U.S. markets were choppy during the first half of Wednesday’s action before showing strength after a tweet from President Trump that confirmed China’s Vice Premier is on the way to the U.S. to make a deal.
Of course, the devil will the in the details if a deal is announced on Friday, or if there will be a delay in negotiations with another round of fresh tariffs.
The slight momentum faded into the closing bell as the blue-chips were the only index that settled higher.
Volatility simmered slightly but edged up after trading to a lower high than the previous session.
The Dow rose 2 points, or 0.01%, while tapping a late day high of 26,118 ahead of the closing bell.
Lower resistance at 26,000-26,250 and the 50-day moving average was cleared with both holding and a close above the latter being a more bullish development.
The S&P 500 slipped 0.2% despite reaching an intraday peak of 2,897.
Prior and lower resistance at 2,900-2,925 was challenged but held with a move above the latter signaling a return of strength.
The Nasdaq gave back 0.3% after making an intraday push to 8,004.
Near-term and lower resistance at 8,000-8,050 on the 2nd-straight close below the former.
The Russell 2000 traded in an 13-point range with the low tapping 1,574.
Upper support at 1,580-1,565 was breached for the 2nd-straight session and failed to hold with a close below the latter and the 50/200-day moving averages being a continuing bearish signal.
Healthcare and Consumer Discretionary paced sector winners after rising 0.2% and 0.03%, respectively.
Utilities led sector losers after falling 1.4%. Financials and Communication Services dipped 0.2%.
Global Economy – European markets settled mostly higher despite ongoing political uncertainty with the U.K. resuming its negotiations with the European Union over Brexit.
Germany’s DAX 30 rallied 0.7% and France’s CAC 40 was up 0.4%. The Stoxx 600 Europe and UK’s FTSE 100 climbed 0.2%. The Belgium20 was down 0.6%.
Asian markets closed in the red despite better-than-expected trade news out of China.
Japan’s Nikkei fell 1.5%. Hong Kong’s Hang Seng was lower by 1.2% and China’s Shanghai was down 1.1%. South Korea’s Kospi and Australia’s S&P/ASX 200 declined 0.4%.
China’s trade surplus for April came in at $13.84 billion, much lower than forecasts of $35 billion, and below the $32.65 billion posted in March.
China’s trade surplus with the U.S. rose to $21 billion in April from $20.5 billion in March.
China imports for April unexpectedly rose by 4%, versus expectations for a decline of 3.6%, and follows a decline of -7.6% in March.
MBA Mortgage Applications rebounded 2.7%, after sliding 4.3% in the prior week, while snapping 4-straight weeks of declines. A 4.2% pop in the purchase index (from -3.7% previously), and a 0.8% gain in refinancings (from -5%) helped reverse the trend.
The average 30-year fixed mortgage rate dipped to 4.41% from 4.42% and has generally been declining since hitting a cycle high of 5.17% back in November.
However, the 5-year ARM edged up to 3.88% from 3.81%.
Refinances comprised 37.9% of loans, with that ratio remaining in a decline since hitting 54.5% in late March.
Market Sentiment – Fed Reserve Governor Lael Brainard said the Fed is discussing various tools and strategies, including inflation targeting, with the Fed aiming to achieve its inflation objective on average over a longer period of time.
She also mentioned targeting yields on specific securities, such that if short term rates were back at zero, the Fed could turn to targeting longer-term rates.
The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streaked snapped despite the morning pop to $125.30.
Lower resistance from late March at $125-$125.50 held before the fade to $124.30.
Fresh and prior support is now at $124-$123.50. A close below the latter would signaling a possible backtest towards $123-$122.50 and the 50-day moving average.
Market Analysis – The Russell 3000 Index ($RUA) extended its losing streak to 3-straight sessions despite trading to an intraday high of 1,709.
Lowered resistance at 1,715-1,730 held with continued closes above the latter getting 1,740-1,755 and fresh 52-week peaks back in play.
Upper support at 1,700-1,685 was beached for the 2nd-straight session but failed to hold and levels that have been holding since early April.
A close below the latter and the 50-day moving average would be a bearish development with risk towards 1,650-1,635 and the 200-day moving average.
RSI remains in a slight downtrend but is trying to level out with support from early January at 45-40. Resistance is at 50 and prior support from March.
A move back above this level would signal a return of strength and a possible run towards 55-60.
The Spiders S&P Homebuilders ETF (XHB) extended its losing streak to 3-straight sessions after testing a low of $40.19. Late April and upper support at $40.50-$40 was breached and failed to hold.
A move below $39.50 and the 50-day moving average would be a bearish signal for additional weakness.
Near-term and lowered resistance is now at $40.50-$41.
RSI remains in a downtrend after failing upper support at 50-45 with the latter representing the March low. A move below 45 would signal additional weakness towards 40 and late December levels.
Resistance is at 55-60 with continued closes above the latter being a bullish signal for additional strength.
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All the best,
Roger Scott.