U.S. markets showed showed strength for the 2nd-straight session following better-than-expected earnings from the Financial sector that will be in focus throughout the week.
The gains helped the major indexes edge closer to near-term resistance levels with the 50-day moving averages in play.
The continued January rebound rally continues to look bullish with the major indexes also showing signs of breaking out of a 5-day trading range.
Volatility continues to fall and has helped support the market”s strength but still faces major support levels that need to be cleared and held.
The Russell 2000 advanced 0.7% following the morning run to 1,460.
Lower resistance at 1,450-1,465 and the 50-day moving average held was cleared and held with a move above the latter getting 1,475-1,480 in play.
The Dow added 0.6% following the late day test to 24,288 and 2nd-straight close above 24,000.
Fresh and lower resistance at 24,250-24,500 was cleared and held on the close below the 50-day moving.
The S&P 500 climbed 0.2% after trading to a session high of 2,625 while closing above the 2,600 level for the 2nd-straight session.
Lower resistance at 2,625-2,650 and the 50-day moving average held with a close above the latter signaling additional strength.
The Nasdaq was also up 0.2% following the opening push to 7,079.
Fresh and lower resistance 7,100-7,150 held with the index holding the 50-day moving average for the 2nd-straight session.
Financials led sector strength after zooming 2.1%. Real Estate and Materials rose 0.5% and 0.4%, respectively.
Consumer Staples paced sector laggards after falling 0.5% while Communications Services was down 0.4%.
Global Economy – European markets showed strength despite a crushing defeat of U.K. Prime Minister Theresa May’s Brexit plan.
The setback increased the likelihood that the U.K. will have to delay its exit from the bloc or suffer a no-deal Brexit.
The Belgium20 rallied 0.7%. France’s CAC 40 and the Stoxx 600 Europe were higher by 0.5% while Germany’s DAX 30 advanced 0.4%. UK’s FTSE 100 fell 0.5%.
Asian markets settled mostly higher for the 2nd-straight session with Japan’s Nikkei the laggard after giving back 0.6%.
Australia’s S&P/ASX 200 and South Korea’s Kospi added 0.4%.
Hong Kong’s Hang Seng rose 0.3% while China’s Shanghai was up a tenth-point, or 0%.
MBA Mortgage Applications surged 13.5%, in addition to a 9.1% jump in the purchase index and 18.7% leap in the refinancing index for the week ending January 11th. The average 30-year fixed mortgage rate was unchanged at 4.74%.
U.S. import prices declined 1% in December while export prices dipped 0.6%. On a 12-month basis, import prices are falling at a 0.6% year-over-year pace versus growth of 0.5%, while export prices are rising at a 1.1% year-over-year clip versus 1.8%, preciously.
For import prices, petroleum declined another 11.6% after collapsing 16% previously. Excluding petroleum, prices were up 0.3% from unchanged.
Foods/beverage prices edged up 0.1% versus -2.2%, with industrial supplies dropping 3.9% from -6.2%. Import prices with China were flat versus -0.1%, and were down -1.5% versus Canada compared to -6.4%.
For exports, agricultural prices climbed 3.9% from 1.7%, and were down 1.1% ex-ag from -1%. Industrial supply prices declined -3.2% versus -2.8%.
The Fed’s Beige Book reported activity increased in most of the U.S., with 8 of 12 Districts characterizing growth as “modest to moderate.” Outlooks were generally positive, but many Districts said contacts had become less optimistic due to financial market volatility, rising short term rates, falling energy prices, elevated trade and political uncertainty.
Tariffs were noted as contributing to uncertainty and rising input prices. Manufacturing and nonmanufacturing activity expanded but growth in the former had slowed, particularly in the auto and energy sector.
Lower energy prices contributed to the slowing and there was a pullback in the industry’s capital spending plans. Employment increased in most of the country, although at a moderate pace.
Firms were still struggling to find workers and wage growth was still moderate. The majority of Districts reported modest to moderate increases in prices.
While input costs had increased, it was mixed on whether they could be passed on to consumers. Fuel costs had gone down.
The U.S. NAHB Housing Market Index rose 2 points to 58 in January, topping estimates of 57, and recouping half of the 4 point drop to 56 in December.
The index declined in 8 of the 12 months last year, and was at 72 last January. All components showed improvement.
The current single family sales index rose 2 points to 63 from the prior 61, but is still below the 74 print from October.
The future sales index increased 3 ticks to 64 from 61. The index of prospective buyer traffic edged up 1 point to 44 from 43.
Atlanta Fed’s Q4 GDPNow estimate was unchanged at 2.8%.
Business Inventories and Retail Sales were postponed due to the partial government shutdown.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) rebounded after peaking at an intraday high of $120.38.
Lowered resistance is at $120.50-$121 held with a close above the latter signaling a possible near-term bottom.
Support remains at $120-$119.50 with a move below the latter signaling additional weakness towards $119-$118.50.
Market Analysis – The Russell 2000 ETF (IWM) was up for the 8th time in the past 9 sessions while extending its winning streak to 2-straight after trading to an intraday high of $145.25.
Fresh and lower resistance at $144.50-$145 and the 50-day moving average was cleared and held.
A close above the latter would be a bullish signal for a possible push towards $147-$147.50 and resistance from early December.
Near-term support is at $143.50-$143. A close below $142.50-$142 would be a slightly bearish development and signal a possible near-term top.
RSI is approaching September resistance at 60.
A move above this level could lead towards a run at 65-70 and late August peaks. Support is at 55-50.
The Technology Select Sector Spiders (XLK) was up for the 2nd-straight session and is trying to break out of a 5-day mini trading range. after testing an intraday high of $64.35.
Lowered resistance is at $64.50-$65 and the 50-day moving average easily held. Continued closes back above the latter would be a more bullish development for higher highs.
Support is at $63.50-$63. A move below $62.50 would be a slightly bearish signal.
RSI has been flatlining with resistance at 55 and the late November high.
A move above this level gets 60-65 and early October highs back in play. Support at 50-45 with a move below the latter signaling additional weakness.
All the best,
Roger Scott.