U.S. markets edged cautiously higher to start Tuesday’s session as optimism over the U.S.-China trade outlook carried over from the previous session.
However, the apparent chatter if ongoing calls have been happening, or not, derailed sentiment as President Trump’s apparent walk back of his trade war stance has mollified Wall Street.
The small-caps showed the most weakness after tapping a fresh monthly low while volatility closed above a key level of resistance.
The current action appears to be indicating additional weakness for the remaining 3 trading days of August and ahead of the upcoming 3-day holiday weekend.
The Russell 2000 sank 1.4% after tapping a 2nd half low of 1,454.
Prior and major support at 1,460 was breached for the 3rd time this month and failed to hold with risk towards 1,440-1,425 on continued weakness.
The Dow declined 0.5% after failing to hold the 26,000 level shortly after the open.
Upper support at 25,800-25,600 was breached and failed to hold on the fade to 25,721 afterwards with a close below the latter and the 200-day moving signaling additional weakness.
The Nasdaq gave back 0.3% following the midday backtest to 7,795.
Current and upper support at 7,800-7,750 was breached but held with risk towards 7,700-7,650 and fresh monthly lows on a close below the latter.
The S&P 500 was also down 0.3% after trading to an intraday low of 2,860.
Near-term and upper support at 2,875-2,850 failed to hold into the close with a move below the latter getting 2,825-2,800 back in play.
Utilities and Communications Services showed the most sector strength after rising 0.2% while Materials edged up 0.1%.
Energy, Financials and Healthcare led sector laggards after falling 0.6%.
Global Economy – European markets settled mostly higher despite more disappointing economic news out of Germany.
France’s CAC 40 gained 0.7% while the Stoxx 600 and Germany’s DAX 30 advanced 0.6%. The Belgium20 was up 0.4%. UK’s FTSE 100 slipped 0.1%.
Germany’s inflation-corrected gross domestic product declined by 0.1% in the second quarter, adjusted for season and calendar effects, compared with the previous quarter.
Asian markets also closed mostly higher as traders awaited further developments on the ongoing trade war between the U.S and China.
China’s Shanghai rallied 1.4% and Japan’s Nikkei jumped 1%.
Australia’s S&P/ASX 200 rose 0.5% and South Korea’s Kospi added 0.4%. Hong Kong’s Hang Seng dipped 0.1%.
Chain Store Sales rebounded 0.9% in the week ending August 24th, after slipping 0.2% previously. On a 12-month basis, sales are up 1.7% year-over-year.
Redbook Store Sales were up 5.7% for the year for the week ending August 24th.
S&P Corelogic Case-Shiller Index rose 0.34% to 217.65, after the 0.60% increase to 216.92, previously. This represented a 2.13% year-over-year increase, slightly slower than the prior 2.37% pace.
The 10-City index was up 0.21% to 230.58 after the prior 0.49% gain to 230.10. Nineteen of the 20 cities covered posted 12-month gains, led by Phoenix (5.83%) and Las Vegas (5.51%). Seattle declined -1.32%.
Consumer Confidence dipped 0.7 ticks to 135.1 in August after jumping 11.5 to 135.8 in July, but still topping expectations of 129.8. Strength was in the present situation index which rose to 177.2 versus 170.9.
The expectations component fell to 107 from 112.4. The labor differential climbed to 39.4 from 33.1 while the 12-month inflation gauge popped up to 5% from 4.6%.
Richmond Fed Manufacturing Index rebounded 13 points to 1 in August, topping forecasts for a print of -4, and follows the 10 point dive to -14 in July.
The employment index dropped to -6 from -3.
The workweek improved to 4 from -9 while wages edged up to 22 from 20.
New order volume climbed to 2 from -18. Prices paid slowed to a 2.69% rate from 3.04%, with prices received at 1.66% from 2.49%.
The 6-month outlook index dropped to 18 from 32.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) surged to an intraday high of $147.72.
Prior and lower resistance at $147.50-$148 was cleared and held with this month’s all-time high at $148.60. A close above this level opens up blue-sky territory towards $149.50-$150.
Current and rising support at $147-$146.50 followed by $145.50-$145.
Market Analysis – The Russell 2000 ETF (IWM) opened higher at $147.96 and made a push to $148.02 shortly afterwards before stalling.
Lower resistance at $147.50-$148 was cleared but held with more important hurdles at $150-$150.50 and the 200-day moving average.
Shaky and upper support at $145-$144.50 was breached and failed to hold on the backtest to $144.68 afterwards and fresh monthly low.
A close back below the latter would be an ongoing bearish signal with risk towards $143-$142.50 and mid-January levels.
RSI is in a downtrend with support at 35 and the monthly low.
There is risk to 30 and the late May low on a move below this level. Resistance is at 40-45 with a close above 50 being a more bullish signal of a possible near-term bottom.
The Financial Select Sector Spiders (XLF) showed some early morning strength after reaching a peak of $26.53. Near-term and lower resistance at $26.50-$26.75 was cleared but held.
Continued closes above $27.50 and the 50-day moving average would be a more bullish signal selling pressure has abated.
Upper support at $26.25-$26 and the 200-day moving average was breached and failed to hold on the fade to $26.03 afterwards.
A close below $25.75 and the early June low of $25.92 would signal additional weakness towards $25.25-$25 and late March lows.
RSI in a slight downtrend with support 40. A close below this level opens up risk towards 35-30 and the latter representing the monthly low.
Resistance is at 45. A move above this level would signal a return of strength with upside potential towards 50-55.
We are holding the following positions:
1. AHH
2. CPRX
3. CRUS
4. CWEN
5. ENPH
6. SUM
Options Traders – the following regular MONTHLY options meet our criteria:
AHH – 15NOV Expiration $17.5 Strike Price Call
CPRX – 20DEC Expiration $7.5 Strike Price Call
CRUS – 17JAN Expiration $55 Strike Price Call
CWEN – 15NOV Expiration $17.5 Strike Price Call
ENPH – 15NOV Expiration $35 Strike Price Call
SUM – 15NOV Expiration $20 Strike Price Call
All the best,
Roger Scott