U.S. markets showed strength on another turnaround Tuesday following hopeful signs from Mexico and China that a resolution might be on the horizon, although it is not clear it would be anytime soon.
President Trump suggested that the June 10th tariffs on Mexico will be applied as threatened, though Mexico’s foreign minister thinks there is about an 80% chance the levies will be avoided.
The major indexes made a run at their 200-day moving averages but it remains to be seen if a continued rally is in store or if the action was an oversold bounce.
The Nasdaq zoomed 2.7% following the late day run to 7,529.
Prior and lower resistance at 7,500-7,550 and the 200-day moving average was cleared and held with a close above the latter getting 7,600-7,650 back in focus.
The Russell 2000 rallied 2.6% while closing on its session high of 1,508.
Near-term and lower resistance at 1,500-1,515 was cleared but held with continued closes above 1,525-1,550 and the 200/50-day moving averages signaling a possible near-term bottom.
The S&P 500 soared 2.1% after tapping an intraday high of 2,804.
Fresh and upper resistance at 2,775-2,800 and the 200-day moving average was cleared and held with additional hurdles at 2,825-2,850 and the 50-day moving average.
The Dow also surged 2.1% following the intraday run to 25,343.
Current and lower resistance at 25,250-25,500 was cleared and held with a close above the latter and the 200-day moving average being a more bullish development.
Technology and Materials led sector strength after jumping 3.3% and 2.8%, respectively. Consumer Discretionary and Financials were up 2.7%
Real Estate was the only sector laggard after falling 0.6.
Redbook Store Sales were up 5.8% for the year in the week ending June 1st.
Factory Orders declined 0.8% in April, after climbing 1.3% in March, while matching forecasts. The 2.1% drop in Advance durable goods was not revised.
Transportation orders fell 5.9%, offsetting the prior 6% increase. Excluding transportation, orders were up 0.3% versus 0.3% previously. Nondefense capital goods orders excluding aircraft dropped 1% after the prior 0.3% gain.
Shipments were down 0.5% from 0.2% previously.
Non-defense capital goods shipments ex-aircraft were unchanged from -0.6%.
Inventories edged up 0.3% after a prior 0.4% gain. The inventory-shipment ratio increased to 1.37 from 1.36.
Market Sentiment – Fed Chair Jerome Powell talked about the recent developments involving trade negotiations and other matters and said the Fed didn’t know how or when these issues will be resolved.
He said the Fed is closely monitoring the implications of these developments for the U.S. economic outlook and, as always, will act as appropriate to sustain the expansion, with a strong labor market and inflation near the Fed’s symmetric 2% objective.
Powell noted the economy is growing, unemployment is low, and inflation is stable but added that the Fed is taking seriously the risks posed by inflation shortfalls.
Fed VC Richard Clarida said the Fed will act appropriately and that the economy is in a good place.
He believes the current policy framework is serving the U.S. well, but policymakers are looking at the framework with an open mind. However, he said there would be a high hurdle for any changes.
On tariffs, Clarida said there are potential impacts on prices and supply changes, adding there has been only a small effect, if at all, on aggregate growth to date, but any bigger changes would have to be taken into account.
He deflected a question on whether the Fed would act preemptively and would not discuss whether the markets should be pricing in two rate cuts for 2019.
He stressed the Fed’s reaction function is very clear, but would not get into market pricing.
On an insurance cut, Clarida noted it’s been in the monetary tool kit in the past, but would not discuss the future. He thinks inflation is at the lower end of a range that he would see as consistent with 2% inflation.
As far as the yield curve, a sustained inversion would be something that would have to be monitored, but he doesn’t see it as a strong signal for concern.
The iShares 20+ Year Treasury Bond ETF (TLT) had its 8-session winning streak snapped following the pullback to $130.55.
Fresh and upper support at $130.50-$130 held with a close below the latter opening up risk towards $128.50-$128.
Lowered resistance is at $131-$131.50 with continued closes above $132 signaling a return of strength.
Market Analysis – The Invesco QQQ Trust (QQQ) was up for just the 2nd time in 9 sessions following the intraday push to $174.97. Near-term and lower resistance at $174.50-$175 was cleared on the close back above the 200-day moving average.
This was a slightly bullish signal with additional hurdles at $177-$177.50.
Current support is at $174-$173.50.
A move below the $170 level and Monday’s low of $169.27 would be renewed bearish signals for lower lows.
RSI is back in a slight uptrend with resistance at 40. Continued closes above this level would signal additional strength towards 45-50 and the latter representing the mid-May peak.
Support is at 30 with a close below this level signaling additional weakness towards 25 and the December low.
The iShares PHLX Semiconductor ETF (SOXX) was up for the 2nd-straight session after tapping going out on its closing high of $184.68. Lowered resistance at $184.50-$185 was cleared and held.
Continued closes above $187.50-$190 would be more bullish signals a near-term bottom has been established.
Current support is at $182.50-$182.
A move close the latter reopens risk towards $180.50-$180.
RSI is in an uptrend with with resistance at 45-50.
A close above the latter and prior support from March would signal additional strength. Support is at 35-30 if 40 fails to hold.
Volatility Index – The S&P 500 Volatility Index ($VIX) stayed deflated throughout the session while closing on the session a low of 16.97. Prior and lower support at 17.50-17 and the 200-day moving average was cleared and held on the close below the former.
A more bullish signal would occur on continued closes back below 15 and the 50-day moving average.
Lowered resistance is at 18-18.50 followed by at 19.50-20.
We are allocating the portfolio as follows:
60% in ZIV closed on Tuesday at 71.41
40% in EDV closed on Tuesday at 125.85
All the best,