U.S. markets were tentative throughout the first half of action as Wall Street awaited the release of the minutes from January’s FOMC meeting.

The minutes were mostly in-line with expectations, with no concrete news on the balance sheet, and a patient approach to rate policy.

The major indexes reached sessions peaks ahead of, and just after the Fed minutes, with Tech lagging to session lows on the news, but still closing higher.

Word that President Trump could be easing off the hard deadline for increasing tariffs on Chinese goods also helped sentiment after he said the March 1st deadline to complete talks with Beijing is not a magical date.

The Russell 2000 was up for the 8th-straight session after adding 0.5% and testing a high of 1,583.

Upper resistance at 1,570-1,580 was cleared and held into the close to keep fresh hurdles at 1,590-1,600 and the 200-day moving average in play.

The Dow gained 0.3% following the late day push to of 25,986.

Lower resistance at 26,000-26,250 held for the 2nd-straight day with a close above these levels being a continuing bullish signal.

The S&P 500 joined the blue-chips with its 3rd-straight higher close after also advancing 0.2% while peaking at 2,789.

Fresh resistance at 2,800-2,825 is now in play as long as 2,775-2,765 holds over the near-term.

The Nasdaq also extended its winning streak to 8 in-a-row after rising 2 points, or 0.03%, while peaking at 7,513 intraday.

Lower resistance at 7,500-7,575 was cleared but held for the 2nd-straight session.

Materials led sector strength for the 2nd-straight session after surging 1.7%.

Financials rose 0.6% while Industrials and Utilities gained 0.5%.

Real Estate and Communication Services paced sector laggards after giving back 0.6% and 0.4%, respectively.

Global Economy – European markets closed higher across the board despite lawmakers from Britain’s ruling Conservative Party announcing they had quit to join a new centrist group in Parliament.

They issued a joint statement saying the government’s handling of Brexit has been disastrous.

The Belgium20 rallied 0.9% and Germany’s DAX 30 rose 0.8%. UK’s FTSE 100, France’s CAC 40, and the Stoxx 600 Europe were all higher by 0.7%.

Asian markets closed mostly in the green despite disappointing economic news out of Japan that shows China’s slowdown and trade tensions with the U.S. are hurting demand.

South Korea’s Kospi soared 1.1% and Hong Kong’s Hang Seng jumped 1%. Japan’s Nikkei advanced 0.6% and China’s Shanghai climbed 0.2%. Australia’s S&P/ASX 200 dipped 0.2%.

Japan’s imports fell 0.6%, leaving a deficit of 1.4 trillion yen, or $12.8 billion, up 50% from a year earlier.

Japan’s exports to China sank 17% along with a 13% decline in exports to the rest of Asia.

MBA Mortgage Applications jumped 3.6% in the week ending February 15th, and represented first increase since January 11th. A 6.4% surge in the refinancing index led the way, with purchases up 1.7%.

The average 30-year fixed rate checked in 4.66%, fractionally higher than the prior week’s 4.65% print, and the lowest levels since early March 2018. The rate was as high as 5.17% in early November.

Chain Store Sales rose 0.5% in the week ending February 16th, after rebounding to a revised rise of 0.9% the prior week.

The 12-month pace jumped to 2.7% year-over-year versus 1.6%.

Redbook Store Sales were up 5.4% for the year in the week ending February 16th.

Market Sentiment – The Fed still saw a strong labor market from their latest minutes, along with household spending, but said there was some moderation in business investment versus expectations.

Inflation remained near 2%. The minutes noted that downside risks had increased with concerns over trade, slowing in global, tighter financial conditions, fiscal policy, and the government shutdown.

The statement noted that some market reports suggested that investors perceived the FOMC to be insufficiently flexible in its approach to adjusting the path for the federal funds rate or the process for balance sheet normalization in light of those risks.

The minutes also said balance sheet runoff and associated quantitative tightening had been an important factor contributing to the selloff in equity markets.

Almost all Fed participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year.

On rates, many Fed heads suggested it wasn’t yet clear on what rate action might be appropriate late this year.

Meanwhile, Dallas Fed Robert Kaplan said a weaker business outlook is the reason for caution on rates.

He said this would come up in the FOMC minutes as well as the slowing in growth and cautious outlook.

Kaplan said the Fed may communicate its balance sheet plans more in coming months.

He added that the yield curve is signaling sluggish expectations for growth while the partial government shutdown created some confusion about the employment numbers.

The iShares 20+ Year Treasury Bond ETF (TLT) fell for the first time in 4 sessions following the backtest to $121.59.

Fresh and lower support at $122-$121.50 held. A move below the latter opens up risk towards $120.50-$120 and the 50-day moving average.

Resistance remains at $122.50-$123.

Market Analysis – The Invesco QQQ Trust (QQQ) had its 5 session winning streak snapped following the pullback to $171.32. Fresh support at $171.50-$171 and the 200-day moving average was split but held into the closing bell.

A move below the latter would signal a possible retest towards $170.50-$170.

Near-term resistance is at $172.50-$173. The QQQ’s have been in a mini trading range for the past 3 sessions with a close above the latter being a bullish development for a run towards $174.50-$175.

RSI is flatlining with late August resistance at 70.

A close above this level would signal additional strength towards 75-80 and January 2018 peaks. Support is at 60 with risk towards 55-50 on a move below this level.

The Spiders S&P Homebuilders ETF (XHB) ended its 2-session winning streak after testing an intraday low of $38.60. Rising support at $38.50-$38.25 held.

A move below $38 would signal additional weakness towards $37.50-$37 and the 200-day moving average.

Current and major resistance is at $39 and a level that represents late September support.

Continued closes above this level would be bullish for a run towards $39.50-$40 over the near-term.

RSI is in a slight downtrend with support at 70. There is risk to 60-65 on a close below this level.

Resistance is at 75-80 with the latter representing late 2017 highs.

All the best,
Roger Scott.