U.S. markets were choppy during the first half of Wednesday’s action before showing strength after a tweet from President Trump that confirmed China’s Vice Premier is on the way to the U.S. to make a deal.
Of course, the devil will the in the details if a deal is announced on Friday, or if there will be a delay in negotiations with another round of fresh tariffs.
The slight momentum faded into the closing bell as the blue-chips were the only index that settled higher.
Volatility simmered slightly but edged up after trading to a lower high than the previous session.
The Dow rose 2 points, or 0.01%, while tapping a late day high of 26,118 ahead of the closing bell.
Lower resistance at 26,000-26,250 and the 50-day moving average was cleared with both holding and a close above the latter being a more bullish development.
The S&P 500 slipped 0.2% despite reaching an intraday peak of 2,897.
Prior and lower resistance at 2,900-2,925 was challenged but held with a move above the latter signaling a return of strength.
The Nasdaq gave back 0.3% after making an intraday push to 8,004.
Near-term and lower resistance at 8,000-8,050 on the 2nd-straight close below the former.
The Russell 2000 traded in an 13-point range with the low tapping 1,574.
Upper support at 1,580-1,565 was breached for the 2nd-straight session and failed to hold with a close below the latter and the 50/200-day moving averages being a continuing bearish signal.
Healthcare and Consumer Discretionary paced sector winners after rising 0.2% and 0.03%, respectively.
Utilities led sector losers after falling 1.4%. Financials and Communication Services dipped 0.2%.
Global Economy – European markets settled mostly higher despite ongoing political uncertainty with the U.K. resuming its negotiations with the European Union over Brexit.
Germany’s DAX 30 rallied 0.7% and France’s CAC 40 was up 0.4%. The Stoxx 600 Europe and UK’s FTSE 100 climbed 0.2%. The Belgium20 was down 0.6%.
Asian markets closed in the red despite better-than-expected trade news out of China.
Japan’s Nikkei fell 1.5%. Hong Kong’s Hang Seng was lower by 1.2% and China’s Shanghai was down 1.1%. South Korea’s Kospi and Australia’s S&P/ASX 200 declined 0.4%.
China’s trade surplus for April came in at $13.84 billion, much lower than forecasts of $35 billion, and below the $32.65 billion posted in March.
China’s trade surplus with the U.S. rose to $21 billion in April from $20.5 billion in March.
China imports for April unexpectedly rose by 4%, versus expectations for a decline of 3.6%, and follows a decline of -7.6% in March.
MBA Mortgage Applications rebounded 2.7%, after sliding 4.3% in the prior week, while snapping 4-straight weeks of declines. A 4.2% pop in the purchase index (from -3.7% previously), and a 0.8% gain in refinancings (from -5%) helped reverse the trend.
The average 30-year fixed mortgage rate dipped to 4.41% from 4.42% and has generally been declining since hitting a cycle high of 5.17% back in November.
However, the 5-year ARM edged up to 3.88% from 3.81%.
Refinances comprised 37.9% of loans, with that ratio remaining in a decline since hitting 54.5% in late March.
Market Sentiment – Fed Reserve Governor Lael Brainard said the Fed is discussing various tools and strategies, including inflation targeting, with the Fed aiming to achieve its inflation objective on average over a longer period of time.
She also mentioned targeting yields on specific securities, such that if short term rates were back at zero, the Fed could turn to targeting longer-term rates.
The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streaked snapped despite the morning pop to $125.30.
Lower resistance from late March at $125-$125.50 held before the fade to $124.30.
Fresh and prior support is now at $124-$123.50. A close below the latter would signaling a possible backtest towards $123-$122.50 and the 50-day moving average.
Market Analysis – The Russell 3000 Index ($RUA) extended its losing streak to 3-straight sessions despite trading to an intraday high of 1,709.
Lowered resistance at 1,715-1,730 held with continued closes above the latter getting 1,740-1,755 and fresh 52-week peaks back in play.
Upper support at 1,700-1,685 was beached for the 2nd-straight session but failed to hold and levels that have been holding since early April.
A close below the latter and the 50-day moving average would be a bearish development with risk towards 1,650-1,635 and the 200-day moving average.
RSI remains in a slight downtrend but is trying to level out with support from early January at 45-40. Resistance is at 50 and prior support from March.
A move back above this level would signal a return of strength and a possible run towards 55-60.
The Spiders S&P Homebuilders ETF (XHB) extended its losing streak to 3-straight sessions after testing a low of $40.19. Late April and upper support at $40.50-$40 was breached and failed to hold.
A move below $39.50 and the 50-day moving average would be a bearish signal for additional weakness.
Near-term and lowered resistance is now at $40.50-$41.
RSI remains in a downtrend after failing upper support at 50-45 with the latter representing the March low. A move below 45 would signal additional weakness towards 40 and late December levels.
Resistance is at 55-60 with continued closes above the latter being a bullish signal for additional strength.
Position Update
Markets showing signs of strength.
Issues with China will not resolve next few days.
Trump is doing best to deal with flare ups.
The longer the issue remains on the table – the more it will become priced into the markets value.
Expect two sided market action to dominate next day or two.
Roger Scott.