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Thursday, September 12, 2019

Market Action

U.S. markets continued their assault on prior all-time highs on Thursday after President Trump announced a 2-week delay to the increased tariffs on $250 billion worth of Chinese imports expected on October 1st to the 15th.

The good faith gesture renewed hoped of resolving a more than yearlong international trade dispute and comes ahead of next month’s scheduled meeting at the White House.

The Nasdaq gained 0.3% following the morning run to 8,243. Prior and lower support at 8,250-8,300 was challenged but held with a close above the latter and the all-time high at 8,339 opening up blue-sky territory towards 8,450-8,500.

The S&P 500 was also higher by 0.3% after extending its winning streak to 3-straight sessions while kissing a midday high of 3,020. Major resistance at 3,025 and the late July closing high held with upside potential towards 3,050-3,075 and new all-time highs on a move above 3,028.

The Dow posted its 7-straight win after adding 0.2% and reaching an intraday peak of 27,306. Major resistance at 27,250 was cleared but held with a close above the July all-time high at 27,398 getting 27,500-27,750 in focus.

The Russell 2000 slipped less than a point, or 0.04%, after trading mostly lower throughout the session and stalling at 1,580. Fresh and upper support at 1,570-1,555 was breached but held following the intraday backtest to 1,562 with a move below 1,540 signaling a near-term top.

Materials were the strongest sector after rallying 0.8% while Real Estate and Financials gained 0.6%. Energy was the main sector laggard after falling 0.6% while Healthcare dipped 0.03% to round out the losers.

Global Economy

European markets closed higher after the ECB announced it would cut its main deposit rate by 10 basis points to -0.5%, and that its quantitative easing program will include asset purchases of 20 billion euros per month for as long as it deems necessary.

The Belgium20 rose 0.6% while France’s CAC 40 and Germany's DAX 30 added 0.4%. The Stoxx 600 climbed 0.2% and UK's FTSE 100 edged up 0.1%.

Asian markets closed mostly higher following the slightly positive trade developments on the U.S./ China trade front. President Trump said the decision to extend the increased tariffs on $250 billion dollars on China imports was made at the request of Chinese Vice Premier Liu He and in consideration of the 70th anniversary celebrations of the People’s Republic of China.

South Korea’s Kospi, Japan’s Nikkei, and China's Shanghai were all up 0.8%. Australia’s S&P/ASX 200 added 0.3% while Hong Kong's Hang Seng declined 0.3%.

U.S. Economy

Initial Jobless Claims fell 15,000 to 204,000, lower than forecasts of 215,000, after rising 3,000 to 219,000 the prior week. The 4-week moving average fell to 212,500 versus 216,750. Continuing claims slip 4,000 to 1,670,000 following the 27,000 drop to 1,674,000 previously.

CPI rose 0.1% in August, with the core rate increasing 0.3%, and a little above expectations of 0.2%. There were no revisions to July's 0.3% gains for both. On a 12-month basis, the headline index slowed to a 1.7% year-over-year pace versus 1.8% and the core rate accelerated to 2.4% versus 2.2%. Energy prices weighed on the headline, dropping 1.9% versus the prior 1.3% rebound, with transportation costs falling 0.6%. Services costs nudged up 0.2% from 0.3% previously. Housing costs rose to 0.4% from 0.3% while food and beverage prices were unchanged. Apparel increased 0.2% from the prior 0.4% gain and medical care rose to 0.7% from 0.5% previously. Education was flat, but personal computer prices rose added another 1.2% after jumping 2.8% previously. Tobacco prices were up to 1.5% from 1%.

Treasury Budget came in at a -$200.3 billion deficit for August, as forecast, and a little narrower than the -$214.2 billion shortfall in August 2018. Receipts increased 4% year-over-year, while spending declined 1.1%. For the 11 months of the fiscal year, the deficit stands at -$1.07 trillion versus the -$898.1 billion over the same period last year, with receipts 3.4% higher, and spending up 7%. Analysts are forecasting -$960 billion in red ink for all of fiscal 2019.

Market Sentiment

Fedspeak has been quiet during this week’s blackout period and ahead of the FOMC minutes next Wednesday. The slide in inflation expectations is a key factor in the FOMC's policy calculus and it should keep the Fed on course with a rate cut next week. However, with U.S. growth still looking good, and some diminution of trade worries as U.S.-China talks are set to resume next month, the easing should only be a modest adjustment as a quarter-point cut is widely expected.

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The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 4-straight sessions despite tapping an opening high of $141.80. Lower resistance at $141.50-$142 was breached but held for the 2nd-straight session.

The intraday tumble to $139.06 held previous and upper support at $139-$138.50. A close below the latter and the 50-day moving average would be an ongoing bearish signal with risk towards $137.50-$136 and prior breakout levels from early August.

Volatility Index

The S&P 500 Volatility Index ($VIX) bubbled to a high of 14.94 shortly after the opening bell with fresh and lower resistance at 15-15.50 holding. There is risk towards 16-16.50 and the 50-day moving average on a close back above these levels.

The midday fade to 13.85 tripped upper support at 14-13.50 but a level that held into the closing bell. A close below the latter ahead of the weekend would be a bullish signal for next week.

Market Analysis

The Spider Small-Cap 600 ETF (SLY) extended its wining streak to 4-straight despite a choppy session and intraday pullback to $68.72. Fresh and upper support at $69-$68.50 was breached but held into the closing bell with a move below the latter likely getting $68-$67.50 back in play.

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Resistance is at $69.50-$70 with the latter representing the early May and late February highs. Thursday’s late day peak reached $69.68. Continued closes above the $70 level would be an ongoing and very bullish development for a run towards $72-$72.50, with these levels representing prior support from October 2018.

RSI is showing signs of flatlining after clearing resistance at 65. Continued closes above this level would signal additional strength towards 70-75 and February highs. Support is at 60 with a move below this level signaling additional weakness towards 55-50.

Sector

The iShares PHLX Semiconductor ETF (SOXX) was up for the 7th-straight session after trading to a fresh 52-week and all-time peak of $221.31. Blue-sky and lower resistance at $221-$221.50 was cleared but held. Continued closes above the latter would be an ongoing bullish signal with additional strength towards $222.50-$223 over the near-term.

Late July and fresh support is at $219-$218.50. Backup help is at $218-$217.50 with a close below the latter signaling a possible near-term top.

RSI remains in an uptrend with resistance at 70. A close above this level would signal additional strength towards 75-80 with the latter representing the July and April highs. Support is at 65-60 with downside risk towards 55-50 on a move below 60.

All the best,

Roger Scott
WealthPress