U.S. markets showed continued upside momentum on prospects of a tax reform bill being passed and signed into law before the Christmas holiday. The Nasdaq traded above the 7,000 level to another record high after jumping 0.8% while the Dow moved closer to the 25,000 level after rising 0.6%.

The S&P 500 added 0.5% and came within five points of clearing the 2,700 level on its 62nd record close of the year. Meanwhile, the Russell 2000 rallied 1.2% but fell shy of setting a fresh record high by seven points just south of 1,560.

Materials and Financials were sector standouts after gaining 1.5% and 1%, respectively. Utilities were the main laggard with the sector sinking 1.1% while Consumer Discretionary slipped 0.1%.

Global Economy- European markets showed strength for the first time in four sessions with Financial stocks leading the way higher. Germany’s DAX 30 zoomed 1.6% and France’s CAC 40 surged 1.3%.

The Stoxx Europe 600 advanced 1.2% while the Belgium20 soared 0.8%. UK’s FTSE 100 climbed 0.6%.

ECB Governing Council member Liikanen said that the strong recovery in the Eurozone, and reduction of economic slack, support confidence in inflation converging towards their inflation aim in due course.

The UK December CBI trends total orders was unchanged at 17, stronger than expectations for a drop of 2 to 15. December CBI trends selling prices rose 6 to a 6-month high of 23.

Asian markets closed mostly higher following better-than-expected economic news from Japan and China. Japan’s Nikkei surged 1.6% while Hong Kong’s Hang Seng and Australia’s S&P/ASX 200 rose 0.7%.

China’s Shanghai climbed 0.1% and South Korea’s Kospi dipped a fifth-point, or 0.01%.

China’s economic conference started on Monday with reports indicating the 2018 GDP growth goal is expected to stay unchanged at 6.5%.

China November new-home prices rose in 50 of 70 cities, unchanged from October. November new-home prices fell in 10 cities, less than 14 that fell in October.

The Japan November trade balance shrank to a surplus of 113.4 billion yen, more than expectations of a $40 billion yen deficit. November exports rose 16.2% year-over-year, stronger than expectations of 14.7%. November imports rose 17.2%, weaker than expectations of 18%.

The NAHB Housing Market Index improved to 74 in December from a revised 69 reading in November. The index is at the highest level since July of 1999 when it had a 75 reading with the record high of 78 set in December of 1998.

Market Sentiment- Minneapolis Fed’s Kashkari said he voted against a rate hike last week on worries over weak inflation and flattening of the yield curve. He went on to add, these concerns could potentially signal an increasing risk of a recession. Kashkari will be speaking again on Tuesday.

The iShares 20+ Year Treasury Bond ETF (TLT) traded lower throughout the session while bottoming at $126.91 intraday to snap a 3-session win streak.

Backup support at $127-$126.75 held into the closing bell with a move below the latter signaling additional weakness. Lowered resistance is at $127.50-$127.75.

 

Market Analysis- The Russell 3000 Index ($RUA) traded to an all-time high of 1,594 with fresh resistance at 1,595-1,600 on continued momentum.

We highlighted the volatility at the start of the month on the backtest to 1,543 and mentioned a close below 1,540 would be a bearish development but that a run to 1,590-1,600 could come, if held. Current support is at 1,580-1,575.

RSI is back in an uptrend near 75 and is approaching late November resistance. Continued closes above this level would be bullish for a possible run towards 80 and October highs.

 

The iShares PHLX Semiconductor ETF (SOXX) recently bottomed just below the $165 level earlier this month. The low reached $164.38 and represented a nearly 10% pullback from the late November and all-time high of $181.88.

A higher floor of support is trying to form at $170-$167.50 with risk to $165 on another close below the latter. Current resistance is at $174.50-$175 following today’s 2.1% pop and close above the 50-day moving average.

RSI is back in an uptrend after holding August support near the 40 level.

Continued closes above 55-60 would be a bullish signal for further strength for a possible run at 70 and mid-November resistance.

 

All the best,
Roger Scott