U.S. markets showed continued momentum following the 4th-straight session of higher highs.
News that U.S. and China trade talks resumed for a 3rd-straight day that were unscheduled, but have now ended, are hinting real progress is being made.
The strength came despite fresh concerns over the U.S. debt ceiling and possible credit downgrade and ahead of the FOMC minutes.
The reaction afterwards was well received as the major indexes held their gains into the closing bell
The Nasdaq showed the most strength after rising 0.9% and trading to a high of 6,985.
Fresh and lower resistance at 6,950-7,000 was cleared and held with a move above the latter and the 50-day moving average being a continuing bullish signal.
The Russell 2000 also rallied nearly 0.9% after closing less than 4 points off its session high of 1,442.
New and lower resistance at 1,435-1,450 was split and held with a move above the latter and the 50-day moving average also leading to higher highs.
The S&P 500 added 0.4% following the intraday run to 2,595.
Upper resistance at 2,575-2,600 was challenged but held with more important hurdles at 2,625-2,650 and the 50-day moving average.
The Dow was also up 0.4% after reaching a peak of 23,985 ahead of the Fed news.
Upper resistance at 23,800-24,000 was nearly cleared with a close above this level keeping 24,250-24,500 and the 50-day moving average in play.
Energy and Technology led sector strength after jumping 1.4% and 1%, respectively.
Industrials and Consumer Discretionary advanced 0.5% and 0.3%.
Consumer Staples paced sector laggards after giving back 1.1%. Utilities were down 0.8% and Real Estate declined 0.5%.
Global Economy – European markets settled higher despite a setback in U.K. Prime Minister Theresa May’s Brexit Withdrawal Agreement.
Lawmakers voted for the government to swiftly come up with a backup plan in case the deal is voted down next week.
France’s CAC 40 and Germany’s DAX 30 were higher by 0.8% while UK’s FTSE 100 rose 0.7%. The Belgium20 surged 0.6% and the Stoxx 600 Europe rose 0.5%.
German exports fell 0.4% in November to $126.6 billion, while imports dropped 1.6% to $91.6 billion from October.
Asian markets also closed higher across the board as trade talks between the U.S. and China wrapped up on Wednesday after three days of negotiations.
A followup meeting has been prepared January 22nd at the White House.
Hong Kong’s Hang Seng zoomed up 2.2% and South Korea’s Kospi soared 2%. J
apan’s Nikkei gained 1.1% and Australia’s S&P/ASX 200 popped 1%. China’s Shanghai rose 0.7%.
MBA Mortgage Applications soared 23.5%, in addition to a 16.5% jump in the purchase index and a 35.3% surge in the refinancing index for the week ending January 4th.
The average 30-year fixed mortgage rate sank 10 basis points to 4.74%.
Market Sentiment – The Fed news from policy statement was all about the shift in language and were clarified with different wording which is what the market focuses on the most.
The word “judges” was added to show data dependence, while the injection of “some” was to convey a relatively limited amount of additional tightening.
This reflected a more dovish tone coming out of the FOMC in recent days and weeks, underscoring the Fed’s new “patient” stance.
Indeed, “many” Fed officials thought they could afford to be patient and a “few” wanted no tightening last month.
Several Fed heads noted that a portfolio of holdings weighted toward shorter maturities would provide greater flexibility to lengthen maturity if warranted by an economic downturn.
Some others noted that a portfolio with maturities that matched the outstanding Treasury market would have a more neutral effect on the market.
The minutes also revealed more frequent concerns about the global economic outlook from business contacts.
The Fed revised down their view of the policy path, dropping the dots to 2 from 3 although there was little change to officials’ assessments of economic conditions.
The Fed generally sees continued strength in consumer spending, with still solid business fixed investment, despite the slowing starting from the third-quarter.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 4th-straight session following the backtest to $120.79.
Upper support at $121-$120.50 was breached but held with risk towards $120-$119.50 on a move below the latter.
Lowered resistance is at $121.50-$122.
Market Analysis – The Russell 3000 Index ($RUA) closed higher for the 4th-straight session, and 6th time in the past 7, after making an intraday run to 1,529.
Fresh and major resistance at 1,525 was cleared but held by less than a half-point.
Continued closes above this level would be a green light for higher highs and a possible run towards 1,545-1,560 and the 50-day moving average.
Rising support is at 1,515-1,500. A close below 1,485 over the near-term would be a bearish development and signal a possible near-term top. (If this would occur IWM put options can be targeted).
RSI has been in a nice uptrend since late December, aside from the hiccup from late last week, with resistance at 55.
A move above this level would signal additional strength towards 65-70 and September and August peaks. Support is at 50.
Communication Services (XLC) closed higher for the 4th-straight session after reaching an intraday peak of $44.29 while closing above the 50-day moving average for the 2nd-straight session.
Near-term resistance is at $44.25-$44.50 was cleared but held.
Continued closes back above the latter, and a level that briefly served as early October support, would be a bullish signal for a possible push towards $46-$46.50 and the 200-day moving average.
Rising support at $44-$43.75 with a move below the latter signaling a possible weakness towards $42-$41.50.
The index remains relatively new as it nears its 7th month of trading and has made a nice bounce off the late December double-bottom at the $39 level.
The lows on back-to-back sessions tapped $38.97 and $39.04. The double-digit gain has been impressive but could pause once early November highs come into play.
RSI has been showing strength since late December after clearing multi-month resistance at 50 that had lasted since October.
This level will now try and serve as near-term support on weakness.
Fresh hurdles are at 65-70 on continued momentum with the latter representing the July peak.
All the best,
Roger Scott.