U.S. markets opened sharply higher and showed continued momentum throughout the session to recover nearly all of the losses from the start of the shortened week.

Bond yields settled down, helping the Financial sector regain some of the ground it had lost in the previous session over Italy’s political drama. Volatility relaxed but remains slightly elevated heading into Friday’s jobs report.

The Dow jumped 1.3% after trading to a high of 24,714 while closing back above its 50-day moving average.

The S&P 500 also soared 1.3% while testing an intraday high of 2,729 to recover the 2,700 level.

The Russell 2000 zoomed 1.5% to close at a record high while peaking at an all-time high of 1,651 intraday. The Nasdaq surged 0.9% after trading to a high of 7,473 while closing back above the 7,400 level.

Energy rocketed 3% to easily pace sector strength. Financials were up 1.8% while Health Care and Real Estate rallied 1.5% and 1.4%, respectively. There were no sector laggards.

Global Economy – European markets were mostly higher as Italy’s latest political drama eased. There are reports Italy could hold an election again as soon as July, instead of September, now that would-be Prime Minister Carlo Cottarelli is struggling to find support.

Germany’s DAX 30 was higher by 0.9% and UK’s FTSE 100 gained 0.8%.
The Belgium20 rose 0.6% and the Stoxx 600 Europe was up 0.3%. France’s CAC 40 slipped 0.2%

German May unemployment fell 11,000 to 2,358,000, stronger than expectations for a drop of 10,000. The May unemployment rate unexpectedly fell 0.1% to a record low 5.2%, stronger than expectations for no change at 5.3%.

German April retail sales rose 2.3%, stronger than forecasts of 0.5%.

Eurozone May economic confidence fell 0.2 to 112.5, stronger than expectations for a decline of 0.7 to 112.

The May business climate indicator unexpectedly rose 0.06 to 1.45, stronger than expectations for a print of 1.29.

Asian markets were weak for a second-straight session with heavier losses. China’s Shanghai tanked 2.5% and South Korea’s Kospi dropped 2%.
Japan’s Nikkei sank 1.5% and Hong Kong’s Hang Seng fell 1.4%. Australia’s S&P/ASX 200 gave back 0.5%.

Japan April retail sales rose 1.4%, stronger than expectations for a rise of 0.5%.

Japan May consumer confidence rose 0.2 to 43.8, below forecasts of 43.9.

MBA Mortgage Applications were down 2.9% for the week ending May 25th.

The ADP Employment Report increased 178,000 in May, missing forecasts for 187,000 private job additions.

First quarter GDP growth was revised down to a 2.2% rate, versus expectations for an unchanged reading at 2.3%. Corporate Profits, before taxes, fell 0.6% to mark the second straight decline.

Personal consumption expenditures were revised to a 1% gain compared to the 1.1% clip in the advanced reading.

The International Trade in Goods deficit was $68.2 billion for April, below expectations for a deficit of $70 billion.

Redbook Store Sales up 4.3% for the year in the week ending May 26th.

April Wholesale Inventories fell 0.5% versus expectations for a gain of 0.3%.

The Fed’s Beige Book said the economy expanded moderately from late April to early May as there were few shifts in the pattern of growth. Dallas was the exception to the modest growth characterization as growth sped up.

Manufacturing shifted into higher gear, as more than half the Districts noted a pick up. On the other hand, consumer spending was deemed soft as non-auto retail sales growth moderated and auto sales were flat.

Homebuilding and sales generally increased modestly, but nonresidential construction remained at a moderate pace.

There was some concern about the uncertainty of international trade policy but the general conclusion was outlooks for the near term growth were generally upbeat.

Employment and wage gains remained moderate, on aggregate, though there continued to be shortages of qualified workers, and many firms were responding to that by raising wages or increasing compensation packages.

Prices rose moderately in most Districts, while the remainder reported slight of modest increased, though there were reports of rising materials costs, notably for steel, aluminum, oil, oil derivatives, lumber, and cement.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) closed lower for the first time in five sessions following the backtest to $120.74.

Fresh support at $120.50-$120 held into the closing bell with a move below the latter signaling additional weakness. Lowered resistance is at $121.50-$122 and the 200-day moving average.

Market Analysis – The Spider S&P 500 ETF (SPY) is back in a mini-trading range after testing a high of $273.11. Continued closes above the top of the 3-week range at $273.50 would get February and March resistance at $274.50-$275 in play.

Support from early May is at $270.50-$270 with stretch to $267.50-$267 and the 50-day moving average. Continued closes below the latter would be a bearish development and likely signal a short-term top.

RSI is back in an uptrend with near-term resistance at 60-65. Continued closes above this level would be a bullish development for a run towards 70 and major support from December. Current support is at 50.

The iShares PHLX Semiconductor ETF (SOXX) closed higher the 6th-time in 7 sessions after reaching an intraday peak of $190.21. February and March resistance at $189.50-$190 held with additional hurdles at $192-$192.50.

Near-term support is at $188-$187.50 with the latter representing early May resistance.

RSI has been holding the 60 level since early May. March resistance is at 70 and would be in play on a move above 65.

A close below 60 would signal a possible short-term top and additional weakness.

Existing Position Update

PYPL remains within the channel that’s been consistent for 8 days in a row.

I’m expecting price to trade lower since the stock is not exhibiting strong relative strength, which tell me that slight market weakness will trigger selling pressure.

I’m looking at 2 iron condor spreads and should have a position before end of week.

Roger Scott