U.S. markets showed weakness for a 2nd-straight session while closing slightly lower in anticipation of what the Fed may or may not do ahead of next week’s FOMC update.

The pullback held near-term support levels with the possibility of a mini-trade range developing into the announcement on interest rates.

The Nasdaq was down 0.4% after testing a morning low of 7,773 and failing to clear its 50-day moving average for the 3rd-straight session. Near-term and upper support at 7,750-7,700 easily held with a close below the latter opening up risk towards 7,650-7,600.

The Dow was lower by 0.2%, after trading to an intraday low of 25,958.

Near-term and upper support at 26,000-25,750 and the 50-day moving average was breached but held with a close below the latter being a bearish development.

The S&P 500 also slipped 0.2% following the intraday pullback to 2,874.

Fresh and upper support at 2,875-2,850 was breached but held with the index holding its 50-day moving average for the 4th-straight session.

The Russell 2000 bucked the trend after edging up less than a point, or 0.05%, while testing a 2nd-half high of 1,522. Upper support at 1,515-1,500 was breached but held following the opening pullback to 1,512.

Utilities led sector strength after jumping 1.3%. Healthcare and Real Estate were higher by 0.5% and 0.4%.

Energy and Financials were the weakest sectors after dropping 1.4% and 1%, respectively.

The consumer price index rose 2.7% in the same period, also matching forecasts.

MBA Mortgage Applications zoomed 26.8%, following a 1.5% increase the previous week, and the largest increase since January 2015. Refinancings paced the surge with a 45.6% jump, and were 49.8% of the loans, up from 42.2% previously.

The purchase index was 10% higher. The 30-year fixed rate fell to 4.12% last week from 4.23% in the prior week.

The 5-year ARM declined to 3.43% from 3.62%.

May CPI rose 0.1% on the headline and core with no revisions to April’s respective gains of 0.3% and 0.1%. The 12-month growth rate slowed to 1.8% year-over-year overall, versus 2%, with the core at 2% from 2.1%.

Energy prices dipped 0.6% from 2.9% and breaks a string three straight months of gains. Transportation costs slid 0.3% from the prior 1.2% gain.

Services prices were up 0.1% from 0.3%, and housing costs also were up 0.1% from 0.3%. Food/beverage prices rose 0.3% from -0.1%. Apparel was unchanged from -0.8% and -1.9% in March.

Real average hourly earnings rose 0.2% from -0.1%, leaving the year-over-year clip at 1.3% from 1.2% previously.

The Treasury Budget posted a $207.8 billion budget deficit in May, wider than the -$146.8 billion in red ink from a year ago. Spending climbed at a 20.9% year-over-year pace, while receipts increased at a 6.9% pace.

For the 8 months of fiscal 2019 to date, the deficit totaled -$738.6 billion, larger than the -$532.2 billion for the same period for fiscal 2018, with with year-to-date spending up 9.3% year-over-year and receipts at a 2.3% rate.

Atlantic Fed Business Inflation Expectations for June was up 2% for the year.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) traded to a tight range for the 3rd-straight session with the high reaching $130.75.

Lower resistance at $131-$131.50 held with a move above $132 signaling additional strength.

Near-term support is at $130.50-$130. A close below the latter would signal additional weakness towards $129-$128.50.

Market Analysis – The Spider S&P 500 ETF (SPY) was lower for the 2nd-straight session following the intraday pullback to $287.82. Upper support at $287.50-$287 was breached but held with a close below the latter and the 50-day moving average being a slightly bearish development.

Lowered resistance is at $289-$289.50.

Continued closes above the $290 level would be a more bullish signal for additional strength.

RSI is in a downtrend with support at 55-50. A close below the latter would be a bearish signal for additional weakness towards 45-40 and prior support from mid-May.

Resistance is at 60 with a move above this level signaling additional momentum towards 65-70.

The Financial Select Sector Spiders (XLF) was down for just the 2nd time in 8 sessions following the intraday pullback to $27.03.

Upper support at $27-$26.75 held on the 6th-straight close above the 50-day moving average.
A close below $26.50 could lead to further weakness towards $26.25-$26 and the 200-day moving average.

Near-term resistance is at $27.25-$27.50.

Continued closes above the latter would be a more bullish signal for a retest towards the $27.75-$28 and late April/ early May peaks.

RSI is in a slight downtrend with support 50. A close below this level opens up risk towards 45-40 with the latter representing support throughout much of May.

Resistance is at 55 with a move above this level signal a return of strength with upside potential towards 60-65 and mid-April highs.

Volatility Index – The S&P 500 Volatility Index ($VIX) has been in a mini trading range for 5-straight sessions with the morning high tapping 16.43. Near-term and lower resistance at 16.50-17 held for the 6th-straight session.

A close above 17.50 and the 200-day moving average would be a bearish development.

Upper support at 16-15.50 was breached and failed to hold following the late day pullback to 15.78. A close below 15 and the 50-day moving average would be a more bullish signal for additional market strength.

We are allocating the portfolio as follows:

60% in ZIV closed on Wednesday at 72.33
40% in EDV closed on Wednesday at 125.47

All the best,
Roger Scott.