U.S. markets pushed prior resistance and traded to fresh all-time highs to open 2018 and ahead of tomorrow’s FOMC minutes. The Nasdaq led the charge after surging 1.5% to clear the 7,000 level for the second time ever while closing at an all-time high of 7,006.

The S&P 500 jumped 0.8% while ending at a record high of 2,695.

The Russell 2000 rallied 0.9% and came within 9 points of a record high while settling at 1,550. The Dow missed its all-time high by a dozen points after rising 0.4% while clearing and holding prior resistance at 24,800.

Energy led sector strength after rallying 1.6% followed by Consumer Discretionary and Materials which added 1.5% and 1.4%, respectively. Utilities sank 0.9% to led sector laggards while Consumer Staples and Real Estate gave back 0.6%.

Global Economy- European markets traded mostly lower following weaker-than-expected manufacturing data out of the UK along with a rising pound against the dollar.

UK’s FTSE 100 and France’s CAC 40 fell 0.5% while Germany’s DAX 30 lost 0.4%. The Stoxx Europe 600 dipped 0.2% and the Belgium20 was up over a point, or 0.04%

The U.K. purchasing managers index fell to 56.3 in December, down from 58.2 a month earlier, and below forecasts for a reading of 57.9.

ECB Executive Board member Coeure said given what they see in the economy, he believes there is a reasonable chance that the extension of their asset purchase program decided in October was the last.

Asian markets showed strength with Hong Kong’s Hang Seng surging 2% to close at a 10-year high. China’s Shanghai jumped 1.3% and South Korea’s Kospi gained 0.5%.

Australia’s S&P/ASX 200 slipped 0.1% while Japan’s Nikkei was unchanged after closing for a holiday.

The China December Caixin flash manufacturing PMI unexpectedly rose 0.7 to 51.5, stronger than expectations for a dip of 0.1 to 50.7 and the fastest pace of expansion in 4 months.

The Markit’s manufacturing PMI jumped to 55.1 in the final December reading, topping expectations of 55, and up 1.2 points from the 53.9 reading for November.

The employment component climbed 1.1 points to 55.8 and was the best reading since September 2014. The backlog of work also rose to its best level since October 2015.

Market Sentiment- Fed funds futures dipped to open 2018 and has left implied rates suggesting about a 65% probability for a rate hike at the March 20th, 21st meeting.

There’s little chance for any action as soon as the January 30th, 31st meeting, however. Fed futures are also implying two tightenings in 2018, in contrast to the FOMC’s dot plot that shows three.

It is also important to note that there will be a number of changes on the FOMC board this year.

The iShares 20+ Year Treasury Bond ETF (TLT) was weak throughout the session after trading to a low of $125.08. Support at $125.50-$125.25 and the 50-day moving average was breached but held into the closing bell. Lowered resistance is at $125.75-$126.

 

Market Analysis- The Spiders Dow Jones Industrial Average ETF (DIA) traded to a high of $248.49 with resistance at $248.50-$249 and the all-time peak of $248.61 holding.

Continued closes above the latter could lead to a run towards $250-$252.

Support is at $247-$246.75 with a move below the latter likely leading to a further backtest towards $245-$242.50.

RSI is holding support at 70 with a close below this level being a slightly bearish development. December resistance is at 75-80.

 

The Financial Select Sector Spiders (XLF) have traded in a tight range between $27.75-$28.25 over the past 10 sessions with today’s high tapping $28.09.

There is breakout potential to $29.50-$30 on continued closes above $28.25. Support is at $27.75 with risk to $27.50-$27.25 on a move below this level.

The 50-day moving average remains is a solid uptrend and has been holding following the mid-September breakout above this indicator.

RSI is trying to hold mid-December support at 60 with risk to 50. A run towards 70 could come on continued strength.

All the best,
Roger Scott