U.S. markets suffered steep losses on the open but rebounded off the lows following another round of tough tariff talk.

China’s response on U.S. products worth about $50 billion renewed trade war concerns in retaliation for the U.S. tariffs on $50 billion worth of Chinese goods. Volatility spiked but settled lower as the major indexes revisited early February lows while closing higher for the session.

The Nasdaq was up 1.5% after trading to a low of 6,811 on the open before rebounding to clear and hold the 7,000 level afterwards.

The Russell 2000 rallied 1.3% after testing a low of 1,491 but was able to hold 1,500 for the second-straight session.

The S&P 500 added 1.2% after bottoming at 2,573 on the opening but easily cleared and held the 2,600 level into the closing bell. The Dow gained 1% despite tapping a low of 23,523 while holding its yearly bottom of 23,360.

The index easily held the 24,000 level on the rebound and it marked the first time the index has finished higher after being down over 500 points intraday.

Consumer Discretionary surged 1.8% while Consumer Staples and Health Care jumped 1.6% and 1.5%, respectively. Energy was the only sector laggard after giving back 0.1%

Global Economy – European markets were mostly lower for a second-straight day with milder losses. The Belgium20 fell 0.6% and the Stoxx 600 Europe lost 0.5%. Germany’s DAX 30 declined 0.4% and France’s CAC 40 was off 0.2%. UK’s FTSE 100 was up 0.1%.

U.K.’s construction sector dropped to 47 in March following five months of marginal growth, down from 51.4 a month earlier.

Asian markets were mixed with Hong Kong’s Hang Seng getting hit the hardest after sinking 2.2%. South Korea’s Kospi stumbled 1.4% while China’s Shanghai slipped 0.2%. Australia’s S&P/ASX 200 rose 0.2% while Japan’s Nikkei climbed 0.1%.

China announced a list of 106 U.S. products worth roughly $50 billion that will be subject to an additional 25% tariff in retaliation for the U.S. tariffs on $50 billion worth of Chinese goods.

The U.S. products subject to the new tariff includes soybeans, automobiles, chemicals, and aircraft. Other U.S. agriculture products subject to the tariff include wheat, corn, cotton, sorghum, tobacco, and beef.

MBA Mortgage Applications sank 3.3% for the week ending March 30th, along with a 2.1% decline in the purchase index and a 4.9% dive in the refinancing index. The average 30-year fixed mortgage rate was unchanged at 4.69%.

ADP Employment Report showed 241,000 jobs were added to private payrolls last month, easily topping expectations of 210,000 jobs added.

PMI Services Index dropped 1.9 points to 54, just shy of forecasts of 54.1.

Factory Orders were up 1.2% for the month, and well below expectations for a rise of 1.7%.

ISM Non-Manufacturing Index fell 0.7 points to 58.8 in March after slipping 0.4 points to 59.5 in February. Expectations were for a print of 59.

The subcomponents were mixed as the employment index rose to 56.6, indicating a strong labor market. However, new orders dropped to 59.5 from 64.8 while new export orders slid to 58 from 59.5 and imports climbed to 55 from 50. Prices paid were slightly higher at 61.5, up from 61.

Market Sentiment – St. Louis Federal Reserve Bank President James Bullard said current policy is closer to the neutral rate after 2017 growth surprised to the high side. He said the effects of the surprise seem to have abated in the face of uncertain Q1 real GDP growth along with other factors.

On the yield curve, he noted the flattening that has taken place since 2014, saying it resulted from the rise in short term rates, while long term rates were relatively stable.

He added that it’s possible the nominal curve will invert sometime in the next year, but recently the long end has increased enough to keep pace with the FOMC’s rate increase.

Bullard went on to say it’s not necessary to raise the policy rate further under current circumstances as inflation is not far below target and is expected to rise. He mentioned rate hikes are not needed in order to put downward pressure on inflation, since inflation is already below target.

Bullard also said a trade war would present downside risks and uncertainty, but while disruptive, the dispute could yield better arrangements.

He said he will wait and see on trade before changing his outlooks. He acknowledged that increased uncertainty is likely keeping longer term rates lower and added he doesn’t want Fed policy to be the cause a yield curve inversion.

In a speech, Cleveland Federal Reserve Bank President Loretta Mester endorsed a diversity of views at the central bank, which leads to better policy, though she made no references to current policy.

The iShares 20+ Year Treasury Bond ETF (TLT) fell for a second-straight session after testing a low of $120.60.

Upper support at $120.50-$120 held with risk to $119.50-$119 and the 50-day moving average on a move below the latter. Resistance remains at $121-$121.50.

Market Analysis – The Russell 3000 Index ($RUA) tested a low of 1,527 at the start of trading with support at 1,540-1,535 and the 200-day moving average getting slightly stretched.

A close below 1,520 would be a bearish development. However, the bounce off the lows reached a peak of 1,569 and cleared near-term resistance at 1,550-1,560. A bullish reversal could occur on continued closes above the 1,580 level.

The 50-day moving average remains is a downtrend and could be headed for a close below the 200-moving average in the coming weeks, or months, if momentum doesn’t return.

RSI is trying to make a near-term run to resistance at 50 with continued closes above this level being a bullish development.

Support is at 40 with risk to 30 on a close back below this level.

The Financial Select Sector Spiders (XLF) bottomed at $26.82 on the open with support at $27-$26.75 getting split. A close below $26.50 and the 200-day moving average would be a very bearish development.

Monday’s low tapped $26.55.

The bounce to $27.70 afterwards failed lower resistance at $27.75-$28. Continued closes above the latter would be a slightly bullish development for a possible run towards $28.25-$28.50 and a downtrending 50-day moving average.

RSI is back in a slight uptrend with resistance at 50. Support is at 40-35 with risk to 30 and February/ March lows on a move below the latter.

Current Position Update

TSLA is hitting the gas once again. I’m expecting option to continue decaying since volatility is starting to favor the bulls once again.

BABA is near our short strike but I’m not too worried about the position because we have plenty of time till expiration and I’m expecting tariff war to become priced into the current market cycle over the near term time period.

Expect more upside once the broad market begins trading above 200 day line consistently.

Expect 2 more positions before end of week.

Roger Scott