U.S. markets were tentative throughout Monday’s session while trading in tight ranges and settling mostly higher as the start of 2Q earnings season heats up.
The Financial sector will be the main focus throughout the week but other sectors like Tech will also help shape the action.
Volatility was slightly elevated after closing back above a key level of resistance as Wall Street prepares for lowered guidance from analysts throughout the first quarter.
The U.S./ China trade tiff will likely be given as the main excuse for disappointments by companies that miss forecasts, while the ones that beat with rosy outlooks could help sector rotation to minimize the overall impact.
The Nasdaq gained 0.2% following the opening run to 8,264 and 2nd-straight all-time closing high.
Fresh and lower resistance at 8,250-8,325 was tripped and held with key and near-term support at the 8,200 level.
The Dow nudged up 0.1% after tapping an all-time record high of 27,364 on the open while trading in a 70-point range afterwards.
Fresh support at 27,250-27,000 easily held on the intraday test to 27,294 with a close below the latter being a cautious signal for additional weakness.
The S&P 500 was up a half-point, or 0.02%, after opening at a lifetime peak of 3,017.
Current and upper support at 3,000-2,975 easily held on the midday fade to 3,008 with a move below 2,950 being a slightly bearish development going forward.
The Russell 2000 once again lagged after falling 0.5% while tapping an intraday low of 1,558.
Near-term and upper support at 1,555-1,540 and the 50-day moving average held with the index remaining in a 9-session trading range.
Utilities paced sector leaders after rising 0.4% while Technology and Consumer Discretionary were higher by 0.3%.
Energy and Financials led sector weakness after giving back 0.9% and 0.6%, respectively. Industrials fell 0.4% to round out the losers.
Global Economy – European markets settled higher as geopolitical tensions eased following comments Iranian leader Hassan Rouhani was ready to hold talks with the U.S., albeit the condition that Washington drops sanctions and returns to the prior 2015 nuclear deal.
The Belgium20 soared 1.2% and Germany’s DAX 30 rose 0.5%. UK’s FTSE 100 climbed 0.3% and the Stoxx 600 added 0.2%. France’s CAC 40 edged up 0.1%.
Asian markets finished lower after China reported its economy slowed to its weakest rate in over 25 years.
China’s Shanghai was up 0.4% and Hong Kong’s Hang Seng advanced 0.3%.
Australia’s S&P/ASX 200 fell 0.7% and South Korea’s Kospi declined 0.2%.
Japan’s Nikkei was closed for a holiday.
China’s economy slowed to 6.2% in the second quarter, matching expectations, but lower than the 6.4% year-over-year growth in the first quarter.
Empire State Manufacturing Survey rebounded 12.9 points to 4.3 in July, topping forecasts for a print of 0.8 and follows last month’s negative reading of -8.6.
The employment index fell to -9.6 from -3.5 in June, while the workweek improved to 3.8 versus -2.2. New orders rose to -1.5 from -12 last month.
The prices paid index dipped to 25.5 from 27.8, with prices received slipping to 5.8 from 6.8. The 6-month business activity index increased to 30.8 from 25.7.
The future employment gauge fell to 14.2 versus 15.6, with new orders bouncing to 35.4 from 27.8, while prices paid rose to 39.4 from 36.8 and prices received at 18.2 from 12.8. Capital expenditures surged to 19 from 10.5.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after trading to a high of $131.02. Prior and lower resistance from mid-June at $131-$131.50 was cleared but held.
Continued closes above $132 would be a more bullish signal near-term selling pressure has abated.
Current support at $130-$129.50.
A close below $129 and the 50-day moving average would be a renewed bearish signal.
Market Analysis – The Spider S&P 500 ETF (SPY) extended its winning streak to 5-straight sessions after trading to an all-time morning high of $301.13. Fresh and lower resistance at $301-$301.50 was cleared but held.
A close above the latter would be an ongoing bullish signal for a continued breakout towards $302-$302.50 over the near-term.
Current support is at $300-$299.50.
A close below $298-287.50 would signal a possible short-term top with additional weakness towards $295.50-$295 and prior support to start the month.
RSI is showing signs of leveling out with resistance at 75 and the April high. A close above this level would signal additional strength towards 80-85 and January 2018 levels.
Support is at 70-65. A close below the latter would be a slightly bearish signal for additional weakness towards 60-55.
The Real Estate Select Sector Spider (XLRE) snapped a 2-session slide after trading to an intraday high of $37.92. Upper resistance at $37.75-$38 was challenged but held on the close above the former.
There is near-term and upside potential towards $38.50-$39 on a close above $38 with the 52-week and all-time peak from late June at $38.62.
Current but shaky support is at $37.50-$37.25.
A close below the latter reopens up risk towards $37-$36.75 and the 50-day moving average.
RSI is flatlining with support at 50.
A close below this level would be a bearish signal for additional weakness towards 45-40 with the latter representing last month’s low.
Resistance is at 60 with continued closes above this level signaling additional strength.
We are allocating the portfolio as follows:
30% in AMD closed on Monday at 34.44
30% in CDNS closed on Monday at 75.20
30% in JD closed on Monday at 31.03
10% in TMF closed on Monday at 23.97
Option Traders – the following (regular monthly) options meet our criteria:
AMD – 18OCT $32 Strike Price CALL (Expires October 18, 2019)
CDNS – 20DEC $75 Strike Price CALL (Expires December 20, 2019)
JD – 20SEP $32 Strike Price CALL (Expires September 20, 2019)
TMF – 15NOV $25 Strike Price CALL (Expires November 15, 2019)
All the best,