U.S. markets showed some strength on Wednesday’s open following a solid round of corporate earnings and decent economic news. The majority of the gains held into the Fed announcement with the small-caps slacking and dipping slightly in the red.

Sentiment weakened after the Fed announced it was holding steady on interest rates with the other major indexes joining the downside momentum into the closing bell.

On the trade front, U.S. Treasury Secretary Mnuchin said he had nice working dinner with Chinese Vice Premier Liu He in Beijing with grapevine chatter a possible deal could be reached by next Friday.

The Russell 2000 was down 0.9% following the morning pop to 1,595. Major resistance at 1,600 held for the 3rd-straight session with serious support at 1,575 holding on the fade to 1,576 into the closing bell.

Despite the weakness, a golden cross in the process of forming with the 50-day moving average just 3 points away from clearing the 200-day moving average.

The S&P 500 sank 0.8% despite trading to a fresh intraday record high of 2,954 and stubborn resistance at 2,950 holding for the 3-straight session. Fresh and upper support at 2,925-2,900 was breached and failed to hold on the fade to 2,923 and session low into the closing bell.

Nasdaq dropped 0.6% following the 2nd half pullback to 8,048.

Fresh and upper support at 8,050-8,000 failed to hold by a half-point with a move below the latter signaling additional weakness.

The Dow gave back also fell 0.6% despite tapping a 1st half high of 26,689. Lower resistance at 26,600-26,800 held for the 9th time in 10 sessions with the all-time high at 26,951.

The backtest to 26,426 keeps near-term support at 26,250-26,000 in play.

There was no sector strength with Real Estate flat and avoiding a loss.

Energy tumbled 2% and was the weakest sector while Materials tanked 1.8%.
Consumer Discretionary and Consumer Staples were lower by 1.2%.

Global Economy – European markets were mostly closed for the May Day Holiday and ahead of Thursday’s policy meeting where the Bank of England is expected to announce it will keep rates unchanged. UK’s FTSE 100 was the only index that saw action and was down 0.4% for the session.

Asian markets were also closed for the May Day Holiday with Japan’s Nikkei remaining closed until May 6th. Australia’s S&P/ASX 200 rose 0.8% with the Financial sector showing strength.

MBA Mortgage Applications were weak for the 4th-straight week after declining 4.3%, following the 7.3% drop the prior week. The refinancing index fell 5%, with the purchase index off 3.7%.

The 30-year fixed dipped to 4.42% from 4.46% previously while the 5-year ARM dropped to 3.81% from 3.92%.

ADP Employment Report surged to 275,000 in April, blowing out expectations of 180,000. The service sector added 223,000 with the goods sector jobs increasing 52,000.

In the service sector, education added 54,000, with leisure up 53,000, and trade/transport gaining 37,000 jobs. Construction jobs were up 49,000, while manufacturing increased 5,000.

PMI Manufacturing Index was up 2 points to 52.6 in the final April print, versus the 52.4 prints for the preliminary April and the final March readings.

However, the employment component fell to 52.2 from last month’s 53.8, and is the lowest since June 2017. New orders increased, as did backlogs with input prices easing for the 6th straight month.

ISM Manufacturing Index dropped 2.5 points to 52.8 in April, missing forecasts for a print of 55, and the lowest reading since October 2016.

The employment index fell 5.1 points to 52.4 from 57.5. New orders dropped 5.7 points to 51.7 from 57.4 while new export orders slid 2.2 points to 49.5 from 51.7. Prices paid were down 4.3 points to 50 from 54.3.

Construction Spending fell 0.9% in March versus forecasts for a rise of 0.2%. On a 12-month basis, spending posted a 0.8% year-over-year contraction rate.

Weakness was registered in every major component, led by residential spending which dropped 1.8 % versus the prior -0.4% reading. Nonresidential spending slid 0.3% from 1.4%. Private spending declined 0.7% from -0.2% while public spending was down 1.3% from 3.2%.

Market Sentiment – In an unanimous vote, the Fed left the funds rate intact at 2.25%-2.5%, and the Fed reiterated it will be patient,in its policy approach.

In a technical move, the Fed did trim IOER by 5 basis points to 2.35%, now 15 basis points below the upper end of the band.

Additionally, the inflation outlook was downgraded a tad as the minutes stated that on a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2%.

The Fed added the part on core inflation and said in March there was a caveat that inflation had declined largely as a result of lower energy prices and that inflation for items other than food and energy remains near 2%. The statement also added that economic activity rose at a solid rate.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 3rd time in 4 sessions following the push to $124.45. Prior and lower resistance at $124-$124.50 was cleared but held with a close above $125 signaling additional strength.

Rising support is at $123.50-$123.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) made an intraday push to $266.81 while missing a fresh 2019 and the late April peak by a nickel.

Near-term resistance at $266.50-$267 was breached but held. Continued closes above the latter would confirm a possible run towards $267.50-$270 with the all-time high at $269.28.

Current and upper support at $264.50-$264 was breached and failed to hold on the backtest to $264.14 and session low.A close below the latter would be a slightly bearish signal with risk towards $262.50-$260 and the 50-day moving average.

RSI is in a downtrend with support at 55-50.

A close below the latter would signal additional weakness towards 45-40 with the latter representing the March lows. Resistance is at 60.

Continued closes above this level would be a bullish development for additional strength towards 65-70.

The Spider Gold Shares (GLD) had a volatile session after reaching a peak of $121.55 ahead of the Fed announcement. Lower resistance at $121.50-$122 held before the plunge to $120.18 afterwards.

Near-term and upper support at $120-$121 is back in focus with a close below $119.50 being a bearish development for additional weakness.

RSI is back in a downtrend with strong support at 40 from March and April and a level that has been holding since last September.

A close below 40 would signal additional weakness towards 35-30 and August 2018 levels.

Resistance is at 45 with a move above 50 being a possible bullish signal for additional strength.

Position Update

Holding existing positions.

Wanted to wait for large bulk of earnings to come out today.

FED news uneventful.

More congestion and possibly downside expected in the next few sessions.

Looking at bear call spreads for the next few days.

Roger Scott.