U.S. markets showed continued strength to start the week while testing and clearing near-term and major resistance levels that served as prior support from mid-November.
Much of the strength was attributed to the beginning of the first face-to-face meeting between U.S. and China officials since both sides agreed to a 90-day truce in the ongoing trade war.
The Russell 2000 rallied 1.8% following the intraday run just south of 1,412.
Fresh and lower resistance at 1,400-1,425 was cleared and held with the latter representing prior November support.
The Nasdaq was up 1.3% after reaching a midday high of 6,855 while closing above the 6,800 level.
Fresh resistance at 6,850-6,900 was breached but held with continued closes above 6,800 and prior November support being a bullish signal.
The S&P 500 rose 0.7% after reaching a session peak of 2,566.
The index closed just below major resistance at 2,550 and prior November support by a quarter-point with additional hurdles at 2,575-2,600.
The Dow gained 0.4% following the intraday push to 23,687 and closing at 23,531.
Fresh and lower resistance at 23,600-23,800 was breached but held with a close back below 23,500 and prior November support being a slightly bearish signal.
Consumer Discretionary led sector leaders after jumping 2.3%.
Energy and Communication Services rose 1.5% and 1.1%, respectively.
Utilities and Consumer Staples were the only sector laggards after giving back 0.7% and 0.1%, respectively.
Global Economy – European markets closed mostly lower as Brexit concerns resurfaced and disappointing economic data out of Germany.
Traders expect the next two weeks to be highly volatile as parliament prepares to vote on Prime Minister Theresa May’s Brexit withdrawal agreement.
France’s CAC 40 and UK’s FTSE 100 were lower by 0.4%.
The Stoxx 600 Europe and Germany’s DAX 30 slipped 0.2%. The Belgium20 advanced 0.7%.
German industrial orders for November sank 1%, well below estimates for a 0.4% slide.
Asian markets settled higher as sentiment picked up slightly amid a new round of trade talks between the U.S. and China.
A working team led by Deputy U.S. Trade Representative Jeffrey Gerrish is currently meeting Chinese officials to have positive and constructive discussions.
Japan’s Nikkei soared 2.4%. South Korea’s Kospi rose 1.3% and Australia’s S&P/ASX 200 was up 1.1%.
Hong Kong’s Hang Seng added 0.8% and China’s Shanghai was higher by 0.7%.
The People’s Bank of China cut the reserve requirement ratio (RRR), the amount of cash that banks have to hold as reserves, by 1% in a bid to stimulate lending amid concerns over a slowing economy.
December ISM Non-Manufacturing Index came in at 57.6, topping forecasts of 58.4. Most of the components declined with the exception of two.
The employment component fell to 56.3 from 58.4 while new orders inched up to 62.7 from 62.5 and is the highest since June. New export orders also improved to 59.5 from 57.5.
Imports slipped to 53.5 from 54.5 while prices paid tumbled to 57.6 from 64.3.
Factory Orders were postponed.
This joins new home sales, construction spending, the advance indicators, and the Treasury budget on postponements due to the partial government shutdown.
As a side note, President Trump will address the country on the border wall issue Tuesday at 9pm (EST).
Market Sentiment – Atlanta Fed Raphael Bostic said the economy is pretty solid with inflation just a sliver below the Fed’s 2% target and the economy performing well in that regard.
He attributed volatility in the markets to uncertainty over trade policy and global economic clouds.
He sees the government shutdown as having little aggregate impact on the economy if it stays short, but could become more material if it endures.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 2nd-straight session after tapping a low of $121.62.
Support at $121.50-$121 held with a close below $120 signaling lower lows.
Market Analysis – The Invesco QQQ Trust (QQQ) was up for the 4th time in 5 sessions after trading to a high of $158.85.
Fresh and lower resistance at $158-$158.50 was cleared and held with a move above the latter leasing to a possible push towards $160
The $157.50 level represents prior mid-November and mid-December support.
Continued closes above this level would be a slightly bullish development for a run towards $160-$162.50 and the 50-day moving average that is starting to show signs of leveling out.
Near-term support is at $157.50-$157 with a move below the latter signaling a possible retest towards $155-$152.50.
RSI is in an uptrend with resistance at 55-60 and the former representing the late November peak.
A close above the latter would signal additional strength towards 65-70 and August highs. Support is at 45-40.
The Spider S&P Retail ETF (XRT) was up for the 5th time in 6 sessions following the intraday surge to $44.05. Near-term and lower resistance at $43.50-$44 was cleared and held.
The death cross that formed in early December confirmed lower lows and the recovery of the $43 level was a near-term bullish signal for a possible run towards $44.50-$45 and the 50-day moving average.
Rising support is at $43-$42.50. A close below $42 would signaling additional weakness and possible short-term top.
RSI is in an uptrend with resistance at 60 and represents the November peak.
A move above this level would signal additional strength towards 65-70 and August peaks. Support is at 50-45.
Existing Position Update
Liquidated AMZN at good profit for the time held.
Expect more upside over the near term if FED data is on target.
I’m also expecting resolution on FED closing down in the next few days – which will cause stocks to rise once again.
Expect more volatility which will help us reduce risk on the positions.
Roger Scott.