U.S. markets closed mostly lower on Tuesday, reversing earlier gains as Technology and Financials stocks struggled. Trading volume dropped following the morning highs, and as the news flow slowed, the major indexes drifted lower.
The small-caps showed strength but volatility remained slightly elevated with the market closed on Wednesday and ahead of Thursday’s FOMC minutes.
The Dow declined 0.5% after giving up a 137-point gain while testing a late day low of 24,150. The index closed below its 200-day moving average for the 6th-straight session.
The S&P 500 sank 0.5% after trading in a 25-point range and making a late day pullback to 2,711. Consecutive closes below 2,700 would be a very bearish development.
The Nasdaq made a run to 7,594 before giving back 0.9% on the fade to 7,498. A move below 7,450 and the 50-day moving average would be a bearish signal.
The Russell 2000 gained 0.3% after testing a high of 1,667 and holding positive territory throughout the shortened session. Near-term resistance is at 1,670-1,675 with a close above the latter being a continued bullish development.
Energy and Real Estate rose 0.6% to pace sector leaders while Utilities were up 0.3%.
Communication Services and Technology were down 1.2% and were the weakest sectors while Financials fell 0.9%.
Global Economy – European markets closed higher after German Chancellor Angela Merkel avoided a collapse of her coalition government and reaching an agreement over migration.
Germany’s DAX 30 advanced 0.9% while the Stoxx 600 Europe and France’s CAC 40 were higher by 0.8%. UK’s FTSE 100 rose 0.6% and the Belgium20 climbed 0.5%.
Eurozone May retail sales were unchanged month-over-month and were up 1.4% year-over-year, weaker than expectations for a rise of 0.1% and +1.6%, respectively.
Eurozone May PPI rose 0.8%, stronger than expectations of 0.5%.
The UK June Markit/CIPS construction PMI unexpectedly jumped 0.6 to 53.1, stronger than expectations for no change at 52.5.
Asian markets were mixed with China’s Shanghai rebounding 0.4% while trying to bottom at 2-year lows.
Australia’s S&P/ASX 200 added 0.5% and South Korea’s Kospi gained 0.1%. Hong Kong’s Hang Seng sank 1.4% while Japan’s Nikkei slipped 0.1%.
Factory Orders were up 0.4% in May, which was better than the flat reading that was expected. The 0.6% slide in advance Durable Orders for May was revised higher to a 0.4% decline in the final reading for the month.
The U.S. IBD/TIPP economic optimism index rose 4.6% to 56.4 in July following the 0.6% increase to 53.9 in June. It represented the second highest level since 2004 and it’s the 22nd straight month above 50, signaling optimism.
The 6-month economic outlook index rose to 53.4 from 51.2 previously, while the personal financial outlook index edged up to 62.8 from 62.1.
Market Sentimentc – The FOMC minutes should provide a more in-depth view of the June 12-13th meeting, where the funds rate was hiked 25 basis points, as expected.
Some economists say the shift in the dot plot to 4 rate increases was somewhat surprising, although it was consistent with the upgraded assessment of the economy and inflation.
While the FOMC again is widely expected to tighten in September, skipping the July 31st-August 1st meeting, analysts will look to gauge the extent of the hawkishness of the policymakers and the potential for a fourth move later in the year.
Fed Chairman Powell played down the dots, however, in his comments last month, and analysts suspect the overall leaning of the Committee will remain toward gradualism.
The iShares 20+ Year Treasury Bond ETF (TLT) snapped a two-session slide after trading to a high of $122.03.
Upper resistance at $121.50-$122 held with additional hurdles at $122.50-$123. Rising support is at $121.50-$120.
Market Analysis – The Spider S&P 500 ETF (SPY) made a push to $273.21 shortly after the open with resistance is at $273-$273.50 holding. A close above the latter would be a bullish signal for a possible run towards $274.50-$275.
The fade to $270.42 into the closing bell and close below the the 50-day moving average was a slightly cautious signal.
Short-term support is at $269.50-$269 with a move below the latter signaling additional weakness.
A mini trading range has formed over the past 7 sessions with a close below $268 or move above $274 signaling the next possible major trend.
RSI is back in a downtrend with current support at 40.
There is risk to 35-30 and February/ March lows on a close below this level. Near-term resistance at 45-50.
The Spider Gold Shares (GLD) have been in a nasty downtrend since mid-June following the break below major support at the $122 level.
A short-term bottom is trying to form at $118-$117.50 with a close below the latter signaling additional weakness towards $115-$114.50.
The beginning of the week low tapped $117.40 and the 52-week bottom is at $114.80.
We mentioned in early June the 50-day moving average has been in a downtrend since late April and was on track to fall below the 200-day moving average. This formed the death cross we warned of and said it was typically a bearish technical setup for lower lows.
Near-term resistance is at $119-$119.50 with Tuesday’s peak reaching $119.08.
Continued closes above $120 would be a more bullish signal a near-term bottom is in.
RSI is in a slight uptrend with resistance at 40. Continued closes above this level would be a slightly bullish signal. Support is at 30-25 and represented recent oversold levels.
Existing Position Update
NFLX remains the number one relative strength stock and I’m expecting upside to move into the market once holiday’s are over.
Fund volume typically dies off a few days before holidays and begins again few days after.
SPY remains near the 50 day line…which tells me that the current market cycle should remain congested over the near term.
Wishing you the best,