U.S. markets showed weakness throughout Tuesday’s session as the start of the Fed’s two-day policy meeting got underway and Wall Street looking towards the central bank’s plan for its balance sheet moving forward.

Near-term and fresh support levels held intraday after House chief of staff Mick Mulvaney says the U.S. should know in the next two weeks whether it will reach a trade deal with China.

The blue-chips and overall market showed some afternoon strength but disappointing corporate earnings from one of Tech’s bellwether companies and weaker-than-expected economic were too much to overcome the mixed finish.

The Nasdaq dropped 0.7% following the 1st half pullback to 8,050. Fresh and upper support at 8,075-8,025 held with a move below the 8,000 level being a slightly bearish development.

The Russell 2000 was down 0.5% after failing to clear the 1,600 level on the open. Support at 1,585-1,570 was breached but held on the fade to 1,580 afterwards with a close below the latter and the 50/200-day moving averages being a bearish signal.

The S&P 500 added 0.1% despite trading to a low of 2,924 intraday.

Fresh and upper support at 2,925-2,900 held with resistance at 2,950 holding by a couple of points into the closing bell.

The Dow advanced 0.2% after testing a late session high of 26,614.

Fresh and lower resistance at 26,600-26,800 was cleared but held for the 2nd-straight session with a move above the latter getting record highs in play.

Utilities led sector winners after soaring 1.6%.

Real Estate and Consumer Staples were higher by 1.2%.

Communication Services sank 2.3% while Consumer Discretionary and Energy lagged 0.2% and 0.1%, respectively.

Global Economy – European markets closed mostly higher after better-than-expected GDP numbers from the EU.

The Belgium20 advanced 0.2% while France’s CAC 40 and Germany’s DAX 30 added 0.01%. The Stoxx 600 Europe was up less than a point, or 0.2% and UK’s FTSE 100 declined 0.3%.

The EU’s statistics office Eurostat said a preliminary estimate of 1st-quarter gross domestic product rose 0.4%, up from 0.2% in the final three months of 2018, and topping expectations for growth of 0.3%.

Asian markets settled mostly to the downside following weaker-than-expected economic news out of China.

Hong Kong’s Hang Seng sank 0.7% and South Korea’s Kospi fell 0.6%.

China’s Shanghai advanced 0.5% while Australia’s S&P/ASX 200 declined 0.5%. Japan’s Nikkei remains closed until May 6th.

China PMI came in at 50.1 for the month of April versus forecasts for an unchanged reading at 50.5 from the previous month.

The Caixin/Markit factory PMI, fell to 50.2 in April, missing forecasts of 51, and lower than the Marc print of 50.8.

The Employment Cost Index (ECI) rose 0.7% in Q1, matching Q4’s gain. Supporting was a 0.7% increase in wages and salaries, versus 0.6% previously.

Benefit costs also were up 0.7% , matching Q4. On a 12-month basis, the ECI slowed to a 2.8% year-over-year growth clip compared to 2.9% in Q4. Wages and salaries were at 2.9% year-over-year versus 3.1%, while benefit costs slipped to a 2.6% rate compared to 2.8%.

S&P Corelogic Case-Shiller home price index inched up 0.2% to 212.7 in February for the 20-City index, matching forecasts, after falling 0.25% to 212.3 in January.

The annual pace slowed to a 3% year-over-year clip from 3.51%. The 10-City gauge rose 0.21% to 226.20 following the 0.29% decline in January to 225.73. The 12-month rate slipped to 2.59% year-over-year from 3.06%. All 20 cities posted annual gains, led by Las Vegas (9.7%).

Chicago PMI dropped another 6.1 points to 52.6 in April after falling 6 points to 58.7 in March. Expectations were for 59 with the current reading the lowest level since the 49.9 print in January 2017.

The 3-month moving average slid to 58.7 from 60 previously.

Consumer Confidence rose 5 points to 129.2 in April, after falling 7.2 points to 124.2 in March, and topping forecasts for a print of 127.1. The present situation climbed to 168.3 from 163 while the expectations index rose to 103 from 98.3.

The labor differential increased to 33.5 from 28.7 and the 12-month inflation gauge slipped to 4.5% from 4.6%.

Pending Home Sales rebounded 3.8% to 105.8 in March following February’s 1% dip to 101.9. On an annual basis, the index improved slightly to -3.2% year-over-year for March versus -5% previously.

Regionally, three of the four regions posted gains for the month with the West at 8.7%, the South at 4.4% rise, the Midwest at 2.3%, with the Northeast sliding -1.7%.

Redbook Store Sales up 5.5% for the year in the week ending April 27th.

Market Sentiment – Fed funds futures rose ahead of the FOMC decision on Wednesday. Wall Street isn’t expecting any policy action, with the Fed expected to reiterate its patient posture, and the market pricing in a rate cut by Q1 2020.

Some suit-and-ties continue to forecast another tightening as the next action, however.

An estimated pick up in inflation just above the Fed’s 2% goal in the summer, combined with decent growth over 2%, along with the end of the balance sheet runoff in September, could lay the groundwork for a 25 basis point hike.

Nevertheless, for now the FOMC is on hold and in a wait and see posture with Chairman Powell likely not suggesting any action one way or another.

The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to close higher for the 2nd time in 3 sessions following the late day trip to $123.74.

Prior and lower resistance at $123.50-$124 was cleared on the split with a close above $124.50 being a more bullish signal for higher highs.

Near-term support remains at $123-$122.50.

A close below the latter and the 50-day moving average would be a slightly bearish signal with risk towards $122 and the monthly April lows.

Market Analysis – The Spider Small-Cap 600 ETF (SLY) fell for the first time in 3 sessions after trading to an intraday low of $68.75. Near-term and upper support at $69-$68.50 and the 200-day moving average held.

A close below $68 and the 50-day moving average would be a bearish development with risk towards $67 and early April support levels.

Current resistance is at $69.50-$70. A move above the latter would be a bullish development for a possible near-term push towards $70.50-$71 and February peaks.

RSI is back in a downtrend with support at 50 and a level that has been holding since early April. A close below 50 would signal additional weakness towards 45-40 with the latter representing the March low.

Resistance is at 60 and the April peaks with a move above this level signaling additional strength.

The Real Estate Select Sector Spider (XLRE) was up for the 2nd time in 3 sessions following the push to $36.08. Prior and lower resistance at $36-$36.25 was cleared and held.

Continued closes above $36.50 could lead towards a run at $36.75-$37 and fresh 52-week highs.

Current support is at $35.50-$35.25 and the 50-day moving average. A move below $35 would be a bearish development and signaling additional weakness.

RSI is back in an uptrend with resistance at 55-60.

A move above the latter could lead to a possible run towards 65-70 and April highs. The 60 level also served as prior support from late February/ early March with a close below 50 being a bearish development for additional weakness.

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Option Traders – the following (regular monthly) options meet our criteria:

AMAT – 19JUL $43 Strike Price CALL (Expires July 19, 2019)
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SBUX – 19JUL $77.5 Strike Price CALL (Expires July 19, 2019)

All the best,
Roger Scott.