U.S. markets showed strength on Tuesday’s open after China confirmed it was still in talks with the White House in an effort to broker a comprehensive trade agreement. China’s Ministry of Commerce, China’s Vice Premier Liu He, U.S. Treasury Secretary Mnuchin and trade representative Lighthizer spoke by phone on the timetable and road map of future trade talks.
The gains were short lived as political tension over boarder security and chatter of a government shutdown overshadowed renewed optimism with the major indexes settling mixed. Volatility remained elevated but tested a lower low and lower high than the previous session despite the whipsaw action.
The Nasdaq gained 0.2% following the intraday push to 7,129. Prior resistance at 7,125-7,175 held with a move above 7,200 being a more bullish development.
The S&P 500 slipped a point, or 0.04% after testing an intraday high of 2,674. Resistance at 2,675-2,700 held with continued closes above the latter signaling a possible near-term bottom.
The Dow was lower by 0.2% despite trading to an opening high of 24,791. Near-term and lower resistance at 24,800-25,000 held with a close above the latter and the 200-day moving average being a slightly bullish signal.
The Russell 2000 was down 0.2% after testing a morning peak of 1,465. Lower and fresh resistance at 1,465-1,480 held on a dime with additional hurdles at 1,485-1,500.
Consumer Staples rose 0.8% to lead sector strength. Utilities and Healthcare were up 0.4% and 0.3%, respectively.
Financials and Industrials paced sector weakness with declines of 1% and 0.6%, respectively.
Global Economy – European markets posted strong gains ahead of Prime Minister May’s plan to tour European capitals in an attempt to secure concessions on a Brexit deal she can sell to the UK Parliament.
The Stoxx 600 Europe, Germany’s DAX 30 and the Belgium20 rallied 1.5%. France’s CAC 40 jumped 1.4% and UK’s FTSE 100 soared 1.3%.
The German December ZEW survey expectations of economic growth rose 6.6 to -17.5, stronger than expectations for a decline of 0.9 to -25.
Asian markets were mixed as economic news weighed on sentiment.
Australia’s S&P/ASX 200 and China’s Shanghai added 0.4% while Hong Kong’s Hang Seng edged up 0.1%. Japan’s Nikkei fell 0.3% and South Korea’s Kospi slipped a point, or 0.04%.
China November new yuan loans were 1.25 trillion yuan, topping estimates of 1.15 trillion yuan. November aggregate financing was 1.519 trillion yuan, stronger than expectations of 1.350 trillion yuan.
Japan November machine tool orders dropped 16.8%, the steepest decline in over 2 years.
NFIB Small Business Optimism Index dove 2.4% to 104.8 in November after dipping 0.5% in October to 107.4. Most of the weakness was in those expecting the economy to improve, which dropped to 22% from 33%, and to a decline in those expecting higher real sales, which fell to 24% from 28%. Tight labor market conditions also weighed on many of the job-related items.
PPI rose 0.1% in November, with the core component 0.3% higher, both slightly better than than forecasts for a flat reading. There were no revisions to October’s respective gains of 0.6% and 0.5%. Goods prices fell 0.4% versus the prior 0.6% gain, due to a 5% drop in energy prices following the prior 2.7% increase.
Food prices climbed 1.3% from 1.0% previously. Services prices were up 0.3% versus October’s 0.7% rise, supported by a 1.2% gain in transportation/warehousing.
On a 12-month basis, the headline slowed to 2.5% year-over-year versus 2.9%, while the ex-food and energy component edged up to 2.7% versus 2.6%.
Redbook Store Sales were up 6.6% for the year for the week ending December 8th.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for the first time in 8 sessions despite trading to an intraday high of $119.38. Resistance at $119-$119.50 held for the 3rd time in 4 sessions with a close above the latter signaling additional momentum.
Rising support at $118.50-$118 easily held on the afternoon fade to $118.61. A close below the latter would signal a possible near-term peak.
Market Analysis – The Russell 3000 Index ($RUA) fell for the 4th time in 5 sessions following the intraday pullback to 1,542. Fresh support is at 1,540-1,525 held with a close back below 1,520 signaling additional selling pressure.
Lowered resistance is at 1,565-1,580. Continued closes above the latter would be a slightly bullish development but the recent death cross that has formed is signaling lower lows down the road.
RSI is flatlining with resistance at 40. Continued closes above this level would be a bullish development for a run towards 45-50. Support is at 35 with a move below this level signaling additional weakness.
The Spider S&P Retail ETF (XRT) was down for the 4th time in 5 sessions
extended its losing streak to 4-straight sessions despite testing a morning high of $44.31 shortly after the open.
Resistance at $44-$44.50 held. A recent death cross has formed with the 50-day moving average falling below the 200-day moving average and is a bearish development moving forward.
The backtest to $42.91 held near-term support is at $43-$42.50. A close below the latter would signaling additional weakness and fresh 52-week lows.
RSI has been in downtrend and is trying to hold support 30. A move below this level opens up risk towards 25-20and October lows. Resistance is at 35-40.
All the best,
Roger Scott.