U.S. markets closed lower on Tuesday after struggling to hold slight gains during the first half of action.
News that the President Trump is anxious about the economy and is contemplating various actions aimed at bolstering confidence and growth failed to help momentum.
Specifically, the President said he was looking at payroll and capital gains cuts along with 100 basis point cuts (over time) in interest rates.
The major indexes closed just below near-term support levels on the pullback with volatility settling just above key resistance levels.
The S&P 500 was down 0.8% after trading to an intraday low of 2,899.
Near-term and upper support at 2,900-2,875 was breached but held by a half-point with backup help at 2,850-2,825.
The Nasdaq was lower by 0.7% following the backtest to 7,948 and close back below the 8,000 level.
Current and upper support at 7,950-7,900 failed to hold with risk towards 7,850-7,800 on a close below the latter.
The Dow declined 0.7% after trading in a 208-point range while testing a late day low of to 25,952.
Major support at 26,000 was breached and failed to hold to reopen risk towards 25,800-25,600 and the 200-day moving average.
The Russell 2000 fell 0.7% after tapping a late day low of 1,497.
Prior and upper support at 1,500-1,485 was tripped and failed to hold with a close below the latter reopening risk towards 1,475-1,460.
Consumer Discretionary edged up 0.03% and was the only sector that showed strength.
Financials and Materials paced sector laggards after sinking 1.4% and 1.2% while Consumer Staples and Energy dropped 1.1% and 0.9%, respectively.
Global Economy – European markets settled lower following news Italian Prime Minister Giuseppe Conte is resigning and ahead of key Brexit meetings that are planned for the rest of the week.
The Belgium20 sank 1% and UK’s FTSE 100 dropped 0.9%. The Stoxx 600 was down 0.7% and Germany’s DAX 30 gave back 0.6%. France’s CAC 40 fell 0.5%.
Asian markets closed mixed after the People’s Bank of China published its new loan prime rates which would result in cheaper borrowing costs for companies.
Hong Kong’s Hang Seng slipped 0.2% and China’s Shanghai dipped 0.1%.
Australia’s S&P/ASX 200 rallied 1.2% and South Korea’s Kospi jumped 1.1%. Japan’s Nikkei gained 0.6%.
The Reserve Bank of Australia’s July meeting minutes showed the central bank would consider further easing if evidence suggested it was needed to support sustainable growth in the economy and the achievement of the inflation target over time.
U.S. chain store sales fell 0.2% in the week ending August 17th, after dropping 2.7% previously.
The 12-month pace slowed to 0.4% year-over-year from 1.7% previously, and is down from 3.3% year-over-year in the first week of August.
Redbook Store Sales were up 4.9% for the year in the week ending August 17th.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after tapping an opening high of $145.62. Prior and lower resistance at $145.50-$146 was cleared and held.
A close above the latter reopens upside potential towards $147-$147.50 with the recent all-time high at $148.60.
Near-term support is at $144.50-$144.
A close below the latter would be a slightly bearish signal for a backtest towards $143-$142.50.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) had its 2-session winning streak snapped following the close at $65.40 and session low. Near-term and
upper support at $65.50-$65 was breached and failed to hold.
A move below the latter reopens risk towards $64.50-$64 with the monthly low at $63.64.
Lowered resistance is at $66-$66.50 and the 200-day moving average.
RSI is in a downtrend with support at 45-40 and the monthly low at 35.
Resistance is at 50 and a level that has held throughout the month.
The Spider S&P Retail ETF (XRT) was lower for the first time in 3 sessions after testing an intraday low of $38.56. Current and upper support at $38.50-$38 held.
A close below the latter would be a renewed bearish development for additional risk towards $37.50 with the monthly low at $37.46.
Current resistance is at $39-$39.50.
A close back above $40 would be a more bullish indication of a possible near-term bottom.
RSI is in a downtrend with support at 35-30.
A close above below the latter would signal additional weakness towards 25-20 and late May lows. Resistance is at 40.
We are allocating the portfolio as follows:
30% in FISV closed on Tuesday at 106.65
30% in SBUX closed on Tuesday at 95.56
30% in TTWO closed on Tuesday at 131.43
10% in TMF closed on Tuesday at 32.63
For maximum liquidity, we will liquidate (SELL TO CLOSE Options contracts) and initiate any new positions (BUY TO OPEN Options contracts) within the last 20 minutes of the trading session. We will update you after the close in the Members Area Daily Update.
Option Traders – the following (regular monthly) options meet our criteria:
FISV – 20DEC $110 Strike Price CALL (Expires December 20, 2019)
SBUX – 18OCT $100 Strike Price CALL (Expires October 18, 2019)
TTWO – 17JAN $140 Strike Price CALL (Expires January 17, 2020)
TMF – 21FEB $35 Strike Price CALL (Expires February 21, 2020)
All the best,