U.S. markets traded to fresh all-time highs on Monday’s open but spent the remainder of the session in a tight range before finishing slightly lower. The pullback ended six-session winning streaks for the Dow and S&P 500 with near-term support holding.

The Nasdaq closed back below 6,600 for the first time in six sessions while the Russell 2000 failed to hold the 1,500 level for only the second time this month. Utilities showed some strength and was the only sector that closed green. Consumer Discretionary and Industrials were the sector laggards after falling 0.7% and 0.6%, respectively.
Global Economy – European markets closed higher but gains were limited due to the continued political risks surrounding Spain. Catalan President Puigdemont and the separatist groups that control the legislature in Barcelona will hold a plenary session on Thursday, while Spain’s chief prosecutor said that if Puigdemont declares independence he would face as much as 30 years in jail and could be arrested immediately.
France’s CAC 40 was up 0.3% while the Belgium20 and the Stoxx Europe 600 rose 0.2%. Germany’s DAX 30 was higher by 0.1% and UK’s FTSE 100 advanced a point, or 0.02%.
Asian markets were mixed with Hong Kong’s Hang Seng Index lagging after falling 0.6%. Japan’s Nikkei stayed hot after surging another 239 points, or 1.1%, to extend its winning streak to 15-straight. China’s Shanghai index climbed 0.1% and South Korea’s Kospi added a half-point, or 0.02%. Australia’s S&P/ASX 200 slipped 0.2%.
China September new home prices rose in 44 cities out of the 70 cities, lower than 46 that rose in August.
Japan September nationwide department store sales rose +4.4% year-over-year, the sharpest increase in over 2 years.
Chicago Fed National Activity Index rose to 0.17 in September from a revised reading of -0.37 for August.
Market Sentiment- Fed Chair Yellen said late Friday night that the neutral federal funds rate is much lower than in previous decades. She said this likely means the probability that short-term interest rates may need to be reduced to their effective lower bound at some point is uncomfortably high, even in the absence of a major financial and economic crisis.
The iShares 20+ Year Treasury Bond ETF (TLT) traded in positive territory throughout the session while peaking at $124.49. Lower resistance at $124.50-$125 held. Short-term support is at $124-$123.50 with a close below $123 signaling additional weakness to $122 and the 200-day moving average.
Market Analysis- The Russell 2000 ETF (IWM) has lagged the recent overall market gains following the breakout above the $148 level at the beginning of the month. The series of lower highs and lower lows held near-term support at $148 with last Thursday’s backtest to $148.17.
Friday’s rebound to $150.41 failed the all-time high at $150.68. A close above upper resistance at $150.50-$150.75 would be a bullish development for a possible push towards $152-$152.50 over the near-term. A move below $148-$147.75 could lead to a continued backtest towards $145 to retrace the gap higher from the breakout above this level in late September.
RSI is in a downtrend after failing resistance at the 70 level. Today’s move below 60 was a slightly bearish development.
The Industrials Select Sector Spider (XLI) made a breakout above the $72.50 level last Friday following a trading range between $71.50-$72.50 throughout the month. Today’s all-time high reached $72.96 with fresh resistance at $73-$73.50 holding.
Continued closes above the latter would be bullish for a possible run towards $74.50-$75. A move back below $72.50-$72 keeps the prior trading range intact with a move below $71.50 being a bearish development. RSI has pulled back off resistance at the 80 level with support at 70 from mid-September.
Today’s move below this level could be signaling upcoming weakness.
All the best,
Roger Scott