U.S. markets tried to rebound on Thursday and were doing a great job of recovering much of the prior session’s losses following the disappointing policy stance from the Fed.
The major indexes showed strength throughout the first half of action before breaking news President Trump would impose an additional 10% tariff on $300 billion of Chinese goods ruined the momentum.
The push past major and prior resistance levels immediately went south while sparking another selloff.
Near-term support levels were breached for the 2nd-straight session with the continued rise in volatility remaining a major concern.
The Russell 2000 fell 1.5% following the opening run to 1,587 and trip past lower resistance at 1,585-1,600. The drop to 1,546 breached backup and upper support at 1,550-1,535 and the 50-day moving average but a level that held into the closing bell.
The Dow declined 1.1% despite the morning pop to 27,175 and brief trip back above the 27,000 level.
Upper support at 26,750 was breached and failed to hold on the late day tumble to 26,548 afterwards with a move below 26,500 and the 50-day moving average signaling additional selling pressure.
The S&P 500 sank 0.9% after testing a first half peak of 3,013 and briefly holding the 3,000 level.
Prior and lower support at 2,975-2,950 was breached but held on the plunge to 2,945 with a move below 2,925 and the 50-day moving average being an ongoing bearish development.
The Nasdaq gave back 0.8% after trading in a 231-point range while testing an intraday high of 8,311.
The pullback to 8,080 breached upper support at 8,100-8,050 but a level that held along with the July low of 8,059.
Utilities led sector strength after jumping 1.1% while Real Estate and Healthcare edged up 0.2% and 0.1%, respectively.
Energy and Financials plummeted 2.3% to pace sector sector laggards while Industrials and Consumer Discretionary stumbled 2% and 1.4%, respectively.
Global Economy – European markets closed mostly higher after the BoE left policy unchanged as expected but disappointed by not shifting away from its gradual and limited tightening guidance.
The Belgium20 rose 0.8% and Germany’s DAX 30 was up 0.5%. The Stoxx 600 and France’s CAC 40 added 0.3%. UK’s FTSE 100 slipped 2 points, or 0.03%.
The Bank of England’s Monetary Policy Committee voted unanimously to hold interest rates steady at 0.75% and cut its growth forecast on increased Brexit worries and a slowing global economy.
The BoE gave no indication that it was considering lowering interest rates.
Its forecasts assume the UK will avoid a sudden Brexit shock, but the central bank lowered its growth forecast to 1.3% for 2019 and 2020 – down from 1.5% and 1.6% respectively.
UK Manufacturing PMI for July came in at 46.5, down from June’s 47.6 reading.
Asian markets were mostly lower on weaker-than expected economic news out of China.
Hong Kong’s Hang Seng and China’s Shanghai were down 0.8% while South Korea’s Kospi and Australia’s S&P/ASX 200 were lower by 0.4%. Japan’s Nikkei edged up 0.1% and
China’s PMI came in at 49.9, slightly better than expectations for a reading of 49.6.
South Korea’s exports fell -11% in July, slightly better than forecasts for an -11.3% drop. Imports declined -2.7% compared to the -8.1% expected decline.
Challenger Job-Cut Report announced layoffs declined 3,200 to 38,800 in July after falling 16,600 in June to 42,000.
Compared to last July, job cuts are running at a 43.2% year-over-year clip versus June’s 12.8% pace. According to the report, manufacturers are being hit, not only by shifting consumer behavior and automation, but by the imposed tariffs.
The transportation sector led July layoffs with a 5,000 increase, followed by energy at 2,100. July announced hirings increased 5,900 to 22,300, after the 1,100 increase in June to 16,400.
Jobless Claims climbed 8,000 to 215,000, versus expectations of 214,000. The 4-week moving average declined to 211,500 versus 213,250.
Continuing claims increased 22,000 to 1,699,000 following the 12,000 drop to 1,677,000, previously.
PMI Manufacturing Index dipped 0.2 points to 50.4 in the final July print, slightly lower than 50.6 in June. The employment component declined versus June, while output dropped to 50.5 from June’s 51.2 reading and is the lowest since June 2016.
July ISM manufacturing index slipped another 0.5 points to 51.2, below forecasts of 51.9, and June’s print of 51.7. This represented the 4th consecutive monthly decline and was the lowest reading since August 2016.
The employment component fell to 51.7 from 54.5 while new orders inched up to 50.8 from 50.
New export orders dropped to 48.1 from 50.5 while imports fell to 47 from 50. Prices paid declined to 45.1 from 47.9.
Construction Spending dropped -1.3% in June, after falling -0.5% in May, and missing forecasts for a rise of 0.3%. Spending contracted to a -2.1% year-over-year clip as weakness was broadbased.
Residential spending slipped -0.5% versus unchanged previously while nonresidential spending fell -1.8% versus -0.8%. Private spending declined -0.4% versus -0.3% while public spending tumbled -3.7% versus -0.9%, previously.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 5-straight sessions following the late day surge to $135.39, a new 52-week and all-time peak.
Fresh and lower resistance at $135.50-$136 held with blue-sky territory towards $137-$137.50 on continued closes above the $135 level.
Near-term and rising support is at $134-$133.50. A close below $133 would signal a short-term top.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) extended its losing streak to 3-straight session despite trading to an intraday high of $271.71.
Lower resistance at $271.50-$272 was cleared but held following the drop to $265.40.
Prior and upper support is at $265.50-$265 was breached but held.
A close below the latter would reopen risk towards $264.50-$264 and the 50-day moving average.
RSI is in a downtrend with support at 35-30 and the latter representing the May low. Resistance is at 45-50.
The Materials Select Sector (XLB) was down for the 2nd-straight session after tapping a high of $59.15 and failing resistance at $59-$59.25.
Prior and lower support from mid-July at $58-$57.75 was breached but held.
Backup help is at $57.50-$57.25 and the 50-day moving average.
RSI is in a downtrend with support is at 45-40.
A close below the latter would be an ongoing bearish signal for additional weakness towards 35 and May lows. Resistance is at 50.
All the best,
Roger Scott.