U.S. markets struggled for direction on Tuesday with the major indexes choppy throughout the session as Wall Street continued to monitor bond yields and the implication that rising yields might have on stocks.
Trade tensions were also a slight concern as the White House has apparently signaled to China that President Trump won’t meet with President Xi at the G20 summit unless China publishes a list of specific trade concessions.
The resignation of United Nations Ambassador Haley also caused some nervousness, but it was an amicable departure.
Volatility stayed elevated but continued to hold key resistance levels.
The Russell 2000 dropped 0.5% while closing a half-point off its session low of 1,621.
Upper support at 1,620-1,610 and the 200-day moving average held for the 3rd-straight session.
The Dow declined 0.2% after testing an morning low of 26,324. Support at 26,400-26,350 was breached but levels that held into the closing bell.
The S&P 500 traded in a 20-point range before sliding 0.1% on the pullback to 2,874.
Upper support at 2,875-2,865 and the 50-day moving average held with a close below 2,850 being a warning signal for lower lows.
The Nasdaq gained 2 points, or 0.03%, and showed the most intraday strength after testing a high of 7,799.
Near-term and lower resistance at 7,800 held with continued closes above this level signaling a possible short-term bottom.
Energy led sector strength after jumping 1%. Utilities and Technology rose 0.4%.
Materials easily led sector weakness after plummeting 3.3% while Industrials tumbled 1.5%.
Global Economy – European markets closed higher across the board despite the lowered global outlook from the IMF.
The Belgium20 and France’s CAC 40 rose 0.4% while Germany’s DAX 30 climbed 0.3%. The Stoxx 600 Europe was up 0.2% and UK’s FTSE 100 added 0.1%.
Governing Council member Vasiliauskas said the global economic outlook is becoming gloomier, especially in terms of international trade.
He went on to add the risk of a sudden tightening of international financial conditions is becoming increasingly plausible due to normalization of U.S. monetary policy.
The IMF cut its 2018 global GDP estimate to 3.7% from a 3.9% projection in July, citing escalating trade tensions and stresses in emerging markets.
The German August trade balance unexpectedly widened to a surplus of 17.2 billion euros, above expectations of 16.2 billion euros. August exports fell 0.1%, missing forecast for a rise of 0.4%.
August imports sank 2.7%, below expectations for a slip of 0.1%.
UK September BRC sales unexpectedly slipped 0.2% year-over-year, weaker than estimates for a rise of 0.1%.
Asian markets somewhat stabilized following Monday’s sharp correction in Chinese stocks, with a stronger yen weighing on Japanese equities.
Japan’s Nikkei sank 1.3% while Australia’s S&P/ASX 200 tumbled 1%.
China’s Shanghai edged up 0.2% while Hong Kong’s Hang Seng dipped 0.1%. South Korea’s Kospi was closed for a holiday.
NFIB Small Business Optimism Index fell 0.9 in September to a level of 107.9. Six index components declined, three gained, and one was unchanged. Job creation, capital spending, and actual sales all rose in September.
The IBD/TIPP economic optimism index to 57.8 in October after falling 2.3 points to 55.7 in September.
The October reading was comfortably above the 49.6 average for the index over the last 17 years which reflects a slightly more pessimistic outlook.
The strength on the month was in the personal finance index, which bounced 4.1 ticks to 66.7 following the 2.5 point drop to 62.6 in September.
The outlook on Federal policies improved to 53.4 versus 51.3. The economic outlook index was unchanged at 53.3.
Market Sentiment – Dallas Federal Reserve President Rob Kaplan said he sees some inflationary pressures building but doesn’t think there will be a sudden spike in prices.
He went on to add the inflation picture is a tale of two colliding forces. On the one hand, there is no question that cyclical inflationary pressures are building such as a tight labor market, trade tariffs and higher oil prices.
On the other hand, structural factors like automation and globalization are still limiting the pricing power of businesses, he said.
Kaplan said these factors are intensifying and as a result, price pressures should remain muted and give the Fed room to raise rates gradually. He went on to say it will be tricky for the Fed if price pressures keep rising and the central bank has to decide what is sustainable and how much is transitory.
Kaplan also stated a gradual pace for him would be three quarter-point interest rate increases through June.
He said the idea is that the Fed should be raising the funds rate until it is no longer boosting growth, understanding they have to feel their way a bit.
He estimated that a so-called neutral rate, where rates would not be easy, is a range between 2.5%-2.75%.
Philadelphia Fed Patrick Harker said analysts have a labor market with very little slack left, and the most common refrain he is hearing from employers is that they can’t fill the jobs they have.
He said these demographic and technological pressures are unlikely to recede.
The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 4-session slide after trading to a high of $113.85.
Fresh resistance at $114-$114.50 held with continued closes above the latter signaling a possible short-term bottom.
Shaky support is at $113-$112.50 with a close below the latter being a continuing bearish development.
Market Analysis – The Russell 2000 ETF (IWM) fell for the 4th-straight session and 6 of the past 7 after tapping to a intraday low of $160.98. Near-term support at $160.50-$160 and the 200-day moving average held.
A move below the latter would be a bearish signal for a continued backtest towards mid-May support at $158.50-$158.
Resistance is at $162.50-$163 with continued closes above $164 signaling a possible near-term bottom and return of momentum.
RSI is trying to level out with support at 25.
A move below this level would signal additional weakness with risk to 20 and January 2016 lows. At current levels, RSI is in oversold territory.
Resistance is at 30-35.
The Spider Gold Shares (GLD) is back in a downtrend after failing resistance at the 50-day moving average for 4-straight sessions last week and Monday’s plunge to $111.90.
Tuesday’s low tapped $111.97.
Near-term support is at $111.50-$111. A move below the latter could lead to a continued backtest towards $110-$108.
Near-term resistance is at $113-$113.50 and the 50-day moving average.
Continued closes above $114 would be a more bullish signal a possible bottom is in.
RSI is back in a slight uptrend with resistance at 45-50. Support is at 40.
A close below this level could lead to a continued pullback towards 35-30.
Existing Position Update
All positions traded higher, even though the broad market appears to be a bit weaker. I believe there’s substantial upside to go, especially since major stocks like AAPL and MSFT are at the 50 day line.
Expect more upside over the next few sessions.
I will wait for positions to move higher.
Expect to see more volatility over next few sessions.
Roger Scott.