U.S. markets showed strength on Monday’s open but reversed course shortly afterwards following the ongoing economic crisis in Turkey, which has seen its currency slip against other world markets.

Despite the weakness in the Turkish lira, the U.S. banking exposure remains small although Financials were weak for a 3rd-straight session.

There was little else for Wall Street to key in on as the economic calendar was quiet and with the 2Q earnings season winding down.

Volatility closed at its highest level since early July but held a key level of resistance.

The Russell 2000 gave back 0.7% after bottoming at 1,670 midday. Lower support at 1,680-1,675 held with the close below the 50-day moving average being a slightly bearish development.

The Dow declined 0.5% despite testing a morning high of 25,381 while extending its losing streak to 4-straight sessions.

The close below upper support at 25,200-25,000 was also a warning signal.

The S&P 500 slipped 0.4% after failing near-term resistance at 2,850 on the morning pop to 2,843. Lower support at 2,825-2,820 was beached on the intraday low of 2,819 but held into the closing bell.

The Nasdaq was off 0.3% after trading to an intraday high of 7,888 and failing key resistance at 7,900.

A close below 7,800, and a level that has been holding for 8-straight sessions, would be a bearish development.

Utilities and Healthcare rose 0.1% while Real Estate was up 0.03% and were the only sectors to show strength.

Energy was the leading sector laggard after tumbling 1.3%. Financials and Materials sank 1% to add on to Friday’s 1+% pullbacks.

Global Economy – European markets showed continued weakness on reports the ECB is concerned about the exposure of some European banks to Turkey following the plunge in the Turkish lira to a fresh record low.

Germany’s DAX 30 and the Belgium20 dropped 0.5%. UK’s FTSE 100 and the Stoxx 600 Europe gave back 0.3%. France’s CAC 40 was off 2 points, or 0.04%.

UK Q2 GDP rose 0.4% and 1.3% year-over-year, matching expectations.

UK June Industrial Production climbed 0.4% and 1.1% year-over-year, stronger than estimates of 0.3% and 0.7%. Meanwhile, UK June Manufacturing Production rose 0.4% and 1.5%, topping forecasts of 0.3% and 1%, respectively.

Asian markets finished mostly lower despite Japan reporting better-than-expected economic numbers.

Japan’s Nikkei sank 2% while Hong Kong’s Hang Seng and South Korea’s Kospi stumbled 1.5%. Australia’s S&P/ASX 200 and China’s Shanghai fell 0.3%.

Japan Q2 GDP rose 1.9%, stronger than expectations of 1.4%. Q2 private consumption rose 0.7%, topping forecasts of 0.2%.

Q2 business spending rose 1.3%, better than estimates of 0.6%. The Q2 GDP deflator rose 0.1% year-over-year, stronger than expectations of unchanged.

Japan July PPI was up 0.5% month-over-month and 3.1% year-over-year, ahead of forecasts 0.2% and 2.9%, respectively.

There was no major economic news on Monday.

Market Sentiment – The market continues to price in a 25 basis-point rate hike at the September 25th-26th policy meeting with better than 90% probability.

That hasn’t wavered much, even with the distress in Turkey. However, deferred contracts are reflecting closer to a 50-50 bet for the fourth tightening this year at the December 18th-19th FOMC, versus about a 65% risk a week ago.

Analysts continue to forecast two more rate increases this year, at the September and December meetings, both of which include press conferences and revised forecasts, base on projections for solid economic growth and inflation holding at or just above the 2% target.

The iShares 20+ Year Treasury Bond ETF (TLT) fell for the first time in 4 sessions following the backtest to $120.21.

Upper support is at $120.25-$120 and the 50/200-day moving averages held with a close below the latter signaling a possible short-term top. Resistance remains at $120.75-$121.

Market Analysis – The Spider Small-Cap 600 ETF (SLY) has been in a mini trading range over the past 5 sessions with Monday’s low reaching $74.90.

Upper support at $75-$74.50 held. A prior trading range between $73.50-$75 lasted throughout July and would be in play on a close below the latter.

Near-term resistance is at $75.50-$76 with last week’s all-time peak at $75.95. Continued closes above the latter would be a bullish development for a possible run towards $77-$77.50.

RSI is back in a slight downtrend with upper support at 55-50 failing to hold. A close below the latter would be a bearish development for lower lows.

Resistance is at 60-65 with the latter representing the early July top.

The Energy Select Sector Spider (XLE) is trying to form a short-term bottom but has tested lower lows over the past 4 session following Monday’s pullback to $74.29.

Upper support at $74.25-$74 with a close back below the latter and the mid-July low signaling additional weakness.

Lowered resistance is at $75-$75.50 and the 50-day moving average with a close above $76 being a slightly bullish development for higher highs.

RSI is approaching June support at 40 with a move below this level likely being a signal for lower lows. Resistance at 45-50.

Existing Position Update

TRIP is holding steady with very little directional bias.

AMGN is trading higher.

TSLA is congesting slightly above our entry price and I’m hopeful that investors will come to their senses over the next 24 hours.

Roger Scott