U.S. markets showed strength on Monday’s open and made a run past last week’s 2019 highs following more detailed developments concerning U.S./ China trade talks.
Reports say a deal could happen this month and the U.S. tariffs levied against China could end in exchange with China following up on its own promises to allow in more U.S. exports, among other measures.
The opening rally was immediately sold as the major indexes turned negative about 90 minutes afterwards and faced heavy selling pressure into the second half of action.
Volatility tested mid-February resistance levels as the VIX surged nearly 25% intraday but was able to hold the 15 level into the closing bell.
The Russell 2000 remains in a 10-session trading range after sinking 0.9% and testing an intraday low of 1,564.
Near-term and upper support at 1,575-1,560 was breached but held by a half-point with a close below 1,550 being a bearish development.
The Dow dropped 0.8% despite making a morning run to 26,155 but was the only index that didn’t clear last Monday’s intraday peak.
The 544-point reversal to 25,611 split support at 25,750-25,500 on the close above the former.
The S&P 500 stumbled 0.4% after testing a midday low of 2,767 and closing back below the 2,800 level.
Current and upper support at 2,775-2,750 was tripped but held with a close below the latter and the 200-day moving average being a bearish signal.
The Nasdaq gave back 0.2% following the pullback to 7,501 and a 142-point trading range.
Near-term and upper support at 7,500-7,450 and the 200-day moving average held with a move below the latter being a bearish signal for additional weakness.
Materials and Real Estate led sector strength after rising 0.5% and 0.4%, respectively.
Healthcare led sector weakness after tumbling 1.3%. Financials and Industrials fell 0.6% and 0.5%.
Global Economy – European markets settled mixed as traders digested the latest news surrounding trade discussions between the U.S. and China.
France’s CAC 40 and UK’s FTSE 100 rose 0.4% while the Stoxx 600 Europe climbed 0.2%. The Belgium20 and Germany’s DAX 30 slipped 0.1%.
Asian markets settled mostly higher with China’s Shanghai jumping 1.1% to a 9-month peak and Japan’s Nikkei rallying 1%.
Hong Kong’s Hang Seng was higher by 0.5% and Australia’s S&P/ASX 200 was up 0.4%. South Korea’s Kospi dipped 0.2%.
December Construction Spending fell 0.6%, missing forecasts for a gain of 0.3% for the month. However, Construction Spending is still up 1.7% year-over-year.
Private construction spending declined 0.6%, and was down 1.4% for residences. Nonresidential private spending rose 0.4%. Public spending also declined 0.6%.
For all of 2018, spending is up 4.1% year-over-year, though the weakest since 2011.
The Conference Board reported its January leading index was unchanged at 111.3 after incorporating new estimates. Previously the index had posted a 0.1% dip as December was bumped down to 111.3 from 111.4, previously.
A revision was seen in January nondefense capital goods orders excluding aircraft, now at a 0.05% gain versus 0.01% previously, while December was nudged down to -0.5% from 0.02% previously.
February TD Ameritrade IMX Level checked in at 4.59.
Atlanta Fed’s GDPNow for Q1 dipped to 0.29%, versus 0.343% from last Friday.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 3-session slide on the rebound to $119.77.
Prior and lower resistance at $119.50-$120 was cleared and held with more important hurdles at $120.50-$121 and the 50-day moving average that is showing signs of leveling out.
Near-term and shaky support is at $119-$118.50. A close below the latter opens up risk towards $118-$117.50 and the 200-day moving average in play.
Market Analysis – The Russell 3000 Index ($RUA) closed in negative territory despite the intraday run just shy of 1,668 and fresh 2019 high. Resistance from late February 2018 at 1,665-1,670 was split but held.
Continued closes above 1,675 would be a more bullish development for a push towards 1,685-1,700 and previous October 2018 support levels that failed to hold.
The index to trying to breakout above a triple-top at 1,650-1,660 and levels that were formed in Mid-October, early November, and again last Monday.
These levels will now to try to hold as near-term support and possible consolidation on a continued pullback or trading range.
The sudden reversal to 1,638 afterwards held backup support at 1,640-1,625 and the 200-day moving average. A close below the latter would be a bearish development and signal a possible near-term top.
RSI is in a back in a downtrend after failing resistance on the open at 70 from mid-February and last August. Continued closes above this level would be a bullish signal for a move towards 75-80 and January 2018 highs.
Upper support at 65-60 held on the selling pressure with a move below the latter signaling additional weakness.
The Financial Select Sector Spiders (XLF) has been in a mini trading range between $26.25-$26.75 over the past 10 sessions but is showing signs of a breakout.
Near-term resistance at $26.75-$27 was tested for the 2nd-straight session with Monday’s peak reaching $26.94. Continued closes above $27.25 would be a bullish development as this level held twice last November.
In technical terms, a double-top breakout could be coming, or, a triple-top pullback if $27.25 holds a 3rd-time.
The fade to $26.30 held upper support at $26.50-$26.25 on the close back below the 200-day moving average.
A close below $26 would be a bearish signal with risk towards $25.50-$25.25 and a rising 50-day moving average.
RSI is in a slight downtrend after failing lower resistance at 65-70.
A move above the latter and the mid-January and mid-September peak would signal additional strength. Near-term support at 60 was breached on the weakness afterwards with risk to 55-50.
All the best,
Roger Scott.