all-time intraday high of 8,483. Prior and lower resistance at 8,450-8,500 was cleared but held with additional hurdles at 8,600-8,650 on a move above the latter.
The Russell 2000 nudged up 0.1% with the session peak reaching 1,607 shortly after the open. Near-term and lower resistance at 1,600-1,615 was cleared but held with a close above the latter and the May 52-week high at 1,618 getting 1,625-1,640 in focus.
Energy showed the most sector strength after jumping 1.5% while Technology jumped 0.8%. Utilities and Real Estate were the weakest sectors after sinking 1.4% and 1.1%, respectively.
Initial Jobless Claims fell 8,000 to 211,000, missing forecasts of 215,000. The 4-week moving average moved up to 215,250 from a revised 215,000 previously.
Continuing claims slipped 3,000 to 1,689,000 after the 9,000 increase to 1,692,000 in the prior week. The insured unemployment rate was steady at 1.2%.
Consumer Credit rose $9.5 billion in in September after rising a revised $17.8 billion in August. Non-revolving credit increased $10.6 billion versus the $20 billion advance in August.
Revolving credit declined another -$1.1 billion following the -$2.2 billion drop previously. However, credit increased $50.2 billion in Q3 following the $46.6 billion gain in Q2.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) resumed its downtrend after falling for the 4th-time in 5 sessions while plunging to an intraday low of $134.45.
Prior and major support from mid-September at $136 was breached and failed to hold. A close below the $134.50 level and early August support would be an ongoing bearish signal with risk towards $132.50-$132 and late July levels.
Near-term and lowered resistance is now at $136-$136.50.
Market Analysis – The Wilshire 5000 Composite Index ($WLSH) snapped a 2-session slide after trading to an all-time intraday high of 31,552. Fresh and lower resistance at 31,500-31,750 was cleared but held. A close above the latter would signal additional strength towards the 32,000 level.
Current and key support is at 31,250 with a close below this level signaling additional weakness towards the 31,000 area.
RSI has been flatlining with resistance at 70.
A close above this level would signal additional strength towards 75-80 and levels from January 2018. Support is at 65-60 with a move below the latter signaling weakness towards 55-50.
The Materials Select Sector (XLB) was up for the 4th time in 5 sessions and 10 of the past 12 after trading to a fresh 52-week peak of $59.99. Lower resistance from early January 2018 at $60-$60.50 was challenged but held by a penny.
Continued closes above the latter would be an ongoing bullish signal with upside potential towards $61.50-$62 and previous all-time highs.
Near-term and rising support at $59.50-$59. A close below the latter would signal a near-term top with backtest potential towards $58.50-$58.
RSI is pushing early July resistance at 70.
A close above this level would signal additional strength towards 75-80 and levels from January 2018 – but also signaling overbought levels. Support is at 65-60.
Volatility Index – The S&P 500 Volatility Index ($VIX) traded in a tight range while closing slightly higher for the 3rd time in 4 sessions despite the opening backtest to 12.26.
Major support at 12.50 was breached but held for the 4th-straight session. A close below this level would signal additional weakness towards 12-11.50 with the late July low at 11.69.
A death cross has officially formed with the 50-day moving average falling below the 200-day moving average. This is typically a bearish signal for lower lows.
Near-term resistance remains at 13-13.50.
We are allocating the portfolio as follows:
50% in ZIV closed on Thursday at 68.23
50% in EDV closed on Thursday at 131.42
All the best,
Roger Scott.