U.S. markets were rocky to start the New Year following disappointing economic news from around the globe.

The opening pullback fueled continued fears of a global slowdown but the losses were quickly recovered by midday with the major indexes finishing slightly higher for the session.

The U.S. government shutdown shows no signs of slowing despite ongoing talks and could hamper corporate outlooks as the official start 4Q earnings season gets underway over the next few weeks.

However, volatility continues to show signs for higher market highs after closing below lower support levels.

The Dow was up for the 2nd-straight session after climbing 0.1% while tapping a high of 23,413.

Fresh and lower resistance at 23,400-23,600 held with close above the latter being a continuing bullish development.

The S&P 500 also advanced 0.1% following the intraday session run to 2,519.

Fresh resistance at 2,525-2,550 was challenged with a close above the latter being a more bullish signal.

The Nasdaq closed in the green for the 5th-straight session after rising 0.5% while reaching a peak of 6,693.

Lower resistance at 6,650-6,700 was cleared and held with a move above the latter signaling additional strength.

The Russell 2000 also extended its winning streak to 5-straight sessions after gaining 0.5% while tapping a high of 1,357.

Lower resistance at 1,350-1,365 was cleared and held despite the opening backtest to 1,325.

Energy zoomed 2% to pace sector strength while Communications Services rose 1.3%.

Real Estate tanked 2.3% and led sector weakness.

Utilities and Healthcare were hammered with losses of 1.7% and 1.5%, respectively.

Global Economy – European markets closed mostly higher despite weaker-than-expected PMI data from a number of countries.

France’s CAC 40 dropped 0.9% and the Belgium20 was off 0.6%. Germany’s DAX 30 added 0.2% and UK’s FTSE 100 edged up 0.1%. The Stoxx 600 Europe dipped 0.1%

The IHS Markit Germany Services PMI fell to 52.5 in December 2018 from 53.3 in the previous month, and missing estimates of 53.4. The latest reading was the second-weakest seen in over two years.

The IHS Markit Eurozone Manufacturing PMI dropped to 51.4 in December 2018 from 51.8 in the previous month, matching expectations.

However, the reading pointed to the slowest expansion in factory activity since February 2016, as new work declined for the third consecutive month.

Asian markets were mostly lower following disappointing economic news out of China.

Hong Kong’s Hang Seng tanked 2.8% and Australia’s S&P/ASX 200 sank 1.6%. South Korea’s Kospi gave back 1.5% and China’s Shanghai fell 1.2%.

Japan’s Nikkei slipped 0.3%

The Caixin/Markit Manufacturing Purchasing Managers’ Index fell to 49.7 from 50.2 in November and its first contraction since May 2017.

Redbook Store Sales were up 9.3% for the year in the week ending December 29th.

December PMI Manufacturing Index fell 1.5 points to 53.8, missing forecasts for a print of 53.9. The employment component dropped to 52.7 from 55.3 in November and is the weakest since June 2017.

U.S. chain store sales declined 1.3% in the week ending December 29th, after dipping 0.1% in the prior week.

Sales accelerated to a 4.6% year-over-year clip, versus 3.6% previously.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) closed higher for the 4th-straight session after reaching a peak of $122.16 ahead of the closing bell.

Fresh and lower resistance at $122-$122.50 was cleared and held into the closing bell. A close above the latter gets $123-$123.50 in play.

Rising support is at $121.50-$121.

Market Analysis – The Spider Small-Cap 600 ETF (SLY) was up for the 5th-straight session despite trading down to an opening low of $58.84.

Prior December 2018 and September 2017 support at $58.50-$58 held with a close below the latter likely signaling additional selling pressure with risk towards $57-$55.

The rebound to $60.50 and close above upper resistance at $59.50-$60 was a bullish signal and gets $62-$62.50 back in the mix.

RSI is in an uptrend with resistance at 40.

A move above this level would signal additional strength towards 45-50 and November peaks. Support is at 35-30.

The Health Care Select Sector Spider (XLV) had its 4-session winning streak snapped following the backtest to $84.27.

Fresh support at $84.50-$84 was split but held with a move below the latter being a bearish development for lower lows.

Near-term and major resistance is at $86.50-$87 and the 200-day moving average.

Continued closes above the latter would be a slightly bullish signal but the 50-day moving average remains in a downtrend.

RSI is in a downtrend with support at 40. A move below this level would signaling additional weakness towards 35-30.

Resistance is at 45-50.

All the best,
Roger Scott.