U.S. markets traded in negative territory throughout the majority of Tuesday’s session with the weakness attributed to a rise in interest rates and mixed economic news.

The selling pressure caused a slight spike in volatility with near-term resistance holding and the major indexes improving off their worst levels into the closing bell.

The Dow dropped 0.8% after testing a low of 24,629 to snap an 8-session win streak. The S&P 500 sank 0.7% to snap a 4-session win streak while trading to a low of 2,701. Both indexes remain roughly 1% above their 50-day moving averages.

The Nasdaq was lower for the 2nd time in 3 sessions after falling 0.8% and making a backtest to 7,320. The Russell 2000 was flat, literally, after trading in an 11-point range while holding the 1,600 level.

Real Estate and Health Care paced sector laggards after tumbling 1.7% and 1.3%, respectively. Technology and Utilities were lower by 0.9% and 0.8%. There were no sectors that closed in positive territory.

Global Economy – European markets closed mixed. France’s CAC 40 and UK’s FTSE 100 gained 0.2% while the Stoxx 600 Europe was up 0.1%. The Belgium20 was off 0.2% and Germany’s DAX 30 slipped 0.1%.

Eurozone March industrial production rose 0.5%, weaker than expectations of 0.7%.

The German May ZEW expectations of economic growth was unchanged at -8.2, matching forecasts.

German Q1 GDP rose 0.3% quarter-over-quarter and 2.3% year-over-year, weaker than expectations of 0.4% and 2.4%, respectively.

Asian markets closed mostly lower with China’s Shanghai bucking the trend after adding 0.6%. Hong Kong’s Hang Seng sank 1.3% and South Korea’s Kospi was lower by 0.7%.

Australia’s S&P/ASX 200 declined 0.6% while Japan’s Nikkei fell 0.2%.

China April industrial production rose 7% year-over-year, stronger than expectations of 6.4% and the largest increase in 10-months.

China April retail sales rose 9.4% year-over-year, weaker than forecasts of 10%.

Retail Sales rose 0.3% in April, matching forecasts. Excluding autos, gas, and building materials, sales were up 0.3% versus 0.6% previously. Motor vehicles and parts sales edged up 0.1% while gas station sales increased 0.8%.

Clothing climbed 1.4% while furniture sales were up 0.8%. Miscellaneous sales rose 0.9% and non-store retailers were up 0.6%.

The Empire State Manufacturing Survey bounced 4.3 points to 20.1 in May, which was better than expected. The employment component inched up to 8.7 from 6, with the workweek at 11.1 from 16.9.

New orders climbed to 16 from 9. Prices paid jumped to 54 from 47.4 and prices received increased to 23 from 20.7. The 6-month general business index surged to 31.1 from 18.3.

The future employment reading was 20.8 from 13.1, with the workweek at 4.3 from 3.7, while new orders were 33.7 from 18.5. The 6-month price indicators dipped with the prices paid outlook slipping to 54 from 54.8, with prices received at 29.5 from 31.1.

Redbook Store Sales were up 4.9% for the year in the week ending May 12th.

The Housing Market Index rose one point to a reading of 70 for May, topping expectations for a print of 69.

Business Inventories were flat in March, with sales up 0.5%.

Inventories were weaker than the 0.2% forecast following a 1.1% drop in autos and parts. The inventory-sales ratio slipped to 1.34 from 1.35.

Atlanta Fed’s Q2 GDPNow estimate rose to 4.1% from 4.0% previously, well above the 3.2% Blue Chip consensus.

The nowcast of second-quarter real personal consumption expenditures growth ticked up from 3% to 3.1%.

Market Sentiment – San Fransisco Fed John Williams expects growth to continue at around 2.5% yearly with a positive outlook and tailwinds from fiscal stimulus and global growth.

Despite the good economic outlook, he sees no evidence that the neutral interest rate is rising, and remains around 2.5%. He favors further gradual interest rate rises, but is conscious that rates remain at low historical levels.

Williams also believes that data shows that productivity remains stuck in low gear and tax cuts and increased business investments are not likely to change it that much.

Dallas Fed Kaplan sees a gradual path toward a neutral Fed funds rate and would like to see the balance sheet reduced below $3 trillion, mostly made up of Treasuries.

He sees growth at 2.5%-2.75% in 2018, slowing to 1.75%-2% by 2020, while inflation is approaching 2%, but not running away from us.

Kaplan sees the current neutral Fed funds level at 2.5%-3%. He would like to see NAFTA renegotiations result is stronger global trade for North America and says analysts are $3 trillion under-invested in infrastructure.

He said analysts are all well served by regular review of the Fed’s functions and governance.

The iShares 20+ Year Treasury Bond ETF (TLT) fell below its recent May trading range after sinking to an intraday low of $116.70. Fresh support from late April at $117-$116.50 held and is back in play.

A close below $116 would be a continued bearish development. Lowered resistance is at $117.50-$118 and followed by $119-$119.50 and the 50-day moving average.

Market Analysis – The Russell 2000 ETF (IWM) closed higher for the 7th-time in 8 sessions despite the opening backtest to $158.17. Fresh support at $158.50-$158 held with continues closes below the latter being a bearish development.

The rebound to $159.59 shortly afterwards held near-term resistance at $159-$160.50. The index tapped a fresh all-rime high of $160.69 on Monday with continued closes above $160.50-$161 being a bullish signal.

An important technical picture is developing as IWM could be in the midst of a double-top breakout or a near-term triple-top from the mid-January and mid-March highs.

This development could become much clearer in the coming days.

RSI is trying to clear March resistance at 65 with continued closes above this level being a bullish signal for a run towards 70-75 and January peaks.

Support is at 60-55 with a move below the latter signaling additional weakness.

The Industrials Select Sector Spider (XLI) made a nice rebound off its February and December lows in the $71-$70 area after putting together a 7-session winning streak to start May.

However, XLI fell for a 2nd-straight session with today’s low tapping $74.01.

Support at $74.50-$74 was split with the close below the 50-day moving average being a slightly bearish signal. Continued closes below $73.50 could lead to a retest towards the $70 level.

Near-term resistance is at $75-$75.50 with continued closes above $76 signaling renewed strength.

RSI is trying to hold support at 50. A close below this level would be a bearish development.

Continued closes above 55-60 and resistance from April would signal renewed strength.

Existing Position Update

NVDA bear call spread working well for us so far.

Price is down substantially Tuesday’s session.

I’m patiently waiting for more downside action on the broader market or congestion to begin.

There’s a few good opportunities out there – should have something before end of the week.

I’m not big on quantity – but am big on probability and I want to get the highest probability trades possible at this time.

Roger Scott