U.S. markets remained in a holding pattern after settling lower while trading in tight ranges for the 3rd-straight session.
Disappointing economic news and earnings results weighed on sentiment after a number of companies missed revenue expectations.
The focus will now shift from the Financial sector to Tech with a number of key announcements from big-cap companies.
Volatility remained slightly elevated and traded in a wider range after failing to holding key resistance levels.
The Russell 2000 was down 0.7% following the morning pullback to 1,547.
Near-term and upper support at 1,555-1,540 was breached and failed to hold with a close below the latter and the 50-day moving average being a bearish development.
The S&P 500 was also off 0.7% after trading in a 21-point range while closing on its session low of 2,984.
Current and upper support at 3,000-2,975 failed to hold for the first time 4 sessions with risk towards 2,965-2,950 on a close below the latter.
The Nasdaq was off 0.5% after tapping a low of 8,184 into the closing bell.
Current and upper support at 8,200-8,150 was breached and also failed to hold for the 1st time in 4 sessions.
The Dow was lower by 0.4% following the late day backtest to 27,218 and 2nd-straight lower low. Upper support at 27,250-27,000 was tripped and also failed to hold for the 1st time in 4 sessions.
Utilities and Healthcare were the only sector standouts with slight gains of 0.4% and 0.02%.
Industrials were the worst performing sector after sinking 2.1%.
Energy and Consumer Discretionary fell 1.1% and 1%, respectively.
Global Economy – European markets were weak across the board on inflation worries.
France’s CAC 40 was down 0.8% and Germany’s DAX 30 gave back 0.7%. UK’s FTSE 100 and the Belgium20 declined 0.6% while the Stoxx 600 fell 0.4%.
Eurozone inflation year-on-year for June came in at 1.3%, with both headline and underlying inflation rates below the ECB’s target rate of just below 2%.
British inflation matched the Bank of England’s 2% target for the second consecutive month.
Asian markets settled mostly lower on President Trump’s “long way to go” comment concerning the trade tiff with China.
South Korea’s Kospi dropped 0.9% and Japan’s Nikkei was off 0.3%.
China’s Shanghai slipped 0.2% and Hong Kong’s Hang Seng dipped 0.1%. Australia’s S&P/ASX 200 rose 0.5%.
Singapore’s non-oil domestic exports in June plunged 17.3% year-over-year, well below expectations of 9.9% contraction.
MBA Mortgage Applications dipped another 1.1%, the third consecutive decline, and follows the 2.4% drop the prior week. Applications were up 36% year-over-year.
The purchase index fell 3.8% after rising 2.3% previously, while refinancings increased 1.5% after the prior 6.5% decline. The 30-year fixed rate rose 8 basis points to 4.12% while the 5-year ARM was little changed at 3.58% from 3.56% previously.
Housing Starts fell 0.9% to 1,253,000 in June, missing expectations of 1,260,000. Building permits dropped 6.1% to 1,220,000 versus forecasts for 1,300,000.
Single family housing starts were up 3.5% after dropping 5.1% in May, while multifamily starts declined 9.2% following the 9.6% prior gain.
On a 12-month basis, starts bounced to a 6.2% year-over-year pace versus -5%. Completions were down 4.8%, a third straight monthly decline. Regionally, starts were declined in three of the four regions, with just the northeast rising.
The Fed’s Beige Book stated economic activity continued to expand at a modest pace and that there was little changed versus the prior reporting period.
The report noted retail sales increased in most Districts, though vehicle sales were flat while activity in nonfinancial services also rose further. Manufacturing was generally flat, though a few Districts noted a modest pick up while tourism was broadly solid.
The Fed also reiterated employment grew at a modest pace, slightly slower than the previous reporting period. Labor markets remained tight with continued worker shortages and there were some concerns about securing and renewing visas.
The report said compensation grew at a modest-to-moderate pace with most Districts reporting expanded benefit packages. Price inflation was stable to down slightly versus the last reporting period.
There was some increases in input costs, stemming from higher tariffs and rising labor costs. However, the ability to pass on cost increases to final prices was restrained by brisk competition.
Reports on transportation costs were mixed, while prices for professional and business services fell slightly, and steel and lumber prices softened due to lower demand.
The Beige Book concluded that the outlook generally was positive for the coming months, with expectations of continued modest growth, despite widespread concerns about the possible negative impact of trade-related uncertainty.
Market Sentiment – Kansas City Fed Esther George said the natural rate of unemployment could be lower and slowing global growth is a prominent risk to the U.S. economy.
She added though risks have increased, recent data reports have been good and have affirmed her positive outlook.
However, she also added that uncertainty can be a cause for businesses to pull back and the markets could turn quickly if worries over government borrowing hit a critical point.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 3rd time in 4 sessions after testing a high of $132.02.
Lower resistance at $132-$132.50 was cleared but held by a penny with a close above the latter getting $133.50-$134 back in focus.
Rising support is at $131-$130.50 With backup help at $130-$129.50 and the 50-day moving average.
Market Analysis – The Russell 2000 ETF (IWM) extended its losing streak to 3-straight sessions following the pullback to $153.73. Prior and upper support at $154-$153.50 was triggered but held.
A move below $152.75 and the 50-day moving average would be a bearish development for additional weakness.
Current and lowered resistance is at $154.50-$155. C
ontinued closes above the $156 level would be a more bullish signal for a break out of the current 13-day trading range that has lasted throughout the month.
RSI is in a downtrend after failing upper support at 50-45.
A close below the latter and the late June low would be a bearish signal for additional weakness in the 40-30 range and May lows. Resistance is at 55-60.
The Consumer Staples Select Spiders (XLP) had its 5-session winning streak snapped despite trading to an opening high of $60.08.
Fresh and lower resistance at $60-$60.50 held with the previous session all-time high at $60.23.
Current and upper support at $59.50-$59 held on the backtest to $59.78 afterwards.
A close below $59 and prior resistance from earlier this month would signal a near-term top.
RSI is showing signs of fading with support at 65-60.
A move below the latter would signal additional weakness towards 55-50 and the latter representing the late June low. Resistance is at 70-75 with the latter representing the March and April high.
Existing Position Update
Staying defensive was ideal.
Expecting more corrective pressure before stocks start trading higher
Markets are slightly overbought and need more downside before reaching fair value.
Momentum remains narrow and I want to see downside volatility shake out the weak hands, consolidate and then begin trending higher.
I don’t want to initiate too much exposure and prefer to stay defensive till markets are ready for prime time.
Let’s give it a few more days…earnings are slightly better with financials for now.
Roger Scott.