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Tuesday, January 14, 2020

Market Action

U.S. markets were choppy throughout Tuesday’s action following the “official” start of 4Q earnings season. The Financial sector got a boast following mostly better-than-expected numbers from the big banks with the Financial Select Sector Spiders (XLF) hitting a fresh 52-week high.

In addition to earnings, the expected signing of the phase one trade deal between the U.S. and China hit a snag following reports there's been no agreement on a path forward with regard to tariff reduction. The major indexes faded from their record highs following the news to settle the session mixed.

The Russell 2000 gained 0.4% after trading in positive territory for much of the session with the intraday and 52-week high reaching 1,684. Near-term and lower resistance at 1,675-1,690 was cleared and held with a close above the latter getting the 1,700 level in focus.

The Dow edged up 0.1% following the midday record run to 29,054. Fresh and lower resistance at 29,000-29,200 was cleared but held with a close above the latter signaling additional momentum towards 29,300-29,500.

The S&P 500 slipped 0.1% after trading in a 17-point range while testing a record high of 3,294. Current and upper resistance at 3,275-3,300 was challenged but held on the 2nd-straight close above the former.

The Nasdaq slipped 0.2% despite testing an all-time high of 9,293. Current and upper resistance at 9,250-9,300 was challenged but held on the 2nd-straight close above the former, as well.

Healthcare and Utilities were the strongest sectors after rising 0.6% and 0.2%, respectively. Real Estate and Technology were the leading sector laggards after falling 0.5% while Materials were lower by 0.4%.

Global Economy

European markets closed higher across the board with modest gains.

The Belgium20 and the Stoxx 600 added 0.2%. France’s CAC 40 and UK's FTSE 100 edged up 0.1%. Germany's DAX 30 gained 5 points, or 0.04%.

Asian markets were mixed ahead of the signing of an initial trade truce to end a prolonged U.S./ China tariff dispute.

Hong Kong's Hang Seng slipped 0.5% and China's Shanghai was down 0.3%. Australia’s S&P/ASX 200 jumped 0.9% and Japan’s Nikkei gained 0.7%. South Korea’s Kospi climbed 0.4%.

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China exports rose 7.6% in December, versus a 1.3% drop in November, while imports were 16.3% higher than year ago.

U.S. Economy

Consumer Price Index for December rose 0.2%, with the core rate up 0.1%, a little below expectations, following respective November gains of 0.3% and 0.2%. On a year-over-year basis, the headline consumer price index accelerated to 2.3% versus 2.1%, with ex-food and energy component steady at 2.3% year-over-year. Energy prices increased 1.4% and food prices were up 0.2%. Transportation costs rose 0.5% and medical care costs were up 0.6%.

Market Sentiment

Kansas City Fed Esther George said it is appropriate to hold rates steady for now as analysts assess the economy's response to last year's rate cut and monitor incoming data. She expects the economy to remain solid this year as the robust labor market supports consumer spending but added factories are likely to remain relatively weak. She said inflation is expected to remain benign and that the 2019 rate cuts might have to be reversed.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 3rd time in 4 sessions following the intraday run to $138.82. Near-term and lower resistance at $138.50-$139 was cleared and held. A close above $139.50-$140 would signal a possible near-term bottom.

Current support remains at $138-$137.50 and the 50-day moving average.

Volatility Index

The S&P 500 Volatility Index ($VIX) was up for the 2nd time in 3 sessions despite testing an intraday low of 12.05. Current and upper support at 12-11.50 held.

The surge to 13.82 shortly afterwards breached near-term resistance at 12.75-13.25 but levels that held into the closing bell. The 2nd-straight close below the 12.50 level was a slightly bullish signal.

Market Analysis

The Wilshire 5000 Composite Index ($WLSH) was down for the 2nd time 3 sessions despite trading to an all-time intraday high of 33,588. Fresh and lower resistance at 33,500-33,600 was cleared but failed to hold. A close above the latter would signal a continued breakout towards 33,800-34,000, depending on momentum.

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Current and upper support at 33,400-33,300 was breached but held on the fade to 33,393 afterwards. A close below 33,250 would signal a possible near-term peak with additional weakness towards 33,200-33,000.

RSI has leveled out with resistance at 75-80. A close above the latter and the December high would signal additional strength towards 85 and overbought levels from January 2018. Support is at 70-65 with a close below the latter signaling additional weakness.


The Spiders S&P Homebuilders ETF (XHB) extended its winning streak to 5-straight sessions with Tuesday’s fresh all-time high tapping $46.89. New resistance at $46.75-$47 was cleared but held. Continued closes above the latter would be an ongoing bullish development with upside potential towards $47.25-$47.50 over the near-term.

Rising support is at $46.50-$46.25. A close below the $46 level would signal a possible near-term top with backtest potential towards $45.75-$45.50 and the 50-day moving average.

RSI remains in an uptrend after clearing lower resistance at 65-70. A close above the latter could lead to a quick trip to 75 but overbought levels from October. Support is at 60 with risk towards 55-50 on a close back below this level.

All the best,

Roger Scott