U.S. markets showed overall strength for a 4th-straight session despite concerns about President Trump’s legal woes after his former lawyer pleaded guilty to illegal campaign finance charges.
The release of the Fed minutes had little impact on the market.
Volatility closed below a key level of support after falling nearly 5% and is suggesting continued market strength.
The Nasdaq advanced 0.4% following the late day test to 7,897.
Major resistance at 7,900 held for a 2nd-straight session with a close above this level signaling additional strength.
The Russell 2000 edged up 0.3% after trading to another record high of 1,723. Fresh and lower resistance at 1,725-1,740 held.
The S&P 500 slipped a point, or 0.04%, despite the intraday run to 2,867.
Fresh support at 2,860-2,850 was split but held into the closing bell.
The Dow fell for the first time in 5 sessions after declining 0.3% and testing a second half low of 25,722.
Fresh support at 25,600 held on the close back below 25,800.
Energy surged 1.2% to pace sector strength while Technology rose 0.3%. Consumer Discretionary and Healthcare added 0.1%.
Industrials were down 1% to led sector weakness.
Utilities sank 0.8% while Consumer Staples and Real Estate fell 0.6%.
Global Economy – European markets traded in a tight range to finish mostly higher as traders focused on Brexit developments, in particular, upcoming news this week on the implications of a “no-deal” split come next spring.
France’s CAC 40 gained 0.2% and UK’s FTSE 100 added 0.1%. Germany’s DAX 30 was up a point, or 0.01% while the Stoxx 600 Europe rose a tenth-point, or 0.01%. The Belgium20 slipped a third-point, or 0.01%.
Asian markets were mixed as trade concerns weighed on Chinese stocks ahead of the country’s delegation’s arrival in the U.S. for two days of trade talks.
China’s Shanghai dropped 0.7% while Australia’s S&P/ASX 200 gave back 0.3%.
Japan’s Nikkei and Hong Kong’s Hang Seng advanced 0.6% while South Korea’s Kospi edged up 0.1%.
The Japan June all-industry activity index fell 0.8%, matching expectations.
MBA Mortgage Application were up 4.2%, along side a 2.9% gain in the purchase index and a 6% jump in the refinancing index for the week ending August 17th.
The average 30-year mortgage rate was unchanged at 4.81%.
July Existing Home Sales checked in at a 5.34 million rate, below forecasts of 5.42 million. The months’ supply of homes was steady at 4.3 million.
Sales dropped in 3 of the 4 regions surveyed, with only the West posting a gain. The median sales price declined to $269,600 from $273,800, and is up 4.5% year-over-year.
The FOMC Minutes revealed many participants believed another hike would be appropriate soon and clearly supports a September tightening.
The Fed heads generally noted the strength of the economy in Q2, as well as favorable factors that were supporting above trend growth, including financial conditions.
The Fed said several stressing transitory factors may have played a roll, including an outsized increase in exports.
The Fed viewed trade as an important source of uncertainty.
There was some discussions regarding firms having greater scope to increase prices due to strong demand or rising input costs.
The meeting minutes noted that the funds rate was moving closer to the range of estimate of a neutral level. The Fed agreed that accommodative language may no longer be appropriate fairly soon.
There was also talk over the implications of the flattening yield curve with the Fed indicating balance sheet discussions would continue in the fall.
There wasn’t any clear hints over the potential for a December tightening.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 3rd time in 4 sessions after tapping an opening high of $122.05.
Upper resistance at $121.75-$122 held with continued closes above the latter leading to a possible run north of $122.50 and July highs. Support remains at $121.25-$121.
Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) snapped a 4-session winning streak following the backtest to $257.05.
Support is at $257-$256.50. A close below $256 would signal additional weakness towards $254-$252.
Mid-January resistance is at $258-$260.
Continued closes above the latter would be a bullish signal. The 50/200-day moving averages remain in nice uptrends.
RSI is back in a slight downtrend with support is at 60. A move below this level could signal additional weakness towards 55-50.
Resistance at 65-70 with the latter representing the July high.
The Financial Select Sector Spiders (XLF) fell for the first time in 5 sessions following the pullback to $28.23. Support is at $28.25-$28 with a close below the latter likely signaling additional weakness towards the major moving averages.
Continued closes above mid-March and early August resistance at $28.50 would be a bullish development.
The 50-day moving average is back in a slight uptrend after falling below the 200-day moving average in early July.
RSI is showing a slight rollover with support at 55-50.
Near-term resistance is 60 with a move above this level likely leading to a retest to 65-70.
Open Position Update
Rolled over TLT to give us a bit more time. I’m expecting range bound markets or downside since interest rates have a upwards bias.
Price is taking into account global tension and will soon begin “pricing” in higher rates as well.
I’m not as active since I’m cautious about the current rally and may begin selling some bear call spreads in anticipation of minor downside ahead.
Roger Scott