U.S. markets closed closed higher for the 5th-straight session despite opening weakness and a backtest to near-term and mid-December support levels.
Fed Speak and more rhetoric over the DC gridlock and partial government shutdown led to the choppiness before the midday rebound into positive territory.
The major indexes also cleared previous session highs and remain in track for a possible push past the 50-day moving averages.
The VIX also tested a higher high but settled below the 20 level for the 2nd-straight session.
The Dow rose 0.5% after testing a high of 24,014 ahead of the closing bell.
Fresh support is at 24,250-24,500 and the 50-day moving average following the close above the 24,000 level.
The S&P 500 was up 0.5% following the late day run to 2,597.
Near-term and major support at 2,600 held with a close above this level getting 2,625-2,650 and the 50-day moving average in play.
The Russell 2000 was also higher by 0.5% after at its session high of 1,445.
Fresh resistance at 1,450-1,455 and the 50-day moving average held with a close above the latter signaling additional momentum 1,475-1,500.
The Nasdaq gained 0.4% after trading to a late session high of 6,991.
Major resistance at 7,000 and the 50-day moving average held for the 2nd-straight session with fluff up fo 7,150-7,200 on continued closes above these levels.
Real Estate was the strongest sector after rising 1.6%, respectively.
Industrials and Utilities were up 1.4%.
Consumer Discretionary was the only sector laggard after falling 0.3%.
Global Economy – European markets settled mostly higher despite the ongoing Brexit drama ahead of next week’s critical vote.
UK’s FTSE 100 added 0.5% while the Belgium20, the Stoxx 600 Europe and Germany’s DAX 30 all edged up 0.3%. France’s CAC 40 was lower by 0.2%
Asian markets were mixed following lower-than-expected Chinese inflation data.
Japan’s Nikkei sank 1.3% while China’s Shanghai fell 0.4% and South Korea’s Kospi dipped 0.1%.
Australia’s S&P/ASX 200 advanced 0.3% and Hong Kong’s Hang Seng gained 0.2%.
China Producer Price Inflation for December rose 0.9%, compared with a 2.7% increase in November.
China Consumer Price Index rose 1.9% in December year-over-year, versus a 2.2% gain in November.
Jobless Claims fell 17,000 to 216,000, below forecasts of 224,000. The 4-week moving average increased to 221,750 versus 219,250 from the previous week.
Continuing claims dropped 28,000 to 1,772,000 following the 42,000 rise to 1,750,000.
There is a separate filing for federal employees, and those jumped by 3,831 to 4,760 for the week ending December 29th.
Atlanta Fed’s Q4 GDPNow estimate remained at 2.8% compared to the 2.7% blue chip consensus.
Market Sentiment – Comments made by Fed Chairman Jerome Powell reiterated that the Fed will be patient and flexible in its policy approach.
He said the inflation dynamics are very favorable but suggested elevated recession risk in 2019.
Powell is also very worried over U.S debt level and said the Fed balance sheet will be substantially smaller.
He went to say tariffs have not had visible mark on the U.S. and China economies while adding the baseline case for the latter country is another solid year of growth.
Powell acknowledged that divergence from positive real economic data and markets pricing in a more pessimistic view on trade and shutdown concerns. He reiterated that there is no preset path for rates and and the Fed can move flexibly and quickly if the data warrant it.
Also, Powell said government shutdowns typically don’t last long and at the aggregate level don’t impact the data appreciably, unless it drags on.
He doesn’t see elevated recession risk near-term, since inflation is in check and there are few signs of any bubbles or major imbalances. He sees inflation anchored near its 2% target in 2019.
St. Louis Fed James Bullard remains concerned about a yield curve inversion and low inflation this year, and as a result, the FOMC should moderate its normalization campaign.
He said a significant and sustained inversion of the Treasury yield curve would be a bearish signal for the economy.
Bullard said that market based measures of inflation expectations suggest that financial markets believe the FOMC will again miss its PCE inflation target to the low side in 2019 end, and indeed for the next five years.
He worries this is a market signal that the current stance of monetary policy may be too hawkish.
Richmond Fed Tom Barkin expects growth to continue, albeit at a somewhat slower pace, with trend growth in the 1.9% range.
He said he hears concerns about how long growth can continue, partly driven by trade, politics, market and margin pressures, while the productivity slowdown is real, due partly to business under-investment.
Other concerns include environmental, driven by trade, international economies or politics. He added some concerns are market driven, as volatility has increased and the yield curve has narrowed.
On the partial government shutdown, Barkin said it has indirect impact on business confidence and the longer it continues, the more likely it is to impact confidence.
He is in favor of normalizing interest rates at the right pace and right time.
Barkin suggested that the uncertainty will be increased by the lack of full economic data due to the shutdown, though it will eventually tell the Fed whether the time is right to go back to neutral.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 5th-straight session following the pullback to $120.34.
Upper and lower support at $121-$120.50 failed to hold with a close below the $120 level opening up risk towards $119.50-$119.
Lowered resistance is at $121-$121.50.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) was up for the 5th-straight session despite trading down to an opening low of $62.92.
Fresh and upper support at $63-$62.50 was breached but held. A close below $62 would likely signaling additional selling pressure with risk towards $61-$60.
The rebound to $63.88 and close above lower resistance at $63.50-$64 was a continuing bullish signal.
A move above the latter gets more important hurdles at $64.50-$64.75 and the 50-day moving average in play.
RSI is remains in an uptrend with resistance at 60.
A move above this level would signal additional strength towards 65-70 with the latter representing the August peaks\. Support is at 55-50.
The Utilities Select Spider (XLU) has been in a mini trading range between $51.75-$53.25 for 10 sessions but has been making higher highs and higher lows for 3-straight sessions.
Thursday’s peak reached $53.53 with continued closes above the $53.50 level getting $54 and the 50-day moving average in play.
Rising support is at $52.75-$52.50.
A move above the latter would signal additional weakness towards $52-$51.75 and the 200-day moving average.
RSI is in an uptrend with resistance is at 50.
Continued closes above this level would be a near-term bullish signal for a run towards 55-60. Support is at 45-40.
Existing Position Update
I want to be extra cautious since stocks are very random but at same time extremely volatile at this time.
There’s lack of clear directional bias…which would usually favor iron condor spreads – but the heightened volatility we are seeing is making it harder due to volatility being 3x the average volume.
I’m very concerned about the 200 day line and may increase exposure to the bear side if price stagnates further.
The market is clearly two sided which makes it harder to determine the predominant trend and that’s the reason why we are slow to initiate trades at this time.
Roger Scott