U.S. markets were weak on Monday’s open while trading in negative territory throughout the session and ahead of a busy week for earnings along with Fed news on interest rates.

The Dow fell 0.7% after finishing 4 points off its low of 26,435 to snap a three-session winning streak. The S&P 500 also sank 0.7% while closing 2 points off its low of 2,851.

The Russell 2000 declined 0.6% after settling back below the 1,600 level for the first time in six trading days.

The Nasdaq dropped 0.5% after testing a low of 7,455 ahead of the closing bell but has been holding the 7,400 level for 6-straight sessions.

Energy and Utilities showed the most weakness after tanking 1.5% and 1.3%, while Real Estate and Materials fell 1.2% and 1.1%, respectively. There were no sectors that finished in the green.

Global Economy- European markets were mostly lower following trade concerns after the EU said it was ready to react swiftly and appropriately to any restrictive trade measures by the United States.

The Stoxx Europe 600 and the Belgium20 were down 0.2% while Germany’s DAX 30 and France’s CAC 40 gave back 0.1%. UK’s FTSE 100 gained 0.1%.

ECB Governing Council member Knot said the QE program has done what could realistically be expected and the ECB needs to end the program as soon as possible.

ECB Executive Board member Praet said an ample degree of monetary accommodation was still needed as domestic price pressures remains subdued and that the ECB still has a way to go before inflation is on track toward its goal.

German December import price index was up 0.3% month-over-month and 1.1% year-over-year, ahead of expectations for a rise of 0.2% and 1.1%, respectively.

Asian markets were mixed following cautious comments out of China with Hong Kong’s Hang Seng falling 0.6% to close back below the 33,000 level.

China’s Shanghai stumbled 1% while Japan’s Nikkei slipped 0.01%. South Korea’s Kospi rallied 0.8% and Australia’s S&P/ASX 200 was higher by 0.4%.

China’s National Development and Reform Commission wrote in an op-ed that black swan or grey rhino high-impact events were likely to take place this year.

These terms are often used after the fact because they are hard to predict, but at the same time, provide a stop and think moment.

Personal Income and Outlays both rose 0.4% in December, topping expectations of 0.3% for the month.

Dallas Fed Manufacturing Survey rose 3.7 points to 33.4 in January, much better than expectations of 25.4, and represents the highest level since December 2005. It was 22.1 a year ago.

Market Sentiment – The FOMC meets Tuesday and Wednesday and it will be Chair Janet Yellen’s last meeting. No policy action is expected and there’s no press conference scheduled this time around.

Additionally, there will not be any updates on the dot plot or economic projections.

Analysts believe the recent strength in GDP and inflation sets the stage for a 25 basis-point tightening at the March 20th, 21st meeting.

As a side note, there are four new voting presidents this year, including Williams, Mester, Bostic, and Barkin, who replaced Harker, Kaplan, Evans, and Kashkari. Additionally, Powell will take the helm in February after Yellen’s term expires on February 3rd.

The Fed governor nominee is still waiting Senate confirmation.

Atlanta Fed’s Q1 GDPNow estimate was initiated at 4.2% and significantly higher from the 2.6% advance Q4 reading.

The iShares 20+ Year Treasury Bond ETF (TLT) pulled back for the second-straight session after trading to an intraday low of $122.30. Backup support at $122.25-$122 held with a move below the latter leading to $121.50 and a retest of the October lows.

Lowered resistance is at $123-$123.25.

Market Analysis- The Spider S&P 500 ETF (SPY) traded to an all-time high of $286.63 on Friday with fresh resistance at $288.50-$290 on continued closes above $285.

Today’s pullback to $284.50 held short-term support at $284.50-$284 with a close below $282.50 signaling a possible short-term top.

RSI had been extremely elevated with resistance at 90 holding before today’s weakness and levels not seen over the past 5 years. Support is at 75 and levels that have led throughout January.

A move back below the latter would likely signal additional weakness towards 70-65.

The Dow Jones Transportation Average ($TRAN) has been holding near-term support at 11,000-10,975 over the past three sessions and an area that represents the early month breakout above these levels.

A close below the latter would be a slightly bearish development with additional risk to 10,800.

Lowered resistance is at 11,200-11,250 on continued strength and closes above the 11,000 level. A move above the latter could lead to a retest of recent all-time highs north of 11,400.

RSI recently bottomed near the 50 area and November support. Resistance is at 70 on continued closes above 60 and would signal upcoming strength.

Existing/New Position Update

Filled on SVXY.

Expect more corrective pressure in the near term.

Price should begin moving higher – but not till we see island reversal or few days of congestion near the current range or slightly below it.

Should have 2 more spreads over the next few days – since volatility is expanding – which helps us get more premium for the risk incurred.

Roger Scott