U.S. markets fell for the second-straight session on lower lows and a continued backtest towards near-term and mid-month support. The pullback comes ahead of tomorrow’s update from the Fed on interest rates and a likely reason for the continued nervousness.
The Dow dropped 1.4% after trading to a low of 26,028 while holding the 26,000 for the 10th-straight session. The S&P 500 fell 1.1% after testing 2,818 shortly after the open while holding the 2,800 level for the 8th-straight session.
The Russell 2000 tumbled 1% after kissing 1,579 with the January 18th and 19th lows at 1,576 and 1,575 holding. The Nasdaq stumbled 0.9%, as well, after bottoming at 7,373 within the first 30 minutes of action.
The 7,400 level held for the 7th-straight session but the lower low over this time frame remains a slight concern.
Health Care and Energy were pounded for losses of 2.1% and 2%, respectively, while Financials slid 1.2% to lead sector laggards. Utilities rose 0.2% and was the only sector that closed in positive territory.
Global Economy – European markets posted steep losses with UK’s FTSE 100 sinking 1.1% to snap a three-session win streak while giving up its 2018 gains. Germany’s DAX 30 tanked 1% while France’s CAC 40 and the Stoxx Europe 600 declined 0.9%. The Belgium20 gave back 0.7%.
Eurozone Q4 GDP rose 0.6% quarter-over-quarter and 2.7% year-over-year, matching expectations.
Eurozone January economic confidence fell 0.6 to 114.7, weaker than expectations for an advance of 0.2 to 116.2.
The January business climate indicator fell 0.06 to 1.54, weaker than expectations of for a rise of 0.02 to 1.68.
UK December mortgage approvals were 61,000, less than expectations of 63,500 and the fewest in nearly 3 years.
Asian markets posted sharp losses with Japan’s Nikkei sinking 1.4% to extend its losing streak to 5-straight sessions while also giving up all of its gains for 2018. South Korea’s Kospi tumbled 1.2% and Hong Kong’s Hang Seng dropped 1.1%.
China’s Shanghai fell 1% while Australia’s S&P/ASX 200 stumbled 0.9%.
Japan December overall household spending unexpectedly slipped 0.1% year-over-year, weaker than expectations for a gain of 1.3%.
The Japan December jobless rate unexpectedly rose 0.1 to 2.8%, worse than expectations of no change at 2.7%. The Dec job-to-applicant ratio was up 0.03 to 1.59, stronger than expectations of for a rise of 0.01 to 1.57.
The S&P Corelogic Case-Shiller Home Price Index rose 0.25% to 204.21 in November.
Consumer Confidence increased to 125.4 in January, following a decline to 123.1 in December. The present situation index dipped to 155.3 versus 156.5 while the labor differential improved to 21.2 versus 20.3. The 12-month inflation gauge slipped to 4.6% from 4.8%.
The January State Street Investor Confidence Index checked in at 102.1.
December Farm Prices were up 4.4%.
Market Sentiment – The Fed’s two-day meeting began today with no major surprises likely, and Chair Janet Yellen’s last after four years in the position.
The Fed is widely seen leaving interest rates unchanged at 1.25%-1.50%. We mentioned there would be no press conference, nor any updates to the dot-plot or economic forecasts as they are reported quarterly.
Some of this week’s market’s weakness can be attributed to widespread risk for more upbeat assessments of growth and inflation, especially now that tax reform is in place.
These views would support expectations for a 25 basis point tightening at the next meeting on March 20th and 21st, as well as forecasts for additional moves later in the year.
The market is pricing in about 95% chance for a March hike, and sees about 65% chance for another bump in June, with a December increase better than 50-50, with the slim probability for a forth hike.
The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 3-straight session following today’s pullback to $121.70.
October support at $122-$121.50 held with a close below the latter being a continued bearish development. Near-term resistance is at $122.50-$122.75.
Market Analysis – The PowerShares QQQ (QQQ) traded to an all-time high of $170.95 last Friday and $170.95 and $170.91 on Monday to form a temporary double-top following today’s 0.8% decline.
Near-term support is at $167.75-$167.50 following the backtest to $167.82 with a close below the latter signaling a possible short-term top. Lowered resistance is at $169.50-$170.
RSI recently peak just above 80 before closing below this level on Monday with 1-year resistance at 85 holding. Support at 70 is now in play following today’s weakness.
This level served as December and early January resistance with continued closes below this level being a bearish development.
The Consumer Discretionary Select Spiders (XLY) tested a fresh 52-week and all-time peak of $109.34 on Monday before today’s slight pullback.
Near-term support at $108-$107.50 held following the low of $107.54 with a move below $106 likely signaling a possible short-term top. Lowered resistance is at $108.25-$108.50.
RSI had been pushing upper resistance in the 85-90 before falling below the former on Monday.
Today’s close below 80 was a slightly bearish signal with continued risk towards 70 and a level of support that has been holding since mid-November.
All the best,