U.S. markets were weak throughout Wednesday’s session following fresh threats on trade front war along with renewed political chatter on the possible impeachment of President Trump.
Although much of the rhetoric can be and will be debated, one thing is certain, the market hates uncertainty.
As far as the technical picture, fresh monthly lows were tapped with early February and March lows in play for the major indexes.
Volatility closed above another key level of resistance but there wasn’t panic selling following was some strength off the midday lows into the close.
The Dow dropped 0.9% following the 1st-half fall to 24,938. Prior and upper support from early February at 25,000-24,750 was tripped but held with a move below the latter getting 24,500-24,250 in focus.
The Russell 2000 also stumbled 0.9% after trading to a low of 1,481.
Longer-term and upper support at 1,475-1,460 held with a close below 1,450 and the early January breakout level signaling additional selling pressure.
The Nasdaq tanked 0.8% following the intraday pullback to 7,503.
Early March and lower support at 7,550-7,500 held on the close just above the 200-day moving average with a close below 7,500 being an ongoing bearish development.
The S&P 500 sank 0.7% after testing an intraday low of 2,766.
Upper support at 2,775-2,750 and the 200-day moving average was breached with a close below the latter opening up further risk towards 2,725-2,700.
Materials were the only sector that showed some strength after inching up 0.02%.
Utilities lead sector weakness after sinking 1.3% while Real Estate was down 1.2%. Communication Services and Healthcare fell 1%.
Global Economy – European markets closed in the red after the European Central Bank warned that trade tensions and weaker-than-expected economic growth could cause further sell-offs in their markets.
France’s CAC 40 tumbled 1.7% while Belgium20 and Germany’s DAX 30 gave back 1.6%. The Stoxx 600 Europe was lower by 1.4% and
UK’s FTSE 100 edged down 1.2%.
GermanGfK consumer sentiment for June dropped unexpectedly to 10.1 from a downwardly revised 10.2 in the previous month and missing estimates of 10.4.
Asian markets closed mostly lower after China threatened it could make rare earth minerals more expensive, or unavailable, if the trade war continues to expand.
South Korea’s Kospi dropped 1.3% and Japan’s Nikkei declined 1.2%. Australia’s S&P/ASX 200 declined 0.7% and Hong Kong’s Hang Seng was off 0.6%.
China’s Shanghai rose 0.2%.
Richmond Fed Manufacturing Index edged up 2 points to 5 in May, after falling 7 points to 3 in April, and just below expectations for a print of 6.
The employment component was little changed at 17 versus 18 previously, and while wages picked up to 38 from 25, making a new high versus the prior 34 from November.
The workweek recovered to 1 from -11. New order volume also improved to unchanged from -2. The change in prices paid slowed to 2.21% from 3.04%, with prices received at 1.53% from 1.84%.
The 6-month shipment index slumped to 27 from 49, with new order volume falling to 30 from 40, though employment and wages rallied, and prices were little changed.
The reported noted companies reported growth in spending and positive overall business conditions and remained optimistic about growth in the coming months.
MBA Mortgage Applications declined 3.3%, following a 2% slide the prior week. There was a big 6% drop in refis, after rising 8.3% previously.
The purchase index was down 1.4% after a 2% slip. The 30-year fixed mortgage rate was steady at 4.33% while the 5-year ARM rose to 3.74% from 3.57%.
Redbook Store Sales were up 5.7% for the year in the week ending May 25th.
State Street Investor Confidence Index for May was at 79.5.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 5th-straight session after surging to another fresh 52-week peak of $129.90.
Lower and multi-year resistance from March 2015 at $129.50-$130 was cleared but held with a close above the latter getting $131.50-$132 in the mix.
Rising support is at $129-$128.50. A close back below $128 would signal a near-term top.
Market Analysis – The Russell 3000 Index ($RUA) fell for the 2nd-straight session and 4 of the past 5 following the backtest to 1,628. Upper support at 1,625-1,600 held on the close just below the 200-day moving average.
A move below the latter would be an ongoing bearish development with downside risk towards 1,575-1,550 and the mini-trading range from mid-January.
Lowered resistance is at 1,650-1,675.
Continued closes above the 1,700 level and the 50-day moving average would be a more bullish signal that near-term selling pressure has abated.
RSI remains in a downtrend with major support from earlier this month at 30. A move below this level and prior resistance from late December opens up risk towards 25-20 with the latter representing the Christmas Eve bottom.
Resistance is at 35-40 with a move back above the latter signaling a return of strength.
The Dow Jones Transportation Average ($TRAN) extended its losing streak to 5-straight sessions after tapping an intraday low of 9,880. Major support that was tested twice in March at the 10,000 level was breached and failed to hold.
January and upper support at 9,900-9,800 is now in play with a close below the latter likely hinting to further weakness towards the 9,600 level.
Lowered and new resistance is at 10,000-10,100.
A close back above the 10,200 level would be a slightly bullish signal with more important hurdles at 10,400-10,600 and the 50/200-day moving averages.
RSI remains in a nasty downtrend following the close below early January support at the 30 level.
There is risk towards 25-20 on continued weakness and would signal very oversold levels. Resistance is at 35-40.
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All the best,
Roger Scott.