U.S. markets opened in negative territory and were weak throughout the session following renewed concerns about the political situation in Europe, particularly Italy.
There is worry the election could resemble a referendum on the EU and the euro as the bond yield between Italy and Germany widened, putting pressure on banks and global markets. Volatility spiked 30% while closing above a key level of resistance.
The Dow tumbled 1.6% after testing an intraday low of 24,247 to finish at its lowest level since May 8th, or 14 trading sessions.
The S&P 500 sank 1.2% following a backtest to 2,676 while closing below the 2,700 level for the first time in 13 sessions.
Both indexes are trading near the 50-day moving average with the Dow closing below and the S&P 500 above this technical level.
The Nasdaq stumbled 0.5% after trading down to 7,354 midday while closing back below the 7,400 level for the first time in 4 sessions.
The Russell 2000 gave back 0.2% following the pullback to 1,611 with a move below 1,600 being a continued bearish development.
Both indexes briefly traded in positive territory shortly after the open before wilting to the overall market pressure.
Financials took a 3.3% drubbing to easily pace sector laggards while Materials and Industrials got whacked for 1.8% and 1.6%, respectively. Real Estate showed some sector strength after rising 0.3% while Utilities were unchanged.
Global Economy – European markets suffered steep losses after efforts to form a government in Italy failed over the weekend. A second election in Italy will be needed and traders are viewing it as a potential referendum on euro membership.
In addition to Italy’s political situation, Spain faces a confidence vote on Friday.
The Belgium20 plummeted 1.9% and Germany’s DAX 30 sank 1.5%. The Stoxx 600 Europe fell 1.4% while France’s CAC 40 and UK’s FTSE 100 tanked 1.3%.
ECB Governing Council member and Bank of Italy Governor Visco said Italy is just steps away from the very serious risk of losing the irreplaceable asset of trust.
Asian markets were mostly lower despite news the U.S.-North Korea summit appears to be back on schedule.
Hong Kong’s Hang Seng dropped 1% while South Korea’s Kospi fell 0.9%. Japan’s Nikkei was down 0.6% and China’s Shanghai was lower by 0.5%. Australia’s S&P/ASX 200 added 0.2%.
Consumer Confidence increased to a reading of 128 for May, missing forecasts for a print of 128.6.
State Street Investor Confidence for May was at 103.5.
S&P Corelogic Case-Shiller Price Index rose 1% to 208.62 in March after rising 0.7% to 206.57 in February. On an annual basis the pace was 6.8% year-over-year versus 6.80.
The March 10-City index rose 0.9% versus the prior 0.7% increase. That brought the annual rate to 6.48% year-over-year versus 6.45%.
The Dallas Fed Manufacturing Survey For May rose 5 points to 26.8, topping forecasts of 23.2. The employment component was at 23.4 versus 17.8, with the workweek at 23.2 from 14.3.
The wage index was 24.3 from 29.3. New orders checked in at 27.7 compared to 27.9. Prices paid were at 44 from 46.3, while prices received were at 20.5 from 17.
The 6-month index fell to 30 from 31.9, with the future employment index at 37.6 from 35.4, wages at 50.6 from 50.1, and new orders index at 48.5 from 47.6.
The future prices paid component rose to 51.9 from 49.1, with prices received at 27 from 33.3. Capital expenditure were at 32.2 from 31.
Market Sentiment – St. Louis Fed President Bullard said that inflation expectations in the U.S. remain low.
He suggested that further normalization may not be necessary to keep inflation near target and that a reasonable policy going forward may be to temper the pace of normalization.
The iShares 20+ Year Treasury Bond ETF (TLT) surged 2.2% after soaring to a high of $122.52 to extend its winning streak to 4-straight sessions.
Fresh resistance is at $122.50-$123 on the close back above the 200-day moving average. Rising support is at $122-$121.50.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) closed lower for the 4th time in five sessions after testing an intraday low of $242.31.
Upper support at $242-$241.50 and the 50-day moving average held with a close below the latter being a continued bearish development. Lowered resistance is at $244-$244.50 with continued closes back above $245 signaling additional strength.
RSI has been in a downtrend with current support is at 40.
A close below this level could signal additional weakness towards 30 and February/ March lows. Resistance is at 50.
The Spiders S&P Homebuilders ETF (XHB) was up for the 3rd time in 4 sessions after making a push to $40.10 with near-term resistance at $40-$40.25 and the 50-day moving average holding.
XHB is trying to breakout our of a mini-trading range between $38.50-$40 that has lasted since late April.
Continued closes above $40.50 would be a bullish signal to possibly go long.
Near-term support is at $39.50-$39.25 with a close below $38.50 being a bearish development.
RSI has cleared resistance at 50 with continued closes above this level being a bullish signal for a possible run towards 60 and late January support.
Current support is at 45-40.
Existing Position Update
PYPL appears to be losing relative strength. I’m expecting price to decline over the next few weeks.
Expect another position before end of week if volatility levels persist.
I will update you tomorrow as usual.