U.S. markets showed strength throughout Thursday’s session following news that Germany and President Trump may find common ground to negotiate on tariffs.
There was some volatility ahead of the Fed minutes as the major indexes gave up much of their early gains but still held positive territory.
The Fed minutes noted a number of favorable factors, including the strong labor market, stimulative fiscal policies accommodative financial conditions and high levels of confidence.
This helped the market sustain its gains into the close as a mini trading range continues ahead of 2Q earnings.
The Dow gained 0.8% following the intraday push to 24,372. The index continues to struggle with its 200-day moving average although it did clear and hold this level for the first time in 8 sessions.
The S&P 500 soared 0.9% after testing a high of 2,737 and closing a point off its peak. The index has been in a lowered trading range for 8 sessions with a close above 2,750 being a bullish development.
Continued closes below 2,700 would be a bearish signal.
The Nasdaq jumped 1.1% after trading to a high of 7,589. Continued closes above resistance at the 7,600 level would suggest additional strength and a breakout of the current trading range.
The Russell 2000 extended its win streak to 3-straight sessions after surging 1.2% while reaching an intraday peak north of 1,679 into the closing bell.
Upper resistance at 1,670-1,675 held into the closing bell with a move above 1,685 signaling additional strength towards a retest of the 1,700 level and fresh all-time highs.
Communication Services led sector strength after zooming 1.5% while Technology and Consumer Staples were up 1.4%.
There were no sector laggards although Energy was the weakest link after eking out a 0.05% gain.
Global Economy – European markets finished higher as auto stocks rose on hopes of a softening in the Trump administration’s tariff threat.
The U.S. could be prepared to stop threatening to impose stiff tariffs on cars imported from the European Union if they, in return, get rid of tariffs on U.S. cars.
Germany’s DAX 30 rallied 1.2% and France’s CAC 40 rose 0.9%. The Belgium20 climbed 0.7% while UK’s FTSE 100 and the Stoxx 600 Europe advanced 0.4%.
UK June new car registrations fell 3.5% year-over-year to 234,945 and year-to-date are down 6.3% at 1,313,994.
German May factory orders rose 2.6%, stronger than expectations for a rise of 1.1%.
Asian markets closed mostly lower as traders counted down to the potential start of a new and worrying phase in a global trade war.
The U.S. is set to impose $34 billion of tariffs on Chinese goods on Friday at midnight which may escalate trade tensions that slows global economic growth.
China’s Shanghai sank 0.9% and Japan’s Nikkei gave back 0.8%.
South Korea’s Kospi was off 0.4% and Hong Kong’s Hang Seng dipped 0.2%. Australia’s S&P/ASX 200 was higher by 0.5%
ADP reported private payrolls increased 177,000 in June, which was below expectations for 190,000 private job additions.
Initial jobless claims rose 3,000 to 231,000 in the week ending June 30th.
The Markit’s services index fell 0.3 points to 56.5 in the final June print. The ISM services index edged up 0.5 points to 59.1 in June, which was better than expected.
Market Sentiment – The Fed stated in its policy meeting minutes that negative risks from U.S. trade policy had intensified and could have negative effects on business sentiment and investment spending.
Many of the central bank’s business contacts seemed to have expressed concern about the possible adverse effects of tariffs and other trade restrictions on future investment activity both in the U.S. and abroad.
Some businesses said they were postponing or scaling backing plans for capital spending. Specifically, the aluminum and steel industries expected higher prices from tariffs already in place, but said they had no plans for new investment to increase capacity.
Despite the concerns, there was broad support amongst the Fed of continued gradual rate hikes. Some Fed officials noted that the benchmark federal funds rate could be at or above its neutral level sometime next year and a level that neither boosts or dampens activity.
A few Fed heads raised concerns that fiscal policy isn’t on a sustainable path, as there was a discussion over the yield curve, but no cohesive view on the causes and effects. A number of officials said it was important to continue to monitor the curve.
The iShares 20+ Year Treasury Bond ETF (TLT) broke out of a 5-day trading range following Thursday’s trip to $122.53.
Fresh and lower resistance from mid-January at $122.50-$123 held with a close above the latter signaling additional strength. Rising support is at $122-$121.50.
The 50-day moving average is in a nice uptrend and RSI appears appears on track to challenge resistance at 70 on continued strength.
Market Analysis – The PowerShares QQQ (QQQ) have been in a tight trading range over the past 8 sessions and has been holding an up trending 50-day moving average.
Thursday’s run to $173.06 cleared lower resistance at $173-$173.50 with continued closes back above $174 being a more bullish signal.
Short-term support is at $171-$170.50 with a close below $170 and the 50-day moving average likely signaling additional weakness.
RSI cleared resistance at 50 with continued closes above this level being a slightly bullish signal for a run towards 55-60 and levels that held throughout much of May.
Support is at 45-40 with a move below the latter suggesting additional weakness.
The Financial Select Sector Spiders (XLF) is trying to form a bottom with support from early May at $26.50-$26.25 still in play.
A close below the latter would be a very bearish development with risk to $24-$23.50. The 52-week low is at $23.79.
Resistance is at $26.75-$27 with more serious hurdles at $27.50 and the 50/200-day moving averages. Thursday”s peak reached $26.68.
A death-cross is in the process of forming with the 50-day moving average clearly on track to fall below the 200-day moving average. This technical setup tends to lead to lower lows.
RSI is trying to clear resistance at 40 and prior late May support. Continued closes back above this level would be a slightly bullish signal for a retest towards 45-50.
A close below 35 would suggest another backtest towards 30 and February/ March and June support.
Existing Position Update
AMZN bull put spread moving our way.
Expect congestion with upwards bias since stock remains top 3 gainers.
NFLX position bounced back. I want to see another 2% price gain before turning the position into an iron condor since we have substantial time before decay.
Price is undervalued…especially if earnings pan out as anticipated.
Don’t want to be too aggressive in either direction – let’s wait for bit more upside before leveraging the bull market once again.
Roger Scott