U.S. markets showed weakness throughout Monday’s session as corporate earnings disappointed on lowered global outlooks.
Nervousness ahead of Wednesday’s Fed minutes and Friday’s jobs report also played a role in what will be the busiest week for 4Q earnings announcements.
The technical damage was limited as near-support levels and the 50-day moving averages easily held.
However, volatility jumped 8.5% after testing key resistance and is suggesting caution ahead of this week’s big events.
The Nasdaq sank 1.1% following the midday backtest to 7,034.
Fresh and upper support at 7000-6,950 held with a move below the latter and the 50-day moving average being a slightly bearish signal.
The S&P 500 was lower by 0.8% following the second half pullback to 2,624.
Near-term and upper support at 2,625-2,600 was tripped but held with a close below the latter and the 50-day moving average being a bearish development.
The Dow also dropped 0.8% after trading down to 24,323.
Fresh and upper support at 24,300-24,100 and the 50-day moving average easily held with a move below 24,000 signaling a near-term top.
The Russell 2000 was down 0.6% after testing an intraday low of 1,464.
Upper support at 1,465-1,450 was breached but held with a move below 1,440 and the 50-day moving average opening up risk towards 1,425-1,420.
Real Estate and Consumer Staples the only sectors that showed strength after rising 1% and 0.4%.
Technology and Healthcare led sector weakness after sinking 1.3% and 1.1%, respectively. Energy and Industrials tanked 1%.
Global Economy – European markets closed lower across the board ahead of Tuesday’s latest Brexit vote. U.K. Prime Minister Theresa May is trying to get the backing from lawmakers before she is set to go back to Brussels to get more concessions.
However, the message from the European 27 countries remains that the current exit agreement will not be renegotiated.
The Stoxx 600 Europe fell 1% while the Belgium20 and UK’s FTSE 100 declined 0.9%. France’s CAC 40 gave back 0.8% and Germany’s DAX 30 was lower by 0.6%.
Asian markets settled mostly lower ahead of a fresh round of high level trade talks later this week. Global markets will be watching for any important developments on the U.S./ China trade front, with the two sides racing to strike a deal before an early March deadline.
Japan’s Nikkei was down 0.6% and China’s Shanghai dipped 0.2%.
South Korea’s Kospi slipped a half-point while Hong Kong’s Hang Seng was up 7 points, or 0.03%. Australia’s S&P/ASX 200 was closed for a holiday.
China’s industrial profit fell 1.9% to $100.94 billion in December, following November’s 1.8% decline. For 2018, China’s industrial profit rose 10.3% from 2017.
At the end of December, the debt-to-assets ratio of Chinese industrial companies stood at 56.5%, down 0.5% from a year ago.
Chicago Fed National Activity Index rose 0.06 points to 0.27 versus estimates for a print of 0.15. The 3-month moving average rose to 0.16 from 0.12. Of the 85 indicators that make up the index, 46 made positive contributions and 39 made negative contributions
Dallas Fed manufacturing index bounced 6.1 points to 1 in January, topping estimates for a print of -4.6. The employment component retreated to 6.6 and a two-year low from 11, with the workweek dipping to 3.6 from 5.
New orders edged down to 11.6 from 14.4. Prices paid for raw materials fell further to 21.2 from 28.8. Prices received for finished goods slipped to 6.4 from 6.6.
The 6-month general business activity index climbed to 11.7 from 3.2, with most components improving. The employment index rose to 39.4 from 28.2 and new orders to 44.7 from 32.4.
Prices paid slid to 31.8 from 34.3, and prices received were steady at 26.7. The 6-month capx index was at 34.2 from 24.7.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) closed lower for the 2nd-straight session following the late day pullback and close at $120.41.
Upper support at $120.50-$120 was breached and failed to hold.
A move below the latter would be a slightly bearish signal with risk towards $119-$118.50 and the 50-day moving average.
Resistance remains at $120.75-$121.25.
Market Analysis – The Russell 3000 Index ($RUA) has been in a trading range roughly between 1,550-1,575 for 5 sessions with Monday’s low tapping the former.
There has been a little stretch to the downside over this time period with current support at 1,550-1,540. A close below the latter and the 50-day moving average would be a bearish development and signal a possible near-term double top at the 1,575 level.
Mid-December and last week resistance is at 1,565-1,575.
Continued closes above 1,580 would be a bullish signal for a possible run towards 1,590-1,600.
RSI is back in a slight downtrend with support at 55-50.
A move below the latter would signal additional weakness towards 45-40.
Resistance is at 60 with a move above this level signaling a return of momentum.
The Spiders S&P Homebuilders ETF (XHB) retreated from last Friday’s attempted breakout but still closed higher after peaking at $35.53.
Lowered resistance is at $35.50-$35.75 with additional hurdles at $36-$36.25 and the early December peak at $36.23.
Upper support at $35-$34.75 was breached but held on the backtest to $34.80 afterwards.
A move below the latter would signal additional weakness towards $35.25-$35 and the 50-day moving average.
RSI is in a slight uptrend with resistance at 60-65.
A close above the latter could lead to a run towards 70 and last June’s high.
Support is at 55-50 with a close below the latter and the mid-month low signaling additional weakness.
All the best,
Roger Scott.