U.S. markets were weak on Tuesday’s open as trade tensions with China reached a new gear. After the U.S. and China imposed tariffs on each other, the White House has reportedly identified another $200 billion in potential taxes that it is threatening to enact.
China has said if they are implemented, it will respond in kind.
The indexes rebounded off their morning lows with the small-caps once again showing strength. The mixed finish came on heightened volatility but the damage was limited as the VIX held key levels of resistance.
The Dow dropped 1.2% to extended its losing streak to 6-straight sessions after testing a low of 24,567. Major support at 24,650 and the 50-day moving average held although the blue chips are now negative by 19 points for the year.
The S&P 500 fell 0.4% to extend its losing streak to 3-straight sessions after testing an intraday low of 2,743. Crucial support at 2,750 held for the 2nd-straight day.
The Nasdaq gave back 0.3% after trading in negative territory throughout the session with the low tapping 7,635. The index held the 7,700 level 5th time in 6 sessions.
The Russell 2000 gained 0.1% despite the morning backtest to 1,672 and lower weekly low. The rebound to 1,694 and fresh all-time high keeps 1,700 in play.
Utilities jumped 1% to lead sector strength while Consumer Staples advanced 0.5%
Industrials were the weakest sector after sinking 2.1% while Materials were punished for 1.8%.
Global Economy – European markets were lower across the board on concerns over the escalating trade war between the U.S and China.
Germany’s DAX 30 crashed 1.2% and France’s CAC 40 sank 1.1%. The Stoxx 600 Europe was down 0.7% and the Belgium20 declined 0.5%. UK’s FTSE 100 fell 0.4%.
ECB President Draghi said the ECB would remain patient in determining the timing of the first rate increase and would take a gradual approach to adjusting policy thereafter.
Asian markets suffered heavy losses after President Trump asked the USTR to draw up a list of $200 billion worth Chinese imports that could be subject to a 10% tariff.
Japan’s Nikkei was off 1.8% and South Korea’s Kospi sank 1.5%.
China’s Shanghai slid 3.8% and Hong Kong’s Hang Seng was down 2.8%. Australia’s S&P/ASX 200 slipped 2 points, or 0.03%.
Redbook Store Sales were up 4.7% for the year in the week ending June 16th.
U.S. chain store sales rose 1.4% in the week ending June 16th. The 12-month pace slowed to a 3.3% year-over-year clip from 4.4%.
Housing Starts were up 5% month-over-month to a 1.35 million rate, matching estimates, while permits declined 4.6% from the prior month to an adjusted rate of about 1.3 million.
Atlanta Fed’s Q2 GDPNow estimate was nudged down to 4.7% from 4.8% previously.
Market Sentiment – Dallas Fed Kaplan sees a fragile equilibrium in oil supply and demand, amid medium-term upside risk to oil prices.
He said that the oil market remains vulnerable to price spikes due to geopolitical events, though he views risk of any negative impact of any oil price rise on U.S. GDP growth as muted and diminishing.
New York Fed President Williams said the U.S. economy is in great shape and we are in the second-longest expansion in our history.
The iShares 20+ Year Treasury Bond ETF (TLT) traded to a high of $121.23 with upper resistance at $120.50-$121 holding into the close.
A close above $121.25 and the 200-day moving average would be a bullish development. Rising support is at $120.50-$120.
Market Analysis – The Russell 2000 ETF (IWM) traded to an all-time high of $168.77. We mentioned a few weeks ago continued closes above $167.25 could lead to a possible run at $169-$170.
Current support is at $168-$167.50 with a move below $166 signaling a short-term top.
RSI is trying to hold support at 70 with continued closes above this level signaling additional strength with a push towards 75-80 and late September 2017 highs.
Support is at 65-60 with a move below the latter signaling additional weakness.
The Health Care Select Sector Spider (XLV) closed higher for the 4th time in 5 sessions after tapping a high of $84.89.
Resistance is at $85-$85.50 with a move above the latter being a bullish development. Current support is at $84-$83.50.
The 50-day moving average has been in a solid uptrend throughout the month and is on track to clear the 200-day moving average.
This would form a golden cross and is typically a bullish technical signal for higher highs.
RSI is trying to hold near-term support at 60 with risk towards 55-50 on a close back below this level.
Resistance is at 65-70 with a move above the latter signaling additional strength.
Current Position Update
PYPL seeing minor corrective pressure which puts the stock closer in our profit target zone.
Initiated bull put spread on NFLX. Stock continued rallying into the close, even though Dow is down close to 300 points.
The stock is currently our number one relative strength for momentum levels and I’m expecting more upside over the near term.