U.S. markets showed weakness for a 3rd-straight session with the major averages settling mixed as Wall Street digested the latest economic and political news.
While both fronts played a role in market direction, the lower lows remain a slight concern although major support levels held for the 2nd-straight session.
In a reversal of this week’s technical pattern, the small-caps showed strength while the overall market lagged. Volatility also stayed elevated after trading to a higher high but the lower close is helping to confirm this week’s consolidation pattern.
The Russell 2000 climbed 0.2% after testing a second half high of 1,582. Prior and lower resistance at 1,585-1,600 and the 200-day moving average held with a close above the latter signaling a return of momentum.
The Nasdaq edged up 0.1% following the intraday push to 7,562.
Lower resistance at 7,550-7,600 was cleared and held with continued closes above the latter being a bullish signal for continued strength.
The S&P 500 dipped 0.1% after testing a morning low of 2,775.
Current and upper support at 2,775-2,750 held on the 2nd-straight lower low with a close below the latter and the 200-day moving average being a bearish development.
The Dow was down 0.3% following morning pullback to 25,877.
Fresh and upper support at 26,000-25,750 failed to hold for the 1st time in 4 sessions held with a close below the latter signaling lower lows.
Energy, Industrials and Financials were all up 0.4% while Utilities nudged up 0.1%.
Communications Services and Healthcare showed the most sector weakness after falling 0.5%. Real Estate declined 0.3%.
Global Economy – European markets closed lower on escalating geopolitical tensions between Pakistan and India.
UK’s FTSE 100 fell 0.6% and Germany’s DAX 30 gave back 0.5%. The Belgium20, France’s CAC 40 and the Stoxx 600 Europe declined 0.3%.
Asian markets settled lower ahead of the second summit between President Donald Trump and North Korean leader Kim Jong Un in Vietnam’s capital.
Japan’s Nikkei rose 0.5% while South Korea’s Kospi, Australia’s S&P/ASX 200 and China’s Shanghai were higher by 0.4%. Hong Kong’s Hang Seng slipped 0.1%.
MBA Mortgage Applications jumped 5.3%, with the purchase index up 6.1% and refis increasing 4.6%. Mortgage rates dipped slightly with the 30-year fixed easing to 4.65% from 4.66%.
The 15-year fixed checked in at 4%, and the 5-year adjustable was at 3.95%.
The Advance Goods Trade Deficit widened sharply to -$79.5 billion in December, a new record and larger than a projected, from -$73.7 billion.
Exports dropped 2.8% to $135.7 billion from $139.7 billion, with imports rising to $215.2 billion versus $210.2 billion.
Advance wholesale inventories increased to $661.8 billion from $654 billion. Advance retail inventories were up 0.9% to $651.1 billion from $645.4 billion.
Pending Home Sales surged 4.6% to 103.2 in January, much stronger than expectations for a print of 100 while snapping a string of 6-straight monthly declines.
Pending sales climbed in all four regions, with the South soaring 8.9%, the Midwest climbing 2.8%, and gains of 1.6% and 0.3% in the Northeast and West, respectively.
Factory Orders rose 0.1% in December, after sliding 0.5% in November but well shy of estimates for a rise of 0.6%. Transportation orders climbed another 3.2% after the prior 3.1% gain. Excluding transportation, factory orders dipped 0.6% from -1.3% previously.
Nondefense capital goods order excluding aircraft dropped 1% following -1.1% while shipments declined 0.2% from -0.5%.
Nondefense capital goods shipments excluding aircraft were flat after falling 0.2%. Inventories were unchanged at -0.1% and the inventory-shipment ratio was steady at 1.35.
The Fed’s final GDPNow forecast is steady at 1.8% for Q4. The Q4 real gross private domestic investment growth increased from -0.1% to 1.9%, while the nowcast of the contribution of net exports to growth decreased from -0.22% to -0.52%.
Market Sentiment – Fed Chairman Jerome Powell’s testimony has concluded with no major surprises in his comments.
He repeated several times that the Fed has a plan to end the balance sheet runoff by the end of the year, albeit with reserves considerably higher than pre-crisis levels.
Powell also said the Fed is looking to hold just Treasuries in its portfolio and noted patience a couple of times.
He argued against a “Powell put,” (obviously) but said financial conditions are something that works into the policy calculus. There was considerable time spent discussing regulation, especially for banks, stress tests, as well as Fed independence.
The iShares 20+ Year Treasury Bond ETF (TLT) continued its 5 whipsaw action after tumbling to a low of $120.28. Lower support at $121-$120.50 and the 50-day moving average was breached and failed to hold.
There is risk towards $120-$119.50 on continued weakness with a move below $119 being a more bearish signal.
Current and lowered resistance is at $121-$121.50.
Market Analysis – The Spider S&P 500 ETF (SPY) fell for the 2nd-straight session following the morning backtest to $277.48. Current and support is at $277.50-$277 held.
A move below the latter would be a slightly bearish development with risk towards $275-$272.50 and the 200-day moving average.
Near-term resistance at $279.50-$280 with more important hurdles at $279.50-$280. A close above the latter could lead to a melt-up rally towards $282.50-$285.
RSI is has slipped below the 70 level. Continued closes back above this level would signal a possible run towards 75-80 and January 2018 peaks.
Current support is at 65-60 with a move below the latter signaling additional weakness.
The Utilities Select Spider (XLU) snapped a 2-session slide after trading to a high of $56.86. Prior and multi-year resistance at $57-$57.25 held with a close back above the latter signaling additional strength towards $58-$60.
The recent 52-week,peak is at $57.18.
Near-term support is at $56.50-$56.25.
A move below $56 would signal a near-term top with additional weakness towards the $55.50-$55.25 and prior support from earlier this month.
RSI is back in a slight uptrend with resistance is at 70.
Continued closes above this level would be a near-term bullish signal for a run towards 75-80 and July 2018 highs. Support is at 65-60.
All the best,
Roger Scott.