U.S. markets struggled for a 2nd-straight session while making lower lows as stalled U.S./ China talks and related tariff escalation remained the focus.
Increased scrutiny over Chinese telecom companies are at the forefront and are making it harder for U.S. companies to do business deals following the new restrictions.
Near-term support held with more crucial levels waiting in the wings on continued weakness.
Volatility made a higher high but settled down into the closing bell to keep a neutral reading on the market.
The Nasdaq dropped 1.5% following the opening backtest to 7,678.
Prior and upper support at 7,650-7,600 with a close below the latter signaling additional weakness towards 7,550-7,500 and the 200-day moving averages.
The Russell 2000 retreated 0.7% after testing an intraday low of 1,521.
Near-term and lower support at 1,535-1,520 held with risk towards the 1,500 level on a close below the latter.
The S&P 500 was lower by 0.7% while trading to a late day low of 2,831.
Fresh and upper support at 2,825-2,800 held with a move below the latter signaling additional weakness towards 2,775 and the 200-day moving average.
The Dow was down 0.3% after trading to an intraday low of 25,560.
Current and upper support at 25,650-25,400 was breached but held with the index being trapped between its 50/200-day moving averages for the past 9 sessions.
Utilities and Financials showed some sector strength after adding 0.1% while Energy nudged up 0.05%.
Technology and Communication Services led sector laggards with losses of 1.7%. Real Estate and Materials gave back 1.6% and 1.4%, respectively.
Global Economy – European markets closed lower across the board to start the week and ahead of the upcoming EU Parliamentary elections on Thursday.
Germany’s DAX 30 sank 1.6% and France’s CAC 40 tanked 1.5%. The Stoxx 600 Europe dropped 1.1% and the Belgium20 declined 1%. UK’s FTSE 100 fell 0.5%.
Asian markets closed mixed after Australia’s conservative coalition secured an outright parliamentary majority following a shocking election victory.
Australia’s S&P/ASX 200 soared 1.7% and Japan’s Nikkei climbed 0.2%. Hong Kong’s Hang Seng was down 0.6% and China’s Shanghai declined 0.5%.
South Korea’s Kospi slipped a tenth-point.
Japan’s GDP grew at an annualized 2.1% in the first quarter, beating expectations for a 0.2% contraction.
Chicago Fed National Activity Index fell to -0.45 in April, after bouncing to 0.5 in March, and missing expectations for a print of -0.1.
The 3-month moving average declined to -0.32 from -0.24 in March.
Market Sentiment – Atlanta Fed Raphael Bostic said he can’t tell whether the next Fed move will be a cut or a hike, given both upside and downside risks, and thinks the trade issue is putting a damper on long term investment.
His base case is for the economic growth to remain solid, though getting back to the long-term sustainable trend of 2%. He said as long as inflation isn’t running away, the Fed shouldn’t have to take action.
Regarding low inflation, he isn’t too worried and the inability of the Fed to hit the 2% target is not a material failure.
Bostic said the market’s view for a rate cut is ahead of his outlook and he is not tilted to the cut side as opposed to the hike side. He does worry a bit about the momentum in psychology and the expectation for an easing.
Bostic does’ see the weakness in the economy that would necessitate a rate cut. He went to add he thinks the Atlanta Fed is a microcosm of the U.S. economy and he is not hearing any material weakness regionally.
Philly Fed Patrick Harker commented on a rules-based regime and said while rules are important, they should not be followed robotically. He said it is important to know what you don’t know, and a completely rules based system only works in a system where all the variables are known entities.
The iShares 20+ Year Treasury Bond ETF (TLT) has been in a mini 4-session trading range following Monday’s backtest to $125.65.
Upper support at $125.50-$125 held with a close below $124.50 being a slightly bearish development.
Resistance remains at $126-$126.50.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) fell for the 2nd-straight session after trading to an intraday low of $65.87. Prior and upper support at $66-$65.50 was tripped and failed to hold.
A close below the latter would be a continuing bearish development with risk towards $65-$64.50 and mid-March lows.
Lowered resistance is at $66.50-$67 followed by $67.50-$68 and the 50-day moving average.
RSI is in a downtrend with mid-March support at 35.
A close below this level could lead to additional weakness towards 30-25 and levels from mid-December. Resistance is at 40-45.
The Industrials Select Sector Spider (XLI) extended its losing streak to 2-straight sessions following Monday’s pullback to $74.28. Fresh and upper support at $74.50-$74 held with a move below the latter signaling additional weakness towards $73 and the 200-day moving average.
Near-term and lowered resistance is at $75-$75.50.
Continued closes back above $76 and the 50-day moving average would be a more bullish signal a near-term bottom has been made.
RSI is in a downtrend with support at 40.
There is risk towards 35 and the low from earlier this month, as well as early January, on a move below 40. Resistance is at 45.
IBM holding up well.
AMZN is range bound.
Only issue seems to be with XLNX.
I’m going to see how it behaves in a strong market before letting it go.
Looking for 2 more opportunities, want to give the market chance to show directional bias before going all in.