U.S. markets traded mostly higher throughout Wednesday’s session as protectionist trade rhetoric took a backseat to fresh highs in Tech and the small-caps.
The blue-chips still underperformed while the broader market held positive territory throughout the session.
Oil was slightly higher ahead of Friday’s OPEC meeting as Iran reportedly claimed it had not agreed to any production increases.
Meanwhile, volatility closed back below key levels of support after holding resistance throughout the week.
The Dow fell for the 7th-straight session after slipping 0.2% while testing a low of 24,628. Major support at 24,650 and the 50-day moving average held for the second-straight session with the index on its longest losing streak in 15 months.
The S&P 500 made a run to 2,774 to snap a 3-session slid with lower resistance at 2,775-2,800 holding. A close above the latter could lead to a short-covering rally and end of month fund buying.
The Nasdaq jumped 0.7% after trading to an all-time high of 7,806.
The index fell shy of holding 7,800 with continued closes above this level likely getting 7,925-8,000 in play.
The Russell 2000 rallied 0.8% while trading to a fresh lifetime high of 1,708 and holding 1,700 into the closing bell. Continued closes above this level could lead to a short-term push towards 1,735-1,750.
Real Estate was up 1.1% to pace sector winners while Consumer DIscretionary and Energy gained 0.5% and 0.4%, respectively.
Materials and Financials were the only sector laggards after giving back 0.3%.
Global Economy – European markets were mostly higher after bouncing off a nearly three-week low, as traders cheered further deterioration in the trade relationship between the U.S. and China.
The Stoxx 600 Europe and UK’s FTSE 100 were up 0.3%. The Belgium20 and Germany’s DAX 30 climbed 0.1%.France’s CAC 40 fell 0.3%.
ECB Governing Council member Nowotny said EUR/USD relationship is weakening primarily due to the development of interest rate policy.
He said the ECB wants to keep its rates on hold at least until summer of next year, while the U.S. has announced rate hikes, so that the difference between European and U.S. rates becomes stronger.
German May PPI rose 0.5% month-over-month and 2.7% year-over-year, stronger than expectations of 0.4% and +2.5%, respectively.
UK June CBI trends total orders were up 16 to a 5-month high of 13, stronger than expectations for a rise of 5 to 2. The Jun CBI trends selling prices fell 6 to 13, the lowest in 11 months.
Asian markets recovered some of the prior session’s nasty losses after closing higher across the board.
Australia’s S&P/ASX 200 and Japan’s Nikkei soared 1.2% while South Korea’s Kospi jumped 1%.
Hong Kong’s Hang Seng advanced 0.8% and China’s Shanghai rose 0.3%.
The current account deficit widened $26.7 billion to $124.1 billion in Q1, which was a little less than the $129.3 billion expected.
Existing home sales slipped 0.4% to a rate of 5.43 million in May, which was weaker than the 5.5 million expected. Single family sales declined 0.6% while Condo sales increased 1.6%.
Sales were down in 3 of the 4 regions covered, with the midwest leading the way, down 2.3%, followed by the west, off 0.8%.
The south was lower by 0.4% while he northeast saw a 4.6% rebound. The months’ supply of homes edged up to 4.1 from 4.
The median sales price rose to $264,800 from $257,900, and is up 4.9% year-over-year.
Market Sentiment- Fed Chairman Jerome Powell underscored the FOMC’s gradual approach to normalization. He highlighted the low unemployment rate, which he said is expected to drop further, and with inflation close to the 2% objective, he said the case for continued gradual increases in the federal funds rate is strong.
Powell also noted uncertainties associated with the tight labor market, including estimates on the natural rate of unemployment, and the
He said consequences for inflation if unemployment runs well below the natural rate for an extended period, as well as whether persistently strong economic conditions, would pose financial stability risks.
Powell warned that changes in trade policies may cause policymakers to question the outlook, noting there has been a rise in trade concerns among business contacts.
He said that forward guidance can under-communicate uncertainties and the FOMC is trying to avoid surprises. Forward guidance was helpful and worked during the financial crisis, but he said it’s not a tool for ordinary use.
Also, Powell said the Fed is aware of policy spillovers to emerging markets, and said it’s important emerging markets remain strong.
On policy, he said that it’s still accommodative and the funds rate could be perhaps 100 basis-points below the median estimate of the neutral rate. This was revealed last week with the Fed’s SEP and the dot plot.
The iShares 20+ Year Treasury Bond ETF (TLT) was weak throughout the session with the low tapping $119.90. Support at $120.50-$120 was breached with risk to $119-$118.50 and the 50-day moving average on continued closes below the latter.
Lowered resistance is at $120.50-$121.
Market Analysis – The Russell 3000 Index ($RUA) made a run to 1,656 with near-term resistance at 1,660-1,665 holding. Continued closes above the latter would be a bullish development with additional hurdles at 1,670-1,680.
The index was showing signs of topping out after falling in four of the previous five sessions while setting lower lows.
We mentioned in late May the 1,640-1,650 area served as prior February/ March resistance and would be a bullish signal for higher highs, if cleared and held.
Continued closes back below these levels would form a double-top and usually signals lower lows.
Current support is at 1,650-1,645 with a close 1,640 being a bearish signal and confirming a near-term top.
RSI is back in a slight uptrend with resistance at 65-70.
A move above the latter would signal continued strength and a possible push towards 75-80. Support is at 60-55.
The Spiders S&P Homebuilders ETF (XHB) closed higher for just the 2nd time in the past 6 sessions after reaching a peak of $40.69.
Near-term resistance at $40.75-$41 held with continued closes above $41.25 and the 200-day moving average signaling additional strength.
The opening backtest to $40 held upper support is at $40-$39.75 and the 50-day moving average.
A close below the latter would be a bearish development for a return to lower lows.
RSI recently held near-term support at 50 with a close below this level likely leading to a continued backtest towards 45-40. Resistance is at 55-60.
Existing Position Update
Liquidated NFLX at solid profit for only 1 day of hold.
PYPL appears to be ready for non directional trading action.
AMZN pulled back from all time highs.
Expect mild choppiness next few sessions.
All the best,