U.S. markets rebounded on Tuesday following two-days of losses to keep a 5-day mini trading range intact.
The major indexes cleared near-term resistance levels and remain on track to clear and hold their 50-day moving averages on continued strength.
Earnings from the Financial sector provided some strength despite the mixed results.
Meanwhile, volatility eased but remains slightly above key support levels.
The Nasdaq showed the most strength after rallying 1.7% while testing a high of 7,025.
Prior and lower resistance 7,000-7,050 and the 50-day moving average was cleared and held with a close above the latter signaling higher highs.
The S&P 500 gained 1.1% after tapping a session high of 2,613 while closing above 2,600.
Continued closes above this level keeps 2,625-2,650 and the 50-day moving average in play.
The Russell 2000 rose 0.9% following the late day push to 1,444 and session high.
Lower resistance at 1,450-1,465 and the 50-day moving average held with a close above the latter being a bullish signal.
The Dow rose 0.7% following the morning test to 24,099.
Fresh and lower resistance at 24,000-24,250 was cleared and held with a close above the latter getting 24,500 and the 50-day moving average in focus.
Healthcare led sector strength after surging 1.8%. Communications Services and Technology were up 1.7% and 1.5%.
Materials and Industrials were the only sector laggards after giving back 0.7% and 0.3%. respectively.
Global Economy – European markets settled higher despite weaker-than-expected economic news out of Germany and ahead of a crucial Brexit vote that failed after the close.
The Belgium20 jumped 0.8% and UK’s FTSE 100 gained 0.6%. France’s CAC 40 rose 0.5% and the Stoxx 600 Europe was added 0.4%. Germany’s DAX 30 climbed 0.3%.
Germany’s economy slowed in 2018 to 1.5% and represented the slowest rate of GDP growth in five years.
Asian markets closed higher across the board after China addressed slowdown concerns.
Hong Kong’s Hang Seng zoomed 2% and South Korea’s Kospi advanced 1.6%. China’s Shanghai soared 1.4% and Japan’s Nikkei rallied 1%. Australia’s S&P/ASX 200 was higher by 0.7%.
Chinese senior economic leaders pledged to keep the monetary policy of the world’s No. 2 economy flexible but stable and to support growth with improved access to financing for private and smaller enterprises.
PPI fell 0.2% in December, while the core rate dipped 0.1%, both slightly below expectations. There were no revisions to November’s 0.1% headline gain or the 0.3% rise in the core rate.
On a 12-month basis, the headline price index was steady at 2.5% year-over-year, and the core rate was unchanged at 2.7%.
Goods prices were down 0.4%, the same as it was in November, with the energy component dropping 5.4% versus the prior -5%, while food prices climbed 2.6% from 1.3%. Services costs dipped 0.1% from 0.3%.
Empire State manufacturing index dove another 7.6 points to 3.9 in January, well below expectations, from December’s 11.5. The employment component dropped to 7.4 from 17.5 while the workweek was at 6.8 from 6.7.
New orders dropped to 3.5 from 13.4. Prices paid slipped to 35.9 from 39.7, with prices received at 13.1 from 12.8.
The 6-month general business outlook index fell to 17.8 from 30.6, with employment at 8.5 from 18.6, and orders at 19.5 from 34.8. Future prices paid fell to 28.3 from 51.9, while prices received were 28.3 from 27.6.
The 6-month capital expenditures index declined to 17.9 from 31.2.
Redbook Store Sales were up 6.7% for the year in the week ending January 12th.
The U.S. IBD/TIPP economic optimism index fell to 52.3 in January from December’s 52.6.
The index has declined in four of the last six months since hitting 58 in August, and is at the lowest level since December 2017.
The weakness came from the outlook on Federal policies, which slid to 49 from 50.6 in December; it was 52.9 in July.
The economic outlook index crept up to 46.8 from 46.4, while the outlook on personal finances improved to 61 from 60.8.
Market Sentiment – Minneapolis Fed dove Neel Kashkari said there is no need to tap the brakes prematurely given tame inflation.
He said analysts have been coming up low on the inflation target, and wage growth hasn’t really taken off yet. He noted that a 3.9% unemployment rate would historically be full employment.
Kashkari went on to say he is not seeing evidence to support further tightening currently, but the 2019 path will depend on the data. He added the Fed strives to acknowledge market signals.
Kansa City Fed Esther George said it might be a good time to pause rate hikes and the Fed should proceed with caution and be patient. She said that rates are not yet neutral, but getting close, and a pause would give time to assess the effect of hikes to date.
That said, she is not sure how much the balance sheet reduction is removing accommodation and if inflation pressures emerge more rate hikes might be needed.
George sees somewhat slower growth this year, but still above potential, warning that if unemployment falls further analysts could be on the cusp of undesirable increase in inflation.
She noted that financial market conditions have tightened and farm sector downturn has been worsened by tariffs.
On balance, George sees both upside and downside risks.
Yet her leaning towards a pause is significant and makes sense given the lack of data during the government shutdown.
Dallas Fed Robert Kaplan also said it would be wise for the Fed to be patient.
He also noted global growth is decelerating, as has been reflected in the the data and indicated by every key monetary policymaker.
He said analysts are in uncertain times and the Fed should wait to see how it all works out.
He said wider credit spreads are more worrying to him than the stock market.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 7th time in 8 sessions following the pullback to $119.95.
Fresh support at $120-$119.50 held with a move below the latter signaling additional weakness towards $119-$118.50.
Lowered resistance is at $120.50-$121.
Market Analysis – The Invesco QQQ Trust (QQQ) snapped a 2-session slide after testing a high of $162.60 while closing above the 50-day moving average. Fresh and lower resistance at $162.50-$163 held with a move above the latter leading to a possible push towards $165.
Near-term support is at $162-$161.50 with a move below $160 signaling a possible retest towards $158-$157.50.
RSI is back in an uptrend with resistance at 60.
A close above this level would signal additional strength towards 65-70 and August highs. Support is at 50.
The Industrials Select Sector Spider (XLI) fell for the 3rd-straight session
after tapping a low of $67.27.
Near-term support at $67.50-$67 was split but held. A move below the latter opens up risk towards $66.50-$66.
Resistance is at $68-$68.50 and the 50-day moving average.
Continued closes above the latter would be a bullish development and signal a breakout of the current trading range.
RSI has been flatlining with support at 50.
A move below this level would be a slightly bearish signal with risk towards 45-40. Resistance is at 55-60 with the latter representing the late November peak.
Existing Position Update
Initiated FDX to begin creating some balance.
NTES moving back into profit zone.
Still no fill on open order.
May give it another few sessions.
Roger Scott