U.S. markets traded lower throughout Thursday’s action as 2Q earnings remained in the spotlight, with some high profile misses on the busiest day and week of the quarter.
However, 77% of the S&P 500’s 138 firms that have reported so far have topped expectations and gave the major indexes some support.
The Russell 2000 fell 1.2% following the afternoon pullback to 1,560.
Near-term and upper support at 1,560-1,550 held by a point with a close below the latter opening up risk towards 1,540-1,530 and the 50-day moving average.
The Nasdaq gave back 1% after tapping an intraday low of 8,233.
Fresh and upper support at 8,250-8,200 was breached and failed to hold with a close below the latter being a slightly bearish signal.
The S&P 500 slipped 0.5% after trading in a 19-point range with the session low tapping 2,997.
Current and upper support at 3,000-2,975 was breached but held on the 3rd-straight close above the former.
The Dow was also down 0.5% following the midday backtest to 27,062 and 2nd-straight lower low.
Prior and upper support at 27,250-27,000 was tripped and failed to hold with a close below the latter being a bearish development.
Consumer Staples was the only sector that showed strength after rising 0.1%.
Energy was the worst performing sector after tanking 1.1% while Materials and Financials declined 0.7%.
Global Economy- European markets settled mostly lower after the ECB kept interest rates unchanged but hinted at further monetary easing as well as a rate cut.
Germany’s DAX 30 sank 1.3% and the Stoxx 600 was lower by 0.6%. France’s CAC 40 was down 0.5% and UK’s FTSE 100 slipped 0.2%. The Belgium20 added 0.2%.
ECB President Mario Draghi said that there was not a significant risk of a recession in the region, with the risks of recession as being pretty low all-in-all.
Draghi added there are still signs of resilience in the labor market, which continues to improve admittedly with lower and lower momentum.
Asian markets closed mostly higher after Reserve Bank of Australia Governor Philip Lowe said it is reasonable to expect an extended period of low interest rates.
Australia’s S&P/ASX 200 gained 0.6% and China’s Shanghai rose 0.5%.
Hong Kong’s Hang Seng climbed 0.3% and Japan’s Nikkei edged up 0.2%. South Korea’s Kospi was down 0.4%.
Jobless Claims dropped 10,000 to 206,000, after climbing 8,000 to 216,000 the prior week. This lowered the 4-week moving average to 213,000 versus 218,750 previously. Continuing claims fell 13,000 to 1,676,000 following the 39,000 drop to 1,689,000.
International Trade in Goods Balance for June checked in at -$74.2 billion versus estimates of -$72.5 billion. Exports declined 2.7% to $136.3 billion versus May’s 2.9% rise to $140 billion. Imports dropped 2.2% to $210.5 billion following the 3.9% pop to $215.1 billion in May.
Advance Wholesale Inventories increased 0.2% in June after the prior 0.4% gain.
Retail Inventories dipped -0.1% following May’s 0.3% rise.
July Durable Goods Orders rose 2%, better than expectations of 1.8%, and follows June’s -2% print. Transportation orders rebounded 3.8% after dropping -7.5% previously.
Excluding transportation, orders climbed 1.2% after the prior 0.5% gain. The key nondefense capital goods orders excluding aircraft component surged 1.9% from the prior 0.3% increase.
Shipments jumped 1.4% after May’s 0.5% gain. Nondefense capital goods shipments ex-aircraft rose 0.6% from 0.5%. Inventories edged up 0.3% versus 0.5% previously.
The inventory-shipment ratio fell to 1.65 from 1.67.
July Kansas City Fed Manufacturing Index Level came in at -1, missing forecasts for a print of 2.
Market Sentiment – The FOMC is pretty much committed to a 25 basis point easing next week given its commentary, and the futures remain fully priced for such.
Although there has been chatter of an aggressive 50 basis point cut in stimulus, the walk-back from New York Fed Williams, the likely debt limit agreement and spending increases, along with hopes on upcoming trade talks, have significantly diminish that probability.
The iShares 20+ Year Treasury Bond ETF (TLT) continued its 6-session flip-flopping pattern after testing an intraday low of $130.51. Near-term and lower support at $131-$130.50 and the 50-day moving average held.
A close below $130 would be a bearish signal for additional weakness.
Lowered resistance at $131.50-$132.
Market Analysis – The Invesco QQQ Trust (QQQ) has its 3-session winning streak snapped following the intraday pullback to $192.93. Near-term and upper support at $193-$192.50 was tripped but held.
A move below the latter would be a slightly bearish signal for a further backtest towards $191-$190.50.
Current resistance is at $194-$194.50 with Wednesday’s all-time high at $195.16. A close back above $195 would signal renewed momentum with near-term and upside potential towards $196.50-$197.
RSI is showing weakness after failing month long resistance at 70.
Continued closes above this level would signal additional strength towards 75-80 and April peaks.
Support is at 55 and a level that has been holding since early June.
A close below double nickels would be a bearish development and signal additional weakness.
The Spider S&P Retail ETF (XRT) was down for the first time in 3 sessions after trading to an intraday low of $42.65. Current and upper support at $42.50-$42 held.
A close below the latter and the 50-day moving average would be a bearish development with additional risk towards $41.50 and late June support.
Near-term resistance at $43-$43.50 with the latter holding since mid-May.
A close above $44 and the 50-day moving average would be a more bullish signal for continued momentum.
RSI is in a downtrend with support at 50-45.
A close above below the latter would signal additional weakness towards 40.
Resistance is at 55-60.
We are holding the following positions:
1. BKE
2. HLIT
3. LM
4. LPG
5. RCM
6. SXC
Options Traders – the following regular MONTHLY options meet our criteria:
BKE – 20SEP Expiration $20 Strike Price Call
HLIT – 18OCT Expiration $7.5 Strike Price Call
LM – 15NOV Expiration $40 Strike Price Call
LPG – 20SEP Expiration $10 Strike Price Call
RCM – 15NOV Expiration $15 Strike Price Call
SXC – 20DEC Expiration $10 Strike Price Call
All the best,
Roger Scott.