U.S. markets traded in tight ranges for the 2nd-straight session while settling slightly lower as mixed 2Q earnings and trade comments concerning China weighed on sentiment.
The blue-chips and the small-caps showed some intraday strength but the overall market tested midday lows after President Trump told reporters that a trade deal with China has a long way to go.
The Nasdaq fell 0.4% after testing an intraday low of 8,204. Fresh and upper support at 8,200-8,150 held with a close below the latter signaling additional weakness towards 8,050-8,000.7
The S&P 500 slipped 0.3% after trading in a 14-point range and tapping an intraday low of 3,001.
Current and upper support at 3,000-2,975 held on the 3rd-straight close above the former with risk towards 2,950 on a move below the latter.
The Dow dipped 0.1% despite testing an all-time intraday high of 27,398 while snapping a 5-session winning streak.
Upper support at 27,250-27,000 held on the backtest to 27,290 afterwards.
The Russell 2000 edged up less than a point, or 0.01%, after holding positive territory for much of the session and kissing a morning high of 1,569.
Prior and lower resistance at 1,570-1,575 held with a move above the latter getting 1,585-1,600 back in focus.
Industrials and Material led sector strength after rising 0.6% and 0.2%. Energy and Technology were the weakest sectors after falling 1.1% and 0.9%, respectively.
Global Economy – European markets settled higher despite underwhelming economic news.
The Belgium20 rallied 0.8% and France’s CAC 40 was up 0.7%. UK’s FTSE 100 rose 0.6% while Germany’s DAX 30 and the Stoxx 600 gained 0.4%.
The eurozone’s balance of trade for May came in at a surplus of 23 billion euros ($25.85 billion). Seasonally adjusted exports rose by 1.4% while imports were down 1%.
July’s economic sentiment figures for Germany came in at -24.5 versus forecasts of -22.3.
Asian markets were mixed.
South Korea’s Kospi advanced 0.5% and Hong Kong’s Hang Seng added 0.2%. Japan’s Nikkei sank 0.7%.
China’s Shanghai and Australia’s S&P/ASX 200 were lower by 0.2%.
Reserve Bank of Australia’s monetary policy meeting in July showed the central bank was ready to adjust interest rates if required.
Import Prices declined 0.9% and Export prices fell 0.7% in June. Those follow a 0.3% May decline in import prices with export prices slipped 0.2%.
On a 12-month basis, import prices contracted at a -2% year-over-year rate versus -1.1%, while export prices were at -1.6% versus -0.8%, previously.
Concerning imports, petroleum prices dropped -6.2% versus the 2.4% gain in May. Excluding petroleum, prices were -0.4% versus -0.3%.
Food, beverage prices fell -1.5%, while industrial supplies prices dropped -3.3%. Import prices with China dipped -0.1%, the same as in May, and were down -2.7% with Canada versus 0.2%, previously.
For export prices, agricultural prices jumped 2.7% from -1.1%. Excluding ag, export prices declined -1.1% from -0.2%.
Retail Sales were higher by 0.4% in June for both headline and excluding autos, topping forecasts for advances of 0.1% and 0.3%, respectively.
This follow gains of 0.4% for both in May, with each revised down from 0.5% previously. Sales excluding autos, gas, and building materials increased 0.7% following a 0.7% prior increase.
Gains were fairly broadbased, with gas station sales and department store sales the exceptions, following declines of -2.8% and -1.1%, respectively. Vehicle sales and parts were up 0.7%.
Non-store retailer sales climbed 1.7%.
Building materials sales edged up 0.5%, as did clothing.
Sporting goods were flat. General merchandise rose 0.2% while miscellaneous sales were up 0.6%.
Redbook Store Sales up 4.7% for the year in the week ending July 13th.
Industrial Production was flat in June versus expectations for a dip of -0.1%, with capacity utilization falling to 77.9% versus forecasts for a print of 78.2%.
Utility production dropped 3.6% after a revised 2.4% May increase. Manufacturing increased 0.4% compared to May’s 0.2% gain as vehicles and parts climbed 2.9% after the prior 2.3% gain.
Machinery production slid -1% following a 2.2% prior increase. Computer and electronics rose 0.9% from 0.3%. Mining was up 0.2% following the 0.2% previous gain.
Business Inventories rose 0.3% in May, missing estimates for an increase of 0.4%, with sales up 0.2%. Inventories had increased 0.5% in April, while sales had declined -0.2%.
The inventory-sales ratio was steady at 1.39.
NAHB Housing Market Index rebounded 1 point to 65, matching forecasts, after falling 2 points to 64 in June.
The single family sales index inched up a point to 72 from 71, with the future sales index also up 1 point to 71 from 70. The index of prospective buyer traffic was up 1 point as well to 48 from 47.
Market Sentiment – Fed Chair Powell reiterated the Fed will act as appropriate to sustain the expansion, in his speech from Paris. He added that despite low unemployment and solid overall growth, inflation pressures remain muted.
Powell said the baseline outlook is still for solid growth and for inflation to move back up near 2%, but he again acknowledged uncertainties over the outlook have increased, particularly regarding trade developments and global growth.
In addition, he said, issues such as the U.S. federal debt ceiling and Brexit remain unresolved.
Chicago Fed Charles Evans said a little more accommodation would be helpful, after acknowledging the economy is solid. However, on the basis of inflation alone, he could be confident in arguing for a couple of rate cuts before the end of the year.
He said he could see 50 basis points or more of stimulus might be necessary to get inflation up to 2.25%.
Evans said the timing of 50 bps in cuts isn’t critical for what the Fed does.
He went on to say the economy could get to 2% inflation in other ways, including more stimulative fiscal policy, improving European growth, or other additions to aggregate demand.
Atlanta Fed Raphael Bostic said he thinks inflation is in range of the Fed’s 2% target but added he is continually struck by messages of confusion, uncertainty and a real lack of clarity on what the Fed is doing, how it views the economy and where it is likely to go.
Bostic went on to say there are some real questions that analysts have to ask, such as, are the Fed’s targets understandable and clear to people and are their strategies well understood.
The iShares 20+ Year Treasury Bond ETF (TLT) had its 2-session winning streak snapped following the pullback to $129.96.
Current and upper support at $130-$129.50 and the 50-day moving average was breached but held.
Resistance remains at $131-$131.50.
The Invesco QQQ Trust (QQQ) fell for the 2nd time in 7 sessions following the intraday backtest to $192.56. Near-term and upper support at $192.50-$192 held.
A move below the latter would be a slightly bearish signal for a further backtest towards $190.50-$190.
Current resistance is at $193.50-$194 with Monday’s all-time high at $194.19.
A close above $194.25 would signal continued momentum with near-term and upside potential towards $195-$196.
RSI is showing weakness after failing early May resistance at 70.
Continued closes above this level would signal additional strength towards 75-80 and April peaks. Support is at 65-60 with a close below the latter signaling additional weakness.
The Spider Gold Shares (GLD) is currently in a 5-session trading range with Tuesday’s low tapping $132.13. Near-term and upper support at $132-$131.50 held. A close below the latter would be a slightly bearish development with additional weakness towards $130.50-$130.
Resistance is at $133.50-$134.
A move above the latter would be a bullish signal for a retest towards $135-$135.50 and the recent 52-week high at $135.55.
RSI is in a slight downtrend with key support at 55 and this month’s low.
A close below this level opens up weakness towards 50-45. Resistance is at 60-65.
We are allocating the portfolio as follows:
30% in QCOM closed on Tuesday at 76.37
30% in TTWO closed on Tuesday at 117.44
30% in WDC closed on Tuesday at 51.55
10% in TMF closed on Tuesday at 23.77
Option Traders – the following (regular monthly) options meet our criteria:
QCOM – 18OCT $75 Strike Price CALL (Expires October 18, 2019)
TTWO – 20SEP $120 Strike Price CALL (Expires September 20, 2019)
WDC – 17JAN $60 Strike Price CALL (Expires January 17, 2020)
TMF – 15NOV $25 Strike Price CALL (Expires November 15, 2019)
All the best,
Roger Scott