U.S. markets showed continued momentum with the broader clearing May resistance levels while Tech and the small-caps continued their run into blue-sky territory.
Ongoing trade talks helped the rally after China offered to import $70 billion in U.S. goods. However, Mexico revealed it is targeting $3 billion for import tariffs, including apples and bourbon, in retaliation for U.S. duties on Mexican steel and aluminum.
Volatility continued to ease despite the ongoing geopolitical environment and ahead of next week’s Fed and ECB news.
The Dow showed the most strength after surging 1.45 and tapping an closing high of 25,146 while easily clearing and holding the 25,000 level for the first time since late May.
The S&P 500 soared 0.9% after trading to a high of 2,772 to clear major resistance at 2,750. The index is 100 points away from its all-time high of 2,872 from late January.
The Russell 2000 gained 0.7% to set its 3rd-straight all-time intraday high of 1,676 into the closing bell.
Continued momentum could carry the small-caps towards 1,690-1,700 after splitting our near-term target of 1,670-1,680.
The Nasdaq was up 0.7% after setting its 2nd-straight all-time intraday high of 7,691. The index is on track to easily clear 7,700-7,750 over the near-term.
Materials led sector strength after rising 1.9% while Financials were higher by 1.8%. Consumer Discretionary jumped 1% and Industrials were higher by 0.9%.
Utilities were the only sector laggard after sinking 2.3% while Financials.
Atlanta Fed’s GDP Nowcast model estimates a 4.5% real growth rate for Q2 following the April trade report. The nowcast contribution of net exports to real growth in Q2 inched down to 0.31% from 0.42% previously.
MBA Mortgage Applications were up 4.1% for the week ending June 1st.
International Trade in Goods narrowed 2.1% in April to $46.2 billion from a revised $47.2 billion in March.
Imports fell 0.2% after dropping 1.4% previously, while exports were up 0.3% following March’s 2.2% gain.
Productivity and Costs for the first quarter was revised to a 0.4% growth rate, down from the previously estimated growth rate of 0.7%.
Market Sentiment – The FOMC meeting is just one week away with Wall Street unanimously expecting the Fed to announce a 25 basis-point tightening, moving the band up to 1.75%-2%. The main focus will be on the interest rate on excess reserves (IOER rate).
The FOMC minutes from the May meeting indicated a possible small technical realignment of the IOER rate relative to the top of the target range, with the suggestion of a 20 basis-point increase when the policy rate was boosted by 25 basis-points.
The other focal point will be on the dot-plot, which analysts suspect will be maintained at the current estimate of three tightenings for 2018. The June move would be the second this year.
Top Economic advisor Larry Kudlow previewed the upcoming G-7 meeting this weekend and endorsed fast U.S. growth, while noting that trade issues will be discussed, including bilateral meetings with Canadian and French leaders.
He also expects shared security issues like North Korea to be discussed. He attributed U.S. success to tax policy and regulatory rollback, along with trade advocacy by the president.
Kudlow touted record small business confidence and low unemployment, which show that U.S. policies are working and he hopes that our economic partners join with the U.S. in embracing growth. He likened any tension to a family disagreement, but he remains optimistic.
The iShares 20+ Year Treasury Bond ETF (TLT) reversed course after stumbling to a low of $118.42 intraday.
Prior support at $119-$118.50 and the 50-day moving average was breached with a move below the latter signaling additional weakness. Lowered resistance is at $119-$119.50.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 3rd-time in 4 sessions after testing a high of $251.53. Fresh resistance at $252-$252.50 with continued closes above the latter signaling a possible push towards $254-$255.
Rising support is at $250.50-$250 and prior late May resistance.
The 50-day moving average is starting to curl higher following a downtrend from mid-March and a flattening period throughout May.
RSI has been in a nice uptrend with late February and May resistance at 60-65 in play.
Continued closes above the latter could signal additional strength towards 70-75. Support is at 55-50.
The Materials Select Sector (XLB) was higher for the 4th-straight session after reaching an intraday peak of $60.99. The move above the April and May highs gets longer-term resistance from February and March at $61.25-$61.50 in the mix.
Rising support is at $60.50-$60.25 with a move back below $60 signaling a false breakout. The 50-day moving average is back on track to clear the 200-day moving average and would confirm a golden cross.
This technical development tends to lead to higher highs. This would also come after the major MA’s formed a recent death cross that lead to lower lows into the end of May.
RSI is pushing mid-May resistance at 65.
Continued closes back above this level would be a bullish development for run towards 70. Support is at 60-55.
Volatility Index – The S&P 500 Volatility Index ($VIX) fell for the 5th-time in 6 sessions after trading to a low of 11.62. Fresh support from January at 11.50-11 held with the 50-day moving average showing signs of rolling over.
Lowered resistance is 12.50-13 with a close back above 13.50-14 and the 200-day moving average signaling a short-term market top.
The Profit Trends portfolio is allocating:
60% in ZIV closed on Wednesday at 78.20
40% in EDV closed on Wednesday at 111.31
All the best,
Roger Scott