U.S. markets showed strength for a third-straight session following a pullback in the 10-year yield to its lowest levels since mid-month.
The recent gains have recaptured roughly 80% of the 10% pullback from the all-time highs with the major indexes showing momentum ahead of Fed news on Tuesday.
The Dow jolted 1.6% after trading to a high of 25,732 while the S&P 500 surged 1.2% while reaching an intraday peak of 2,780.
Both indexes face near-term and late January resistance at 26,000 and 2,800, respectively, with closes above these levels being continued bullish signals.
The Nasdaq jumped 1.8% after closing a half-point off its intraday high of 7,421 while clearing the 7,400 level for the first time since the end of January.
The index is back in positive territory for the month following today’s rally.
The Russell 2000 gained 0.7% after making a run north of 1,560, but more importantly, the small-caps closed above their 50-day moving average for the first time since the start of February.
Technology and Financials showed the most strength with the sectors rising 1.6% and 1.5%, respectively. Industrials and Health Care rose 1.4% and 1.3%.
Utilities were the only sector laggard after falling 0.3%.
Global Economy – European markets were higher across the board and closed at 3-week highs. UK’s FTSE 100 rallied 0.6% while France’s CAC 40 and the Stoxx Europe 600 rose 0.5%.
Germany’s DAX 30 advanced 0.4% and the Belgium20 climbed 0.3%.
Asian markets closed higher and showed a continuing recovery from their start-of-the-month slump. The gains lifted Australia and Singapore markets back into positive territory for February.
China’s Shanghai and Japan’s Nikkei were higher by 1.3% and 1.2%, respectively, while Australia’s S&P/ASX 200 and Hong Kong’s Hang Seng gained 0.7%. South Korea’s Kospi added 0.2%.
Bank of Japan Governor, Kuroda, reiterated to parliament there is no plan for another comprehensive review of the central bank’s current policy efforts and that it continues to target getting inflation to 2%.
The Japan December leading index CI was revised lower to 107.4 from the originally reported 107.9. The December coincident index was revised lower to 120.2 from the originally reported 120.7.
China January new home prices rose 0.3% month-over-month and 5% year-over-year, weaker than the 0.4% and +5.3% increase from December.
The Chicago Fed National Activity Index dipped slightly to 0.12 in January.
New Home Sales fell 7.8% to a seasonally-adjusted rate of 593,000 in January, and below expectations of 615,000.
The Dallas Fed Manufacturing Survey for February rose 11 points to 27.9, signaling a pickup in output growth, but shy of estimates for a print of 31.
Market Sentiment – Fed Chairman Powell’s testimony isn’t likely to provide any new guidance on policy or the normalization posture in his Monetary Policy Report testimony before the House Financial Services Committee on Tuesday (10am EST).
Jeb Henserling, the chairman of the House committee, has indicated he’ll ask about the rate path. Powell likely won’t give a definitive answer but should support the gradualist posture seen under Janet Yellen, and Ben Bernanke, with further removal of accommodation seen as appropriate.
The dot plot with three hikes this year should also be generally affirmed.
Meanwhile, the balance sheet unwind that has been underway since last year, will be left on autopilot. Wall Street will be looking for the new Fed head to indicate the FOMC may be willing to tolerate above target inflation for a time, as noted by ex-Fed governor Meyer, compensating for the shortfall over the last several years.
However, there is some doubt Powell will be so explicit, and instead, will reiterate the economy is doing well and the labor market remains tight, while underscoring policy will be data dependent.
The iShares 20+ Year Treasury Bond ETF (TLT) tested a high of $118.91 shortly after the open with upper resistance at $118.50-$119 holding.
The fade into negative territory late in the day held shaky support at $118-$117.75.
Market Analysis – PowerShares QQQ (QQQ) showed continued strength following Friday’s 2% pop and today’s 1.3% gain and run to $170.40.
Lower resistance at $170-$171.50 was cleared with January’s all-time high at $170.95. Continued closes above the latter could lead to a possible run towards $172.50-$175, depending on momentum.
Rising support is at $168-$167.50 if $170 fails to hold.
RSI is back in a nice trend after clearing resistance at the 60 level and looks poised to make a run at 70 on continued strength. Support is at 50 if 60 fails to hold.
The Spiders S&P Homebuilders ETF (XHB) recently formed a double-bottom near the $40 level with the 200-day moving average holding from earlier this month.
A mini trading range seems to forming between $43-$42 following last week’s weakness and today’s slight pullback.
A close above resistance at $43-$43.25 would be a bullish signal for a possible push towards $44-$44.25 and the 50-day moving average.
Support is at $42.25-$42 with risk to $40.50-$40 on a close below the latter.
RSI is approaching resistance at 45-50 and an area that served as support in early November. A close above the latter would be a bullish signal for additional strength and a possible push towards 60-70.
Support is at 40 with risk to 30 on a close back below this level.
Existing Position Update
SPY position moving our way. Expecting options to expire worthless unless volatility levels increase. The fact that SPY is breaking above 50 day line is positive and VIX levels continue declining – which is a strong indication that stocks will begin moving higher over the near term.
APPLE continues trading higher. If we see more upside tomorrow morning, I’m going to turn the position into an iron condor – just need a bit more upside form here.
I’m looking at a few high probability set ups and will have one before end of day tomorrow – along with APPLE bear call spread – if the stock continues increasing in price in the AM.
Roger Scott