U.S. markets showed opening strength on Tuesday before closing slightly lower following renewed tariff threats with China.
President Trump continued his stance that immediate tariffs would be imposed on a further $300 billion of Chinese goods if President Xi does not attend this month’s G-20 meeting.
The Nasdaq was lower by half-point, or 0.01%, following the fist half push to of 7,910.
Lower resistance at 7,900-7,950 held with the 50-day moving average holding for the 2nd-straight session.
The S&P 500 slipped a point, or 0.03%, to snap a 5-session winning streak despite the opening run to 2,910.
Prior and lower resistance at 2,900-2,925 was cleared but held for the the 2nd-straight close with the index closing above its 50-day moving average for the 3rd-straight session.
The Dow dipped 14 points, or 0.05%, after trading to a morning high of 26,248.
Near-term and lower resistance from late March at 26,250-26,500 was challenged but held on the 2nd-straight close above the 50-day moving average.
The Russell 2000 gave back 0.3% with the late session low reaching 1,513.
Current and upper support at 1,515-1,500 was breached but held with a close below the latter being a slightly bearish signal.
Consumer Discretionary and Communication Services were up 0.4% to lead sector strength while Consumer Staples added 0.3%.
Industrials and Utilities were the weakest sectors with losses of 0.9% and 0.6%, respectively.
Global Economy- European markets showed continued strength as the race to replace U.K. Prime Minister Theresa May officially started, with ten candidates in the running for the vacated Conservative Party leadership position.
The Belgium20 and Germany’s DAX 30 rallied 0.9% while the Stoxx 600 was higher by 0.7%.
France’s CAC 40 added 0.5% and UK’s FTSE 100 climbed 0.3%.
UK wages rose by an annual 3.1% in the three months to April, slowing from 3.3% in March but beating forecasts of 3%.
The unemployment rate remained at 3.8% as expected while the number of people out of work dropped by 34,000 to 1.304 million.
Asian markets closed higher after China said it would let local governments use bonds to finance infrastructure projects.
China’s Shanghai zoomed 2.6% and Australia’s S&P/ASX 200 surged 1.6%.
Hong Kong’s Hang Seng rose 0.8% and South Korea’s Kospi gained 0.6%. Japan’s Nikkei advanced 0.3%.
NFIB Small Business Optimism Index level for May checked in at 105 versus estimates of 102.
May PPI rose 0.1%, while the core rate rose 0.2%, following respective gains of 0.2% and 0.1% in April. Expectations were for a flat rate with the core matching forecasts.
On a 12-month basis, the headline rate slowed to 1.8% year-over-year versus 2.2%, and the core rate was 2.3% from 2.4%.
Goods prices declined 0.2% after the prior 0.3% increase, with energy dropping 1% versus the prior 1.8% rise, and food falling 0.3% from -0.2%.
Services prices increased 0.3% compared to the prior 0.1% gain, with a 0.7% jump in transportation/warehousing more than offsetting a 0.5% decline in trade.
IBD/TIPP economic optimism index fell 5.4 points to 53.2 in June, after climbing to 58.6 in May, which was a 15 year high. The weakness was in the 6-month outlook index, as it turned more negative, falling 8.1 points to 47.7 from 55.8.
The report attributed a lot of the decline to investor nervousness over the escalation with the trade war on China and the possible threat of tariffs on Mexico.
The personal finances index dipped to 61.1 from 64.4 while the the outlook on Federal policies dropped to 50.7 from 55.6.
U.S. Chain store sales rebounded 1.4% in the week ending June 8th, after tumbling 5.4% in the prior week.
The 12-month pace slowed slightly to a 1.8% year-over-year rate from 2.1%.
Redbook Store Sales were up 5% for the year in the week ending June 8th.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) traded to a tight range with the session high reaching $130.76.
Lower resistance at $131-$131.50 easily held with a close above $132 being a more bullish signal for higher highs.
Current support remains at $130.50-$130. A close below the latter would signal additional risk towards $129-$128.50.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) had its 6-session winning streak snapped following the late day pullback to $256.95.
Backup support at $257-$256.50 was breached but held on the 3rd-straight close above the $260 level and the 50-day moving average.
Near-term resistance is at $262.50-$263.
Continued closes above the latter would be a bullish signal with fresh hurdles from late April at $264.50-$265.
RSI is in a slight downtrend with support at 55-50.
A move below the latter level would be a bearish development and signal additional weakness towards 45-40. Resistance is at 60.
The Materials Select Sector (XLB) also fell for the first time in 7 sessions despite trading to an intraday peak of $58.15. Near-term and lower resistance at $58-$58.50 was cleared but held for the 2nd-straight session.
A move above the latter would be a renewed bullish signal for continued momentum towards $59.50-$60 and late April peaks.
Current support is at $57.50-$57.
A close below the latter would be a slightly bearish signal with additional risk towards $56.50-$56 and the 50-day moving average.
RSI has flatlined with resistance at 65.
Continued closes above this level would be a bullish signal for additional strength towards 70-75 and April highs. Support is at 60 with risk to 55-50 on a move back below this level.
We are allocating the portfolio as follows:
30% in CERN closed on Tuesday at 71.67
30% in PYPL closed on Tuesday at 113.50
30% in XRAY closed on Tuesday at 57.28
10% in TMF closed on Tuesday at 23.91
Option Traders – the following (regular monthly) options meet our criteria:
CERN – 20SEP19 $70 Strike Price CALL (Expires September 20, 2019)
PYPL – 20SEP19 $110 Strike Price CALL (Expires September 20, 2019)
XRAY – 17JAN20 $55 Strike Price CALL (Expires January 17, 2020)
TMF – 15NOV19 $25 Strike Price CALL (Expires November 15, 2019)
All the best,