U.S. markets showed strength throughout Wednesday’s session following good corporate earnings and the Fed’s unanimous decision to stand pat on interest rates.
The major indexes cleared major resistance levels while breaking out of a two-week trading range and getting the 200-day moving averages back in play.
Meanwhile, volatility tested near-term support levels but remains trapped between its 50-day and 200-day moving averages.
The Nasdaq zoomed 2.2% following the intraday run to 7,201.
Prior and upper resistance at 7,150-7,200 was cleared but held with continued closes above this level being a bullish signal.
The Dow surged 1.8% after reaching an intraday peak of 25,109.
Fresh and lower resistance at 25,000-25,200 and the 200-day moving average was cleared and held for the first time since early December.
The S&P 500 soared 1.6% following the second half push to 2,690.
Near-term and lower resistance at 2,675-2,700 was cleared and held with a close above the latter getting 2,750 and the 200-day moving average in the mix.
The Russell 2000 rallied 1.1% after testing an intraday high of 1,490.
Lower resistance at 1,490-1,500 was triggered but held with a close above the latter being a bullish signal for higher highs.
Technology led sector strength with a 3.1% gain.
Consumer Discretionary and Industrials were higher by 2% and 1.6%, respectively. Communication Services, Energy and Healthcare rose 1.4%.
There was no sector weakness.
Global Economy – European markets closed mostly higher despite disappointing economic news out of France and from the eurozone.
UK’s FTSE 100 rallied 1.6% and France’s CAC 40 rose 1%.
The Stoxx 600 Europe climbed 0.4% and the Belgium20 gained 0.3%. Germany’s DAX 30 was down 0.3%.
Eurozone economic sentiment fell for the seventh consecutive month in January, slipping to a two-year low to 106.2, down from 107.4 in December.
French growth slowed in the fourth quarter to 0.3%, down from 0.4% in the third quarter.
Asian markets settled mixed as two days of trade talks between the U.S. and China started in Washington.
South Korea’s Kospi jumped 1.1% and Hong Kong’s Hang Seng added 0.4%.
Australia’s S&P/ASX 200 edged up 0.2%. China’s Shanghai declined 0.7% and Japan’s Nikkei fell 0.5%.
MBA Mortgage Applications sank 3%, along with a 2.3% decline in the purchase index and a 5.5% drop in the refinancing index for the week ending January 25th.
The average 30-year fixed mortgage rate rose 1 basis point to 4.76% for the shortened holiday week.
ADP reported private payrolls rose 213,000 in January, topping forecasts of 195,000. The goods producing sector added 68,000 workers, including a 35,000 gain in construction workers and 33,000 in manufacturing.
The service providing sector added 145,000, with education and health up 38,000.
Leisure was up 31,000 and trade/transport had a 13,000 gain.
Overall, it was a solid report that didn’t really show any impact from the government shutdown.
Pending Home Sales fell 2.2% to 99 in December, missing expectations for a rise of 0.7% to 102.1, and representing the 3rd-straight monthly decline.
Sales declined in three of the four regions, led by the South at -5%, followed by the Northeast at -2% and the Midwest at -0.6%. The West rose 1.7%.
State Street Investor Confidence for January checked in at 70.2.
Market Sentiment – As expected, the FOMC left its benchmark interest rate target unchanged at 2.25%-2.5%.
In addition, the committee vowed to take a “patient” approach toward further hikes and removed the phrases about further gradual rate increases.
The Fed added it expects to operate with an ample supply of bank reserves and addressed the balance sheet in a separate statement.
The Fed said it is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments.
The Fed’s economic outlook was little changed with the economy rising at a solid rate and the labor market continuing to o strengthen.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 3rd time in 4 sessions following the backtest to $120.33.
Upper support at $120.50-$120 was breached but held with a move below the latter opening up risk to $119.50-$119 and the 50-day moving average.
Resistance is at $121-$121.50.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) broke out of a 7-session trading range after surging to a late day high of $251. Fresh and lower resistance from early December at $251-$251.50 was tripped but held.
A move back above the latter sets up a run towards $252.50-$255 and late November hurdles.
Rising support is at $248-$247.50 and the 200-day moving average. A close below the latter reopens risk towards the $245 level.
RSI is back in a uptrend with multi-month resistance from November at 60-65 in play.
A move above the latter would be a bullish signal with strength towards 70-75 and October/ September peaks.
Current support is at 55 with a move below 50 signaling additional weakness.
The Spider S&P Retail ETF (XRT) snapped a 2-session slide after tapping an intraday high of $44.30.
Near-term and lower resistance at $44.50-$45 easily held with continued closes above the latter signaling a return of momentum.
Current and major support is at $43.50 and the 50-day moving average.
A close below $43.25 and the bottom of a 3-week trading range would signaling additional weakness towards $42-$41.50.
RSI is in a slight uptrend with resistance at 55-60 and the latter representing this month’s top.
A move above this level would signal additional strength towards 65-70 and August highs. Support is at 50 with a move below this level being a slight bearish development.
All the best,
Roger Scott.