U.S. markets resumed their recent downtrend on Wednesday’s open following turmoil in the bond market and the 10-year treasury yield.
The benchmark rate briefly dipped below 1.6% intraday to hit a 2016 low while pushing the major indexes towards near-term support levels.
The rebound afterwards was impressive as higher highs than the previous session were made before a mixed finish.
Volatility held the monthly high while making a lower low and closing below a key level of support.
The Nasdaq rose 0.4% after trading in a 179-point range while testing an intraday low of 7,702. Upper support at 7,702 held for the 3rd-straight session before the rebound to 7,881 and close just below the 7,900 level.
The S&P 500 added 0.1% despite tapping a low of 2,825 shortly after the open.
Upper support at 2,850-2,825 was breached but held before the rebound to 2,892 and close just below the 2,900 level.
The Russell 2000 slipped 0.1% after testing an opening low of 1,478.
Near-term and upper support at 1,475-1,460 held for the 3rd-straight session with the index holding the 1,500 level for the 2nd-straight session.
The Dow also dipped 0.1% following the morning plunge to 25,440.
Upper support at 25,500-25,250 and the 200-day moving average was breached but held with the blue-chips powering back to hold the 26,000 level into the closing bell.
Materials and Consumer Staples were sector standouts after rising 1.4% and 1.2%, respectively.
Financials and Energy led sector weakness after giving back 1.3% and 0.8%.
Global Economy – European markets closed higher despite German bond yields hitting record lows and stoking concerns of a global economic slowdown. Meanwhile, New Zealand, Thailand and India also cut interest rates as the race to the bottom continues.
Germany’s DAX 30 rose 0.7% while the Belgium20 and France’s CAC 40 added 0.6%. UK’s FTSE 100 climbed 0.4% and the Stoxx 600 edged up 0.2%.
Germany”s industrial output fell by 1.5% in June, well below forecasts for a 0.4% decline.
Asian markets settled mixed.
Australia’s S&P/ASX 200 gained 0.6% and Hong Kong’s Hang Seng nudged up 0.1%. South Korea’s Kospi fell 0.4% while Japan’s Nikkei and China’s Shanghai were lower by 0.3%.
MBA Mortgage Applications jumped 5.3% following a 1.4% drop previously, and snaps a string five consecutive weekly declines.. Strength was in the refinancing index which climbed 11.8%, while the purchase index slipped -2%.
The 30-year fixed rate dropped to 4.01% versus the 4.08% rate over the prior two weeks. The 5-year ARM slid to 3.36% versus 3.52% previously.
Refis accounted for 53.9% of the loans last week versus 50.5% previously.
Consumer Credit rose $14.6 billion in June after a $17.8 billion increase in May. The strength was in nonrevolving credit which climbed $14.7 billion after May’s $10.3 billion gain.
Revolving credit dipped -$0.1 billion after the prior $7.5 billion increase. For Q2, consumer credit increased $49.9 billion after Q1’s $42.5 billion gain.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 9th-straight session after tapping a high of $143.06 shortly after the open. New and lower resistance at $143-$143.50 was cleared but held with a close above the latter getting $144.50-$145 in the mix.
Near-term support remains at $140-$139.50 with backup help at $138-$137.50.
Market Analysis – The S&P 400 Mid Cap Index ($MID) was up for the 2nd-straight session despite tapping an opening low of 1,853. Current and upper support at 1,850-1,845 and the 200-day moving average held for the 3rd-straight session.
A close below 1,840 would be a renewed bearish signal with risk towards the 1,830-1,820 area.
The bounce to 1,892 afterwards pushed upper resistance at 1,880-1,890.
More important hurdles are at 1,900-1,920 and the 50-day moving average.
RSI is back in an uptrend after holding support at 35-30 and the latter representing the late May low.
There is risk to 20-15 and December 2018 lows on a close below 30. Resistance is at 40 with a move above this level signaling additional strength.
The Technology Select Sector Spiders (XLK) extended its winning streak to 2-straight session despite the pullback to $75.71 shortly after the opening bell.
Shaky and upper support at $75.50-$75 held.
A close below the latter would be a renewed bearish development with further risk towards $73.50-$73 and support from late May.
Near-term resistance is at $78-$78.50 and the 50-day moving average.
A close $79 would signal additional strength and a possible near-term bottom.
RSI is back in a slight u[trend after holding support at 35-30 and signaling oversold levels. There is risk towards 25 and the October 2018 low on a close below the latter.
Resistance at 40 held on the return of strength with a close above this level getting 45-50 in play.
We are allocating the portfolio as follows:
Long 35% in XLF closed on Wednesday at 26.75
Long 25% in XLP closed on Wednesday at 58.89
Lonng 15% in XLY closed on Wednesday at 117.15
Short 25% in XLE closed on Wednesday at 58.09
Option Traders… the following regular MONTHLY options meet our criteria:
XLF – 20DEC $29 Strike Price CALL (Expires December 20, 2019)
XLP – 20SEP $61 Strike Price CALL (Expires September 20, 2019)
XLY – 20SEP $124 Strike Price CALL (Expires September 20, 2019)
XLE – 20SEP $62 Strike Price PUT (Expires September 20, 2019)
All the best,