U.S. markets showed strength on Tuesday following 3 sessions of heavy selling pressure as the start of the Fed’s 2-day meeting on interest rates got underway.
While most of Wall Street is expecting a quarter-point rate hike, the hope is the Fed’s language will soften for future rate hikes, or none, in 2019.
If the Fed decides to hold off on a rate hike, it will look as though the Fed caved to President Trump’s tweets on halting rates.
Trump is ticked that the Fed is raising rates while he fights a trade war and the Fed is mad at Trump for waging a trade war while they raises rates. In any event, volatility stayed slightly elevated but held major resistance heading into the decision.
The Nasdaq added 0.5% after reaching a midday peak of 6,847. Lower resistance at 6,850-6,900 held with a move above 6,903 needed to get the index back into positive territory for the year.
The Dow rose 0.4% after testing an intraday high of 23,927.
Near-term and lower resistance at 23,800-24,000 held with a death cross is in play as the 50-day moving average is just 36 points away from falling below the 200-day moving average.
The S&P 500 edged up a fifth-point, or 0.01%, following the run to 2,573. Fresh and lower resistance at 2,575-2,600 held with continued closes above the latter being a slightly bullish development.
The Russell 2000 slipped a point, or 0.1%, despite the opening run to 1,399.
Fresh resistance and prior support at the 1,400 level held by a half-point with continued closes above 1,425 being a more bullish development for a possible near-term bottom.
Real Estate led sector strength after rising 1% while Technology and Consumer Discretionary advanced 0.8%.
Energy led sector laggards after tanking 2.4%. Consumer Staples and Health Care fell 1.2% and 0.9%, respectively.
Global Economy – European markets closed lower following weaker-than-expected economic data and ongoing political uncertainty.
UK’s FTSE 100 dropped 1.1% and France’s CAC 40 fell 1%. The Stoxx 600 Europe was lower by 0.8% and the Belgium20 was off 0.4%. Germany’s DAX 30 slipped 0.3%.
December German IFO business climate fell 1 to a 2-year low of 101, weaker than expectations for a dip of 0.3 to 101.7.
Asian markets settled settled lower following a keynote speech by Chinese President Xi Jinping to mark China’s 40th anniversary of the Reform and Opening Up campaign that offered no fresh commitments to stimulate China’s economy.
Australia’s S&P/ASX 200 sank 1.2% and Hong Kong’s Hang Seng stumbled 1.1%.
China’s Shanghai gave back 0.8% and Japan’s Nikkei was lower by 0.6%. South Korea’s Kospi declined 0.4%.
November Housing Starts rose 3.2% higher to 1,256,000, better than forecasts of 1,225,000. There was a big downward revision to October, where starts dropped 1.6% to 1,217,000, revised from 1,228,000.
On a 12-month basis, starts are down 3.6% year-over-year versus -3.8% year-over-year (revised from -2.9% y/y).
Building permits climbed 5% to 1,328,000 after falling 0.4% to 1,265,000 previously. Much of the strength in starts was in multifamily, which jumped 22.4% to 432,000 after falling 1.4% to 353,000 in October.
Single family starts declined 4.6% to 824,000 after dropping 1.7% to 864,000 previously.
Redbook Store Sales were up 7.1% for the year in the week ending December 15th.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after testing a high of $119.79. Fresh and lower resistance at $119.50-$120 was cleared and held.
Continued closes above the latter would be a bullish development for a possible push towards $120.50-$121 and August highs.
Rising support is at $119-$118.50.
Market Analysis – The Russell 2000 ETF (IWM) fell for the 9th time in 10 sessions testing a high of $139.18 shortly after the open. Fresh and lower resistance at $139.50-$140 easily held.
Continued closes above $142.50 would be a slightly bullish development and signal a possible near-term bottom.
Near-term support at $136.50-$136 held following the fade to $136.39. Longer-term support levels from September/ August 2017 are at $135-$132.50 of $136 fails to hold.
RSI remains in a downtrend with support at 25-20 and October lows. Resistance is at 30-35.
The Financial Select Sector Spiders (XLF) was down for the 9th time in 11 sessions after trading to a fresh 52-week low of $23.75.
Longer-term and upper support from September 2017 at $23.75-$23.50 held with a move below the latter being a continued bearish development.
Lowered resistance is at $24-$24.25 with more important hurdles at $24.50-$25. Continued closes above the latter would signal a possible near-term bottom.
The index is officially in bear market territory as it is down just over 20% from its 52-week peak north of $30.
RSI continues to trend lower with support at the 25 level and the October low.
A move below this area gets 20 and July 2015 lows in play. This would signal severe oversold conditions. Resistance is at 30.
All the best,
Roger Scott.