U.S. markets opened in the red over continued trade concerns between its trading partners in the European Union, China and North America.
News that the EU has threatened $300 billion in fresh tariffs on U.S. products, along with Canadian retaliatory tariffs that took effect Sunday, propelled the major indexes towards another backtest towards major support levels.
Despite the tough trade talks, the market rebounded in the second half and showed strength into the closing bell.
Volatility spiked on the open but settled down after holding a key level of resistance.
The Dow added 0.2% despite testing an intraday low of 24,077 while closing below its 200-day moving average for the 5th-straight session.
A close below the 24,000 level could lead to a continued selloff towards the 23,500 area and the early May low.
The S&P 500 rose 0.3% following the morning backtest to 2,698 with early May support at 2,700 getting stretched but holding.
The index closed a point off its late session high of 2,727 but needs to clear 2,750 to regain momentum.
The Nasdaq spent the first half of action underwater on the pullback to 7,443 with the 50-day moving average holding.
The rebound to 7,568 and 0.8% gain was a slightly bullish signal.
The Russell 2000 added 0.7% after trading in a 24-point range and closing at the session high of 1,655. The morning low tapped 1,630 with support at 1,625-1,620 and the 50-day moving average easily holding.
Technology and Utilities showed the most sector strength after rising 0.9% and 0.7%, respectively. Communication Services added 0.6% and Financials climbed 0.5%
Energy sank 1.5% and was the weakest sector. Real Estate fell 0.6% while Consumer Staples and Materials gave back 0.5% to round out the losers.
Global Economy – European markets closed firmly in the red on Monday as the U.S. ramped up trade disputes against the European Union.
UK’s FTSE 100 fell 1.2% and France’s CAC 40 stumbled 0.9%. The Stoxx 600 Europe gave back 0.8% while Germany’s DAX 30 and the Belgium20 dropped 0.6%.
Eurozone manufacturing PMI for June came in at 54.9, down a tick from the previously reported flash reading of 55.
The Eurozone May unemployment rate slipped 0.1% to 8.4%, better than expectations for no change at 8.5%.
Asian markets posted heavy losses as trade tensions resurfaced along with weaker than expected economic data from China.
China’s Shanghai sank 2.5% and South Korea’s Kospi stumbled 2.4%. Japan’s Nikkei slumped 2.2% and Australia’s S&P/ASX 200 declined 0.3%. Hong Kong’s Hang Seng closed for a holiday.
China’s manufacturing purchasing managers’ index dropped to 51.5 in June from 51.9 in May, and weaker than expectations of 51.6.
The June non-manufacturing PMI unexpectedly rose 0.1 to 55, stronger than expectations of for a print of 54.8.
The Japan Q2 Tankan large manufacturing business conditions fell 3 to 21, weaker than expectations of for a drop of 2 to 22.
June PMI Manufacturing Index checked in at 55.4, down from 56.4 in May, but better than expectations for a reading of 54.6.
The ISM Manufacturing Index was up 1.5 points to 60.2 in June, which was better than the 58.6 expected print. It was the second highest reading in 14 years aside from February’s 60.8 figure.
Construction Spending rose 0.4% in May, which was a tick below the 0.5% forecast.
Atlanta Fed GDP Nowcast was revised up to a 4.1% clip, from 3.8% on Friday.
Additionally, the nowcasts of Q2 real consumer spending growth and Q2 real nonresidential equipment investment growth increased from 2.7% and 4%, to 2.9% and 4.8%, respectively.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was down for the second straight session after testing a late session low of $121.29.
Fresh support at $121-$120.50 easily held with a close below the latter signaling additional weakness. Lowered resistance is at $121.50-$122.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 3rd-time in 4 session after reaching a late day peak of $243.04. Lower resistance at $243-$243.50 held with additional hurdles at $245-$245.50 and the 50-day moving average.
A short-term support bottom could be in the process of forming at $241.50-$241 and the 200-day moving average.
A move below $240 would be a bearish development signaling additional weakness.
RSI is back in a slight uptrend with resistance at 45-50.
This area represents prior late May support and a level that failed earlier this month. A close back below 40 gets 35-30 back in play with the latter the February low.
The Real Estate Select Sector Spider (XLRE) traded mostly in the red with the intraday low tapping $32.15.
Support is at $32.25-$32 was split with a close below the latter signaling a short-term top.
Resistance is at $32.75-$33 with continued closes above the latter getting the 52-week high just north of $34 in play.
The 50-day moving average has been in a solid uptrend since late May and is on track to clear the 200-day moving average.
This would form a golden cross and is typically a bullish development for higher highs.
RSI is trying to clear and hold resistance at 70 with continued closes above this level signaling additional strength.
Support is at 60 with a close below this level likely leading to a further backtest towards 50.
Existing Position Update
ADI moved up as expected. I believe price action will trade higher unless there’s further negative news re trade war.
Initiated NFLX bull put spread – will turn into iron condor if market cooperates next few sessions.
I’m also looking at AMZN and TSLA once again – will update you next few sessions.
Roger Scott