U.S. markets showed strength on Wednesday’s open but backed off the early morning highs shortly afterwards while struggling for direction. Conflicting reports on U.S./ China trade talks and nervousness ahead of two key votes to reopen the government led to the mixed finish.

The major indexes continue to flirt with the 50-day moving averages but finished mostly higher and are still trading above the recent ranges from mid-month. As long as the top of these levels hold, higher highs are still in play as the market works thru a possible temporarily consolidation period.

The Dow rose 0.7% despite tapping an intraday low of 24,307.

Upper support at 24,300-24,100 and the 50-day moving average easily held with the close back above the 24,500 level being a slightly bullish signal.

The S&P 500 rose 0.2% after testing an intraday low of 2,612.

Near-term support at 2,625-2,600 and the 50-day moving average were split and violated but levels that held into the closing bell.

The Nasdaq added 0.1% despite the midday pullback to 6,953.

Lower support at 7000-6,950 and the 50-day moving average held with a close below the latter being a slightly bearish development.

The Russell 2000 fell 0.2% after trading down to 1,444.

Upper support at 1,450-1,440 was breached but not the 50-day moving average with continued closes above 1,450 being a bullish sign.

Consumer Staples and Utilities showed the most sector strength after rising 1.2% and 1%, respectively. Technology gained 0.3%.

Energy paced sector weakness after falling 1%.

Materials and Communication Services slid 0.6% and 0.5% to round out the laggards.

Global Economy – European markets settled mostly lower on worries that a delay to Brexit is the most likely outcome from weeks of political deadlock.

UK’s FTSE 100 fell 0.9% while France’s CAC 40 and Germany’s DAX 30 dipped 0.2%. The Stoxx 600 Europe slipped 0.1% while the Belgium20 was up 0.2%.

Asian markets settled mixed following weaker-than-expected economic news out Japan.

South Korea’s Kospi gained 0.5% and China’s Shanghai edged up 0.1%.

Hong Kong’s Hang Seng added 3 points, or 0.01%. Australia’s S&P/ASX 200 gave back 0.3% and Japan’s Nikkei declined 0.1%.

Japan’s December exports fell 3.8% from a year ago, versus forecasts for a 1.9% slide.

Imports climbed 1.9% in December, but well below estimates for a 3.7% rise.

The Bank of Japan announced it would kept its stimulus program in place but cut its inflation forecasts.

Governor Haruhiko Kuroda warned of growing risks to the economy from trade protectionism and faltering global demand.

MBA Mortgage Applications dropped 2.7%, while the purchase index fell 2.2% and the refinancing index sank 5.3% for the week ending January 18th.

The average 30-year fixed mortgage rate rose 1 basis point to 4.75%.

U.S. chain store sales fell 1.3% last week, after sliding 2.3% in the prior week.

The 12-month clip also decelerated to a 0.7% year-over-year growth rate from 2.2%, previously.

Redbook Store Sales were up 7% for the year in the week ending January 18th.

FHFA House Price Index rose 0.4% to 269.2 in November, topping forecasts of 0.3% for the month. For the year, the index is up 5.8%. Strength was seen in three regions including the South Atlantic (1.1%), West South Central (1%), and the Middle Atlantic (1%).

Declines were posted in the Pacific (-0.8%), the East North Central (-0.2%), and the West North Central (-0.1%).

The 12-month changes were all positive however, ranging from 4.5% year-over-year in the West South Central to 7.4% in the Mountain division.

January Richmond Fed Manufacturing Index checked in at -2, up 6 points, and slightly ahead of expectations of -3. The employment index climbed to 19 from 14 in December, with the wage component steady at 31, while the workweek was unchanged at 3.

The index of new order volume fell another 2 points to -11 from -9, and the weakest since June 2016. Prices paid grew at a 3.32% rate versus 4.36% previously, with prices received remaining flat at 2.26%.

The 6-month activity indexes showed shipments jumping to 29 after falling 11 points to 19, with employment dipping to 21 from 28. New order volume came in at 31, up from 15.

Prices paid were at 2.48%, down from 2.90%, with prices received at 2%, off from 2.31%. The survey also noted manufacturers expect conditions to improve in coming months.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) remained in a 6-session trading range following the intraday push to $120.62.

Near-term and lower resistance at $120.50-$121 held for the 6th-straight session with a close above the latter signaling additional strength.

Support remains at $120-$119.50 on the 2nd-straight close above the former.

Market Analysis – The Spider S&P 500 ETF (SPY) advanced for the 5th time in 6 sessions after trading up to $264.79 shortly after the open.

Near-term and lower resistance at $264.50-$265 held with continued closes above $265 signaling a return of momentum.

Shaky support is at $262.50-$262 with a move below the 50-day moving average, or close back below the $260 level signaling caution.

RSI is flatlining with resistance at 60 and representing this month’s high along with November’s peak.

A move above this level would signal additional strength towards 65-70 with the latter the September high.

Current support is at 55-50 with a move below the latter signaling additional weakness.

The Dow Jones Transportation Average ($TRAN) closed lower for the 2nd-straight session after testing an intraday low of 9,635.

Current support at 9,600-9,500 held with a move below the latter signaling additional weakness towards 9,300-9,200.

Near-term and lower resistance is at 9,800-9,900.

Continued closes back above the latter and the 50-day moving average would be a slightly bullish signal. However, the 10,000 area represents a more important hurdle following last Friday break above this level.

RSI is back in a downtrend with support at 50.

A move below this level would be a bearish development and would reopen risk towards 45-40. Resistance is at 55-60.

All the best,
Roger Scott.