Tuesday, February 11, 2020

Market Action

U.S. markets were choppy throughout Tuesday’s session following comments from Fed Chair Jay Powell shortly after the open. Powell said there is a lot of uncertainty regarding the impact of the coronavirus and the potential spillover. More importantly, he said the key for the FOMC will be whether the impacts result in a "material change" in the outlook and that it's too early to tell.

The Russell 2000 gained 0.6% following the first half push to 1,686. Near-term and lower resistance at 1,675-1,690 was cleared and held with a close above the latter signaling strength towards the 1,700 level.

The S&P 500 climbed 0.2% with the intraday and all-time high reaching 3,375. Fresh and lower resistance at 3,375-3,400 was kissed but held with upside potential towards 3,425-3,450 on a close above the latter.

The Nasdaq edged up 0.1% after testing another record high of 9,714 shortly after the opening bell. New and lower resistance at 9,700-9,750 was cleared but held with a move above the latter signaling additional momentum towards 9,800-9,850.

The Dow slipped a half-point, or 0.002%, despite trading to a fresh lifetime high of 29,415 shortly after the open. Current and lower resistance at 29,400-29,600 was cleared but with a close above the latter keeping upside potential towards 29,600-29,800 in play.

Real Estate and Energy led sector strength with gains of 1.2% and 1.1%.

Consumer Staples and Technology were the leading sector laggards after falling 0.4% and 0.3%, respectively.

Global Economy

European markets settled higher across the board.

The Belgium20 surged 1.2% and Germany's DAX 30 rallied 1%. The Stoxx 600 was up 0.9% while UK's FTSE 100 and France’s CAC 40 rose 0.7%.

Asian markets closed higher as Chinese workers and factories slowly returned to work even as the death toll from the coronavirus outbreak in China cleared 1,000 people.

Hong Kong's Hang Seng soared 1.3% and South Korea’s Kospi rallied 1%. Australia’s S&P/ASX 200 was higher by 0.6% and China's Shanghai gained 0.4%. Japan’s Nikkei was closed for a holiday.

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U.S. Economy

NFIB small business optimism index bounced 1.6 points to 104.3 in January, recovering most of the 2 point decline to 102.7 in December. Six of the ten components improved and the economic expansion continues its historic run, said the report. Additionally, a historically high percentage of business owners plan to boost compensation as the inability to find qualified workers is the top concern of 26% of respondents. The report also indicated 28% of employers believe it's a good time to expand, although the net percentage of firms expecting a better economy fell to 14% from 16%.

JOLTS reported job openings dropped -364,000 to 6,423,000 in December after falling -574,000 in November to 6,787,000. Expectations were for a print of 6,775,000. The JOLTS rate slipped again to 4%, after diving to 4.3% in November from 4.6% in October. Quitters declined -80,000 to to 3,488,000 with the rate holding steady at 2.3%. Hirings rose 80,000 to 5,907,000, with the rate rising to 3.9% versus 3.8%.

Chain Store Sales were unchanged last week following the prior 0.7% increase. The 12-month pace slowed to 2.2% year-over-year from the 3.1% jump previously.

Market Sentiment

Fed Chairman Jay Powell sees no reason why the expansion won't continue and there is nothing about this expansion that is unstable or unsustainable. He said the system is strong and has strengthened since the financial crisis. The most significant risk to the financial system, he believes, is cyber attacks, which are the new frontier.

Powell indicated minimum wage laws have played a roll in boosting wages, but said a strong labor market and very low unemployment are bigger factors. He repeated that the Fed doesn't take a position on minimum wage legislation is for Congress to decide. Earlier on Libor he said the Fed is committed to having banks switch over to a new rate. He doesn't believe a change in laws is necessary, but if analysts do, analysts will let you know, he said.

The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streak snapped following the intraday pullback to $143.94. Current and upper support is at $144-$143.50 was breached but held. A move below the latter would signal additional weakness towards $143-$142.50.

Near-term and lowered resistance is at $144.50-$145.

Volatility Index

The S&P 500 Volatility Index ($VIX) tested an intraday low of 14.38 before settling slightly higher. Current and upper support at 15-14.50 was breached but held.

Near-term resistance at 16-16.50 held on the intraday pop to 15.27 and close back above the 200-day moving average. A close above the 16.50 level would be a bearish development with upside risk towards 17.50-18.

Market Analysis

The S&P 400 Mid Cap Index ($MID) was up for the 2nd-straight session after testing a morning high of 2,085. Near-term and lower resistance at 2,070-2,090 was cleared and held. Continued closes above the latter would be a more bullish signal of a near-term bottom with retest potential towards 2,100-2,120 and the recent all-time high at 2,106.

Current and upper support is at 2,050-2,030 and the 50-day moving average. A close below the latter would signal additional weakness towards 2,020-2,000.

RSI is in a slight uptrend after clearing key resistance at 55. Continued closes above this level would signal additional strength towards 60-65. Support is at 50 with risk towards 45-40 on a close below this level with the latter representing the monthly low.

Sector

The Spider S&P Retail ETF (XRT) extended its winning streak to 2-straight session after reaching a morning peak of $44.56. Near-term and upper resistance at $44.25-$44.50 was cleared but held on the close above the former. Continued closes above the $44.50 would signal additional strength towards $44.75-$45 and the 50-day moving average.

Current support is at $44-$43.75. A close below $43.50 would be a bearish development with backtest potential towards $43-$42.75 and the 200-day moving average.

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RSI is in an uptrend with key resistance at 50. Continued closes above this level would signal additional strength towards 55-60 with the latter representing the January peak. Support is at 45-40.


All the best,

Roger Scott
WealthPress