U.S. markets showed strength on the open following solid 2Q earning results and China stimulus hopes.
The early morning strength lost steam as the small-caps weakened and dipped into negative territory shortly afterwards.
News that House Republicans are proposing permanent tax cuts, new retirement and savings accounts and write-offs for start-ups failed to lift spirits as the major indexes settled mixed.
Volatility remains tame as it continues to hold a 3-week trading range.
The Dow rose 0.8% after trading in positive territory throughout the session while reaching a peak of 25,286.
The close above 25,200 and monthly high were bullish signals.
The S&P 500 added 0.5% after making a push just south of 2,830 and a fresh July high. Continued closes above the latter would be a bullish development for a run towards 2,850 and January resistance.
The Nasdaq slipped a point, or 0.01%, despite trading to an all-time high of 7,928 shortly after the open.
Support at 7,800 held for the 9th-straight session on the fade to 7,814 with a close below 7,950 signaling a short-term top.
The Russell 2000 came within 2 points of a fresh all-time high after tapping 1,706 before closing 1.1% lower.
The backtest to 1,675 held near-term support with a close below 1,670 also signaling a possible short-term peak for the index.
Materials and Energy led sector strength after rising 1.3%. Health Care gained 0.7%.
Consumer Discretionary and Real Estate gave back 0.3% and were the only sector laggards.
Global Economy – European markets showed strength following an unexpected increase in Eurozone manufacturing activity.
Germany’s DAX 30 jumped 1.1% and France’s CAC 40 rallied 1%.
The Stoxx 600 Europe was higher by 0.9% and the Belgium20 advanced 0.8%. UK’s FTSE 100 was up 0.7%.
The Eurozone July Markit manufacturing PMI of 55.1 topped the expected reading of 54.7, while the services reading of 54.4 fell a bit short of the 55.1 consensus forecast.
The German July Markit/BME manufacturing PMI unexpectedly rose 1.4 to 57.3, topping forecasts of 55.5.
The UK July CBI trends total orders fell 2 to 11, stronger than expectations for a drop of 5 to 8.
Asian markets were up after China’s State Council announced a package of policies to boost domestic demand.
The State Council issued a tax cut for research spending and announced that special bonds will be issued for infrastructure investment.
China’s Shanghai surged 1.6% and Hong Kong’s Hang Seng soared 1.4%.
Australia’s S&P/ASX 200 was higher by 0.6% while South Korea’s Kospi and Japan’s Nikkei climbed 0.5%.
The Japan July Nikkei manufacturing flash reading for July came in at 51.6, down from 53 in June.
Markit’s flash manufacturing PMI edged up 0.1 to 55.5 in July. The services PMI slipped another 0.3 points to 56.2 in the July flash reading.
The FHFA home price index rose 0.2% to 263.3 in May, missing forecasts for a rise of 0.6%. The index is up 6.4% year-over-year compared to last year.
Seven of the nine regions surveyed posted gains on the month, led by the East South Central at 1.5%. Small declines were posted in the East North Central and the Mid Atlantic.
However, the 12-month changes were all positive, led by the Mountain division, up 9.1%.
The Richmond Fed manufacturing index dipped to 20 in July after rising 5 points to 21 in June. Expectations were for a print of 19.
Redbook Store Sales up 3.8% for the year in the week ending July 21st.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) showed strength throughout the session while reaching an intraday peak of $119.82.
Fresh resistance is at $119.75-$120 and the 50-day moving average held. Continued closes above the latter would be a positive development and signal a possible short-term bottom.
Support is at $119.25-$119 held with a move below the latter signaling additional weakness.
Market Analysis – The Russell 2000 ETF (IWM) traded to a high of $169.76 on the open with near-term resistance at $169.75-$170 holding. The fade to $166.22 afterwards held support at $166.25-$166.
A longer-term trading range between $166 and $170 has been in play throughout the month.
A move below $166 would likely lead to a continued backtest to $165 and the 50-day moving average.
Continued closes above $170 would be a bullish signal for another run towards $171.50-$172 and fresh all-time highs.
RSI is in a downtrend with near-term support at 50-45. A move below the latter would confirm additional weakness. Resistance is at 55-60.
The Materials Select Sector (XLB) snapped a 2-session slide after testing a high of $59.04.
Resistance at $58.75-$59 and the 50/200-day moving averages held with continued closes above the latter being a bullish development.
Support is at $58.25-$58 with a close below the latter likely signaling additional weakness towards the $57 area and mid-June lows.
RSI has cleared lower resistance at 50-55 with a close above 60 and this month’s peak signaling additional strength.
Support is at 45 with a mobe below this level being a bearish signal.
Existing Position Update
Not much movement from SKX. May need few days for market to pick up steam.
Stock remains below fair value .
AMZN should stay stable next few days or possibly trade lower – giving us opportunity to turn position into iron condor.
Will update you tomorrow as usual.
Roger Scott