U.S. markets were sluggish throughout Monday’s session following a mixed bag of 1Q earnings from the Financial sector.

The slack action comes ahead of a shortened trading week and follows last Friday’s rally to higher highs.

With the major indexes signaling slightly overbought levels, the chances of a continued backtest are high and would be a healthy signal before a possible run at all-time highs. Volatility rose slightly but easily held a key level of resistance.

The Russell 2000 was lower by 0.4% following the pullback to 1,574.

Upper support at 1,575- 1,570 and the 200-day moving average held with risk towards 1,555-1,550 and the 50-day moving average on a close below the latter.

The Dow dipped 0.1% after trading to a midday low of 26,316. Current and upper support at 26,250-26,000 held with a move below the latter opening up risk towards 25,750 and the 50-day moving average.

The S&P 500 slipped 2 points, or 0.1% following the backtest to 2,896 shortly after the open.

Near-term and upper support at 2,900-2,875 was breached but held with a close below 2,850 being a slightly bearish development.

The Nasdaq also gave back 0.1% after testing an intraday low of 7,933.

Upper support at 7,925-7,850 held with a move below 7,800 signaling a possible near-term top.

Consumer Staples led sector strength after rising 0.6%. Healthcare and Consumer Discretionary were higher by 0.3% and 0.2%, respectively.

Financials and Real Estate paced sector weakness after falling 0.7%. Industrials, Materials and Energy fell 0.6%.

Global Economy – European markets closed mostly higher ahead of Wednesday’s ECB announcement on its policy decision.

The European Central Bank is unlikely to announce any new measures after moving back into stimulus mode just last month.

Germany’s DAX 30 and the Stoxx 600 Europe climbed 0.2% while France’s CAC 40 and the Belgium20 edged up 0.1%. UK’s FTSE 100 was down less than a point.

Asian markets closed mixed with Japan’s Nikkei showing strength after rallying 1.4%. South Korea’s Kospi rose 0.4% and Australia’s S&P/ASX 200 added a tenth-point. Hong Kong’s Hang Seng and China’s Shanghai fell 0.3%.

The Empire State Manufacturing Survey rebounded 6.4 points to 10.1 in April, better than expectations for a print of 6.8, and erasing the 5.1 point drop to 3.7 in March.

The employment component declined slightly to 11.9 following the 10.7 point jump 13.8 previously, while the workweek climbed to 4.3 from -3.4.

New orders were increased to 7.5 from 3. Prices paid slipped to 27.3 from 34.1, with prices received at 14 from 18.1.

However, the 6-month outlook fell 17.2 to 12.4 from 29.6, a 3-year low, with employment at 17.3 from 17.6, new orders at 20.5 from 29.0, prices paid at 37.1 from 40.6, and capital spending at 25.2 from 28.3.

Market Sentiment – Fed Reserve Bank President Charles Evans said the economy is doing fine and is comfortable with the current policy setting. He said data has strengthened a bit recently and he expects growth at about 1.75% -2% this year, with productivity growth at about 1.25%.

He added with the neutral rate around 2.75%, inflation running a little under 2%, and still on the light side, these factors should argue against premature tightening.

Evans went on to say the Fed can remain patient until pressure leads to inflation and would have to expect a negative shock before calling for an easing.

He stated here’s no reason to see the expansion dying out of old age.

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after tapping an morning high of $122.99.

Fresh and lower resistance at $123-$123.50 was challenged with a move above $124 signaling a near-term bottom.

Current support is at $122.50-$122 and the 50-day moving average.

Market Analysis – The Russell 2000 ETF (IWM) fell for the 2nd time in 3 sessions following the pullback to $156.50. Near-term and lower support at $157-$156.50 held with a close below the latter opening up risk towards $155.50-$155 and the 200-day moving average.

Late February and early March resistance is at $158-$158.50.

Continued closes above the the latter would be a more bullish signal for a run towards $159.50-$160 and fresh 2019 highs.

RSI has been flatlining with support at 55-50.

A close below the latter would be a bearish signal for additional weakness towards 45-40 with the latter representing the March low. Resistance is at 60 and this month’s peak.

The iShares PHLX Semiconductor ETF (SOXX) traded to a fresh all-time high of $203.59 on the open with fresh resistance at $203.50-$204 holding. Continued closes above the latter would signal additional momentum and setup a possible push towards $205-$207.50 over the near-term.

The pullback to $200.68 held current support at $200.50-$200. A move below the latter opens up risk towards $198-$197.50.

RSI is back in a slight downtrend with support at 60.

A close below this level would be a bearish signal with weakness towards 55-50 with the latter representing the March lows. Resistance is at 70 and a level that has been holding since February.

Existing Position Update

Volatility is reverting to mean at this time which increases premium across the board and helps us get trades above fair value.

Non directional trading action is probable till second part of the week.

Earnings are not in focus just yet.

Global economy is still driving stocks.

I will update you tomorrow as usual.

Roger Scott.