U.S. markets showed strength on Wednesday’s open following comments from the White House that they would use the Committee on Foreign Investment in the U.S. (CFIUS) to tighten limits on China owning stakes in U.S. companies, rather than pursuing more aggressive tactics.
The market liked the committee news and the major indexes moved higher in throughout the first half of action. However, White House economic advisor Larry Kudlow said the President was not softening his stance on China, and the market softened with the major averages giving up their gains and volatility spiking.
The Dow was lower the 10th time in 12 sessions after giving back 0.7% and trading down to 24,115. The index was up nearly 300 points at one point but closed below its 200-day moving average for the second-straight session.
The S&P 500 sank 0.9% after failing major resistance at 2,750 while closing below crucial support at 2,700 by nearly a half point. It was the first close below this level since May 29th.
The Nasdaq tanked 1.5% following a backtest to 7,444.
Near-term support at 7,425 and the 50-day moving average held with a close below 7,400 likely causing additional selling pressure.
The Russell 2000 tumbled 1.7% after closing on its session low of 1,640. The index is roughly 1% above its 50-day moving average with major support in the 1,625-1,620 area.
Utilities and Energy were the only sectors to show strength after rising 1.3% and 0.5%.
Technology was hammered for 1.4% while Consumer Discretionary and Financials were down 1.3% to pace sector laggards.
Global Economy – European markets closed mostly higher, reversing earlier losses as fears of a full-blown global trade war eased, temporarily.
UK’s FTSE 100 jumped 1.1% while France’s CAC 40 and Germany’s DAX 30 rallied 0.9%.
The Stoxx 600 Europe was up 0.7% and the Belgium20 climbed 0.5%.
Eurozone May M3 money supply rose 4% year-over-year, stronger than expectations of 3.8%.
UK June nationwide house prices were up 0.5% and 2% year-over-year, stronger than estimates of 0.2% and 1.7%, respectively.
UK June CBI retailing reported sales unexpectedly jumped 21 to a 9-month high of 32, stronger than forecasts for a dip of 1 to 10.
Asian markets were lower across the board despite good economic news out of China.
Hong Kong’s Hang Seng tumbled 1.8% and China’s Shanghai stumbled 1.1%. South Korea’s Kospi fell 0.4% and Japan’s Nikkei slipped 0.3%. Australia’s S&P/ASX 200 dipped 0.03%.
China May industrial profits were up 21.1% year-over-year and from January through May are up 16.5% year-to-date.
MBA Mortgage Applications were down 4.9% for the week ending June 22nd.
Durable Goods Orders declined 0.6% in May, better than expectations for a 1% drop.
International Trade in Goods deficit narrowed unexpectedly to $64.8 billion in May.
May Retail Inventories were up 0.4% for the month.
Wholesale Inventories were up 0.5%, topping forecasts for a print of 0.3% for the month.
Pending Home Sales Index fell 0.5% to 105.9 in May, missing expectations for a rise of 0.6%. Regionally, it was the 4.4% drop in home sales from the South that paced the unexpected headline decline.
Sales in the Midwest rose 2.9%, and were higher by 1.8% in the Northeast and 0.6% in the West.
Atlanta Fed’s Q2 GDPNow estimate was trimmed to 4.5%, down from 4.7%.
The nowcast of real residential investment growth declined from 2.9%to 0.6%.
Market Sentiment – Boston Fed Eric Rosengren believes the best policy path to sustain economic expansion is one where the economy doesn’t overshoot the sustainable unemployment rate.
He also noted that it was appropriate to discuss how to avoid hitting zero with short-term interest rates and renewed his call for an inflation target range rather than target point, which the Fed should consider.
Rosengren backed a counter-cyclical capital buffer for banks, while arguing the Fed, along with state and local governments, should shore up their finances now to reduce the impact of the next recession.
He said the gradual rate path on interest rate hikes reduces the risk of a serious policy mistake.
The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after surging to a high of $122.18. Fresh resistance is at $122.25-$122.50 with continued closes above the latter signaling additional strength.
The late May peak reached $122.52. Rising support is at $121.50-$121 and the 200-day moving average.
Market Analysis – The Russell 2000 ETF (IWM) fell for the 4th time in 5 sessions following the backtest to $163.31.
Upper support at $163.50-$163 was breached with a move below the latter likely leading to a retest of $161.50 and the 50-day moving average.
Lowered resistance is at $164.50-$165. However, continued closes above $166.50 is needed to reverse the current bearish momentum.
RSI is back in a downtrend with March and early April support at 40.
A move below this level would be a continued bearish development. Near-term resistance is at 50.
The Utilities Select Spider (XLU) extended its parabolic run and winning streak to 10-straight sessions following the intraday push to $52.
Fresh multi-month resistance is at $52-$52.50 with continued closes above this level getting $53.50-$54 in play. The 52-week peak is at $57.23.
Current support is at $51.50-$51 and the 200-day moving average with a close below the latter signaling a short-term top.
RSI has been in a strong uptrend with November 2017 resistance at 75 and May 2017 resistance at 80.
Current support is at the 70 level with a close below 65 signaling additional weakness.
Existing Position Update
ADI broke down below yesterday’s low. I’m seeing sharp overbought levels in the bond market, Utilities and top 100 NASDAQ Stocks remaining above the 50 day line, which tells me there’s a good chance we will see a rebound to the upside next few sessions.
If ADI breaks below 50 day line and 10 day RSI is oversold I will liquidate the position, otherwise there’s a good chance price will rebound.
Roger Scott