U.S. markets traded higher to start Tuesday’s session but lost momentum into the closing bell to finish lower for the session.
Some of the nervousness comes ahead of Wednesday’s Fed minutes along with continued uncertainty over trade policy and other geopolitical issues. Volatility ticked slightly higher but remains at relaxed levels.
The Russell 2000 set a record intraday high for the 5th-straight session after coming within spitting distance of clearing 1,640 before giving back 0.8%.
The Dow fell 0.7% after testing a morning high of 25,064 but failed to hold the 25,000 level.
The S&P 500 slipped 0.3% despite tapping a fresh month high north of 2,742 but was able to hold the 2,700 level for the 9th-straight session. The Nasdaq dipped 0.2% after reaching a peak of 7,432 while closing below the 7,400 level for a 6th-straight session.
Financial showed the most sector strength after rising 0.7%.
Utilities gained 0.4% and Real Estate rose 0.1%. Energy sank 1.3% to pace sector laggards with Industrials a close second after giving back 1.2%. Materials were lower by 0.8%.
Global Economy – European markets showed continued strength for a second-straight session. Germany’s DAX 30 rose 0.75 while the Stoxx 600 Europe and the Belgium20 were up 0.3%. UK’s FTSE 100 climbed 0.2% and France’s CAC 40 added 0.1%.
ECB Governing Council member Liikanen said there is an exceptional degree of uncertainty related to monetary policy transmission and reaching the price stability target depends on loose monetary policy for the time being.
UK May CBI trends survey total manufacturing orders fell 7 to -3, weaker than expectations for a pullback of 2 to 2. May CBI trends selling prices rose 1 to 19, topping forecasts for no change at 18.
UK April public sector net borrowing rose 6.2 billion pounds, below expectations of 7.1 billion pounds.
Asian markets settled mixed. Hong Kong’s Hang Seng rose 0.6%. South Korea’s Kospi gained 0.2%. China’s Shanghai was up less than a point, or 0.02%.
Australia’s S&P/ASX 200 sank 0.7% and Japan’s Nikkei was lower by 0.2%.
China’s Finance Ministry said that it will cut import tariffs on some vehicles to 15% from as high as 25%, adding that tariffs on some automotive parts would fall to 6%.
Redbook Store Sales were up 3.2% for the year in the week ending May 19th.
The Richmond Fed Manufacturing Index checked-in in at 16, well above forecasts for a May reading of 10.
Market Sentiment – Minneapolis Fed President Neel Kashkari said he was worried the central bank might get too aggressive with interest-rate hikes and possible push the economy into recession.
He went on to say the Fed shouldn’t overdo it and said low wage growth suggests there is still slack in the labor market.
Kashkari went on to add that if the Fed started to see wages pick up, they can always respond then. He said he would be watching the yield curve closely and an inversion of the yield curve was the very best predictor of recession.
Kashkari is one of two regional bank presidents urging caution on further rate hikes. The majority at the Fed is targeting at least two more quarter-percentage point hikes this year.
The iShares 20+ Year Treasury Bond ETF (TLT) peaked at $117.35 shortly after the open before spending the majority of the session in the red afterwards.
Near-term resistance at $117.50-$117.75 easily held. The fade to $116.86 afterwards breached upper support at $117-$116.50 but a level that held into the closing bell.
Market Analysis – The PowerShares QQQ (QQQ) has been in a tight trading range between $167-$171 over the past six sessions following the mid-month push to $170.82.
The intraday high tapped $169.45 with early January, mid-March and May resistance at $170.50-$171 holding.
Continued closes above the latter would be a bullish signal for a possible run towards $172-$174. The all-time high is at $175.21 from early March.
Near-term support is at $167.50-$167 with a move below the latter likely signaling additional weakness and a short-term top. More importantly, a triple-top breakout, or breakdown, could be in the works over the next couple of weeks.
The 50-day moving average appears to be rolling over and has been flatlining since mid-April.
RSI is trying to clear and hold March and May resistance at 60-65. Continued closes above the latter would be a bullish signal for a run towards 70-75 and December and January resistance.
Support is at 55-50 with a move below the latter likely leading to a further backtest towards 40 and late April support.
The Consumer Staples Select Spiders (XLP) continue to hold a tight trading range range between $49-$50 that has lasted throughout May. Tuesday’s high reached $50.09 with continued closes above this level being slightly bullish.
Near-term support at $49.25-$49 held on the fade to $49.57 afterwards with a close below the early May and 52-week low of $48.76 being a bearish development.
Continued closes below the latter would represent a breakdown out of the current trading range that could lead to a further backtest towards $47-$46.50.
We mentioned in April that the 50-day moving average had fallen below the 200-day moving average to form a death cross. This is typically a bearish development for lower lows if a floor of support fails to hold.
RSI has cleared near-term resistance at the 40 level and could make a push towards 50 on continued closes above this level. A close back below 40 would confirm weakness and selling pressure with support at 30-25 and 2018 lows.
Existing Position Update
TSLA is weaker but remains above our short put strike price. I’m expecting very little directional bias and more sideways action over the near term time period. If price continues moving south I will adjust position late Thursday.
NFLX appears to be range bound along with the rest of the market. Don’t expect major momentum to move into the market till the second half of the week.
I’m monitoring the positions and will update you if we need to adjust either of the positions.
I don’t want to initiate positions at this time – till the market shows it’s hand.
All the best,
Roger Scott