U.S. markets showed continued strength to start February and ahead of the State of the Union address on Tuesday and Fed Chair Jerome Powell’s upcoming remarks on Wednesday.
Earnings will also play a key role in current momentum as the major indexes continue to push fresh resistance levels.
Meanwhile, volatility continues to weaken and is showing signs of ongoing near-term strength in the market.
The Nasdaq was up for the 3rd time in 4 sessions after jumping 1.2% and making a run to 7,348 ahead of the closing bell.
Fresh and lower resistance from late November at 7,350-7,400 held with a move below the latter getting 7,450-7,500 and the 200-day moving average in play.
The Russell 2000 soared 1% while closing at the session high of 1,517.
Fresh and lower resistance at 1,515-1,525 was cleared and held with a move above the latter being a continuing bullish signal.
The Dow rallied 0.7% after trading to a high of 25,239 into the close and session peak.
Fresh and lower resistance at 25,250-25,500 held on the 2nd-straight close above the 200-day moving average.
The S&P 500 was also higher by 0.7% following the trip to 2,724 into the closing bell.
Lower resistance at 2,725-2,750 held by 1/100th of a point with a move above the latter and the 200-day moving average signaling additional momentum.
Technology and Financial were the strongest sectors after surging 1.6% and 1.3%.
Communication Services rallied 1%.
Healthcare and Materials were down 0.3% and 0.2%, respectively, and were the only sector laggards.
Global Economy – European markets settled mixed following weakness in the Financial sector on disappointing earnings and weaker-than-expected economic news.
UK’s FTSE 100 rose 0.2% and the Stoxx 600 Europe edged up 0.1%.
France’s CAC 40 was down 0.5% and Germany’s DAX 30 was down 4 points, or 0.04%. The Belgium20 slipped a point, or 0.03%.
UK construction PMI fell to 50.6 in January, down from 52.8 in December.
Asian markets settled mixed as South Korea’s Kospi and China’s Shanghai were closed for holidays.
Australia’s S&P/ASX 200 and Japan’s Nikkei rose 0.5%. Hong Kong’s Hang Seng climbed 0.2%.
The Caixin China services Purchasing Managers’ Index slipped to 53.6 in January from 53.9 in December.
Factory Orders dipped 0.6% in November, missing estimates for a rise of 0.2%, and follows October’s 2.1% drop. This represents two consecutive months of declines after September’s 0.2% gain.
The 0.8% rise in Advance durable orders was nudged to 0.7%. Transportation orders bounced 3% versus -12.4% previously.
Excluding transportation, factory orders declined 1.3% from 0.2%.
Nondefense capital goods orders excluding aircraft were down 0.6%, erasing October’s 0.5% gain.
Shipments fell 0.6% from -0.1%. Nondefense capital goods shipments excluding aircraft slid 0.2% from 0.8%. Inventories dipped 0.1% from 0.2%.
Market Sentiment – The January Fed’s Senior Loan Officer Survey indicated banks generally tightened standards for commercial real estate (CRE) loans over the past three months.
However, standards and most terms on commercial and industrial (C&I) loans remained basically unchanged. Demand for loans to businesses reportedly weakened.
Banks also reported their lending standards for most categories of consumer loans and residential real estate loans remained basically unchanged on balance.
Credit cards were the one exception, with standards reportedly tightening over the quarter while banks reported weaker demand for all categories of loans to households.
Results from a special set of questions indicated banks reported expecting to tighten standards for all categories of business and credit card loans, as well as jumbo mortgages.
Demand for most loan types is expected to weaken, on net, with the one exception being credit card loans.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 2nd-straight session following the intraday pullback to $120.03.
Fresh and upper support at $120.50-$120 was breached and failed to hold with a close below the latter signaling additional weakness $119.50-$119 and the 50-day moving average.
Lowered resistance is at $121-$121.50.
Market Analysis – The Russell 2000 ETF (IWM) extended its winning streak to 4-straight sessions after trading to a late session high of $150.97. Prior resistance from late November at $151-$151.50 was challenged but held.
Continued closes above the latter would be a bullish signal for a possible run towards $152.50-$155, depending on momentum.
Near-term support is at $150-$149.50 with a close below the latter being a slightly bearish signal.
RSI is approaching late August resistance near 70.
A move above this level could lead towards a run at 75 and the mid-June peak.
Support is 65-60 with a move below the latter signaling additional weakness.
The Utilities Select Spider (XLU) was up for the 4th time in 5 sessions despite the morning backtest to $53.93. Fresh and upper support is at $54-$53.75 and the 50-day moving average held.
A move below $53.50 would signal a near-term top with additional weakness towards the $53 level.
Resistance is at $54.75-$55 with the latter representing a multi-month hurdle since October.
Continued closes above this level would be a bullish development.
RSI is flatlining with resistance is at 60.
Continued closes above this level would be a near-term bullish signal for a run towards 65-70 and December highs. Support is at 55-50.
All the best,
Roger Scott.