U.S. markets opened in rally mode while pushing all-time highs following the FOMC’s recent dovish stance along with improved trade hopes after Mexico ratified the USMCA deal.
The major indexes backed off their highs and nearly plunged into negative territory after President Trump tweeted Iran made a very big mistake after shooting down drone owned by the U.S. that was in international airspace.
Despite the geopolitical turmoil, momentum returned on reports United States trade representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice-Premier Liu He are expected to meet as early as Tuesday in advance of the G20 summit.
The S&P 500 soared 1% after tapping an all-time high of 2,956 shortly after the opening bell.
Fresh resistance at 2,950-2,975 was breached and held with a close above the latter leading towards a run at the magical 3,000 level.
The Dow rallied 0.9% following the late day run to 26,783.
Prior and lower resistance at 26,750-27,000 was cleared and held with the all-time high at 26,951.
The Nasdaq was up 0.8% after testing a morning high of 8,008.
Current and lower resistance at 8,000-8,100 was cleared and held with the index coming within 1% of its all-time high of 8,176.
The Russell 2000 gained 0.5% following the opening pop to 1,570. Upper resistance at 1,560-1,575 was challenged but held on the close above the latter.
Energy led sector leaders after zooming 2.2% while Industrials and Technology rallied 1.7% and 1.5%, respectively.
There were no sector laggards.
Global Economy – European markets were mostly higher after the Bank of England left interest rates unchanged.
Germany’s DAX 30 and the Stoxx 600 rose 0.4% while France’s CAC 40 and UK’s FTSE 100 added 0.3%. The Belgium20 slipped 0.2% and
The Bank of England held interest rates steady at 0.75% while cutting its growth forecast for Britain’s economy to zero in the second quarter of 2019.
Asian markets closed higher across the board on improved China/ U.S. trade chatter along with Japan’s central bank assuring that more easing would be considered.
China’s Shanghai surged 2.4% and Hong Kong’s Hang Seng rallied 1.2%. Australia’s S&P/ASX 200 and Japan’s Nikkei advanced 0.6% while South Korea’s Kospi was up 0.3%.
Following the widely anticipated decision to leave policy unchanged, BoJ Governor Kuroda strongly emphasized that the central bank won’t hesitate to consider further monetary easing, if necessary.
Initial Jobless Claims fell 6,000 to 216,000 versus expectations of 219,000. This lifted the 4-week moving average to 218,750 from 217,750. Continuing claims fell 37,000 to 1662,000.
Philadelphia Fed Business Outlook Survey sank 16.3 points to 0.3 in June, below expectations of 11, after rising 8.1 ticks to 16.6 in May. The employment component dipped to 15.4 from 18.2, with the workweek at 7.3 from 10.9.
New orders slid to 8.3 from 11.
The prices paid component was at 12.9 from 23.1, while prices received dropped to 0.6 from 17.5. The 6-month general business outlook gauge improved to 21.4 from 19.7. T
he future employment index was little changed at 27 from 27.3, with new orders rising to 31.5 from 21.3, while prices paid declined to 30.2 from 42.3 and prices received declining to 24.4 from 38.6.
Capex increased to 28 from 23.3.
Q1 Current Account deficit narrowed to -$130.4 billion versus forecasts of -$124.3 billion. The balance on goods and services shrank to -$154.6 billion from the prior -$171.1 billion.
The primary income balance rose slightly to $61.1 billion from $60.1 billion. The balance on secondary income was -$36.9 billion from -$32.8 billion.
Leading Indicators were unchanged at 111.8 in May versus expectations for a print of 112.1, but still a record high.
The ten components were mixed with half making positive contributions, led by consumer expectations (0.13%) and the leading credit index (0.12%), which were offset by declines in stock prices (-0.07%), new orders (-0.06%), and jobless claims (-0.04%).
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) stayed white hot after trading to another 52-week and intraday peak of $133.51 while extending its winning streak to 8-straight sessions.
Fresh and lower resistance at $133-$133.50 was cleared but held with additional hurdles at $134.50-$135.
Rising support is at $132.50-$132 with a move below the latter getting $131.50-$131 back in play.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) extended its winning streak to 4-straight sessions after trading to an all-time intraday high of $268.50.
Blue-sky and lower resistance at $268.50-$269 was tapped but held with near-term and upside potential towards $270-$272.50, depending on momentum.
Rising support is at $265-$264.50.
A close below the latter would be a slightly bearish signal for a backtest towards $262.50-$260 and the 50-day moving average.
RSI is remains in a slight uptrend after clearing April resistance at 70.
Continued closes above this level keeps 75-80 in focus but signaling overbought levels. Support is at 65-60.
The Consumer Staples Select Spiders (XLP) was up for the 2nd-straight day following the intraday run to $59.43 and fresh all-time high. New and lower resistance at $59.50-$60 held with upside potential towards $61.50-$62 on continued closes above the latter.
Rising support is at $59-$58.50.
A close below $58 and prior resistance from mid-May would signal a near-term top with additional risk towards $57.50-$57 and the 50-day moving average.
RSI is in an uptrend with resistance is at 70-75 and the latter representing the March and April high.
Current support is at 65-60 with a move below the latter signaling additional weakness.
Position Update
Not seeing strong upside from the current price level.
Expecting markets to trade sideways or lower in the near term.
Defensive stocks should begin leading once again.
Expect volatility to increase.
We are allocating the portfolio as follows:
Buying 20% in XLK closed on Thursday at 79.15
Buying 30% in XLRE closed on Thursday at 38.50
Buying 25% in XLU closed on Thursday at 61.21
Short 25% in XLE closed on Thursday at 63.63
Option Traders… the following regular MONTHLY options meet our criteria:
XLK – 20SEP $78 Strike Price CALL
XLRE – 15NOV $38 Strike Price CALL
XLU – 20SEP $61 Strike Price CALL
XLE – 20SEP $61 Strike Price PUT
All the best,
Roger Scott.