U.S. markets showed continued weakness on Tuesday but failed to rebound while making lower lows than the previous session.
Much of worry was over continuing U.S./ China trade tensions after U.S. Trade Representative Robert Lighthizer said the U.S. will increase tariffs on $200 billion in Chinese goods to 25% from 10% on Friday with the paperwork already in progress.
Volatility spiked to its highest levels since the beginning of the year before holding the 20 level.
Volume was heavy as investors feared continued selling pressure and the possible outcome and near-term ramifications of this week’s trade talks.
The Russell 2000 tumbled 2% despite the opening backtest to 1,571.
Upper support at 1,580-1,565 was breached but held with a close below the latter and the 50/200-day moving averages being signaling additional weakness.
The Nasdaq also dropped 2% following the intraday pullback to 7,899.
Prior and upper support at 7,900-7,850 was breached but held with a close below the latter opening up risk towards 7,825-7,775 and the 50-day moving average.
The Dow plummeted 1.8% after trading to a late day low 25,789 while closing back below its 50-day moving average.
Fresh and upper support at 25,800-25,600 held with a close below the latter opening up risk towards 26,400 and the 200-day moving average.
The S&P 500 stumbled 1.7% following the late session backtest to 2,862.
Prior support at 2,875-2,850 was breached but with a close below the latter and the 50-day moving average being a continuing bearish signal.
There was no sector strength.
Technology and Industrials showed the most weakness after getting hammered with losses of 2.2% and 2%, respectively. Healthcare was down 1.9% while Materials have back 1.8%.
Global Economy – European markets settled lower after the EU released slightly disappointing economic data.
The Belgium20 sank 2.3% while France’s CAC 40, UK’s FTSE 100 and Germany’s DAX 30 declined 1.6%. The Stoxx 600 Europe was lower by 1.4%.
The European Commission expects growth in the whole EU to hit 1.4% this year and 1.6% next year.
However, it cut growth forecasts for Germany for the second time this year, as trade tensions and a Chinese slowdown weigh on the region.
Asian markets settled mixed on hopes that China and the U.S. could still strike a trade deal despite the re-escalation in tensions.
Chinese Vice Premier Liu He is still set to lead a Chinese delegation in trade talks in Washington this week.
China’s Shanghai rose 0.7% and Hong Kong’s Hang Seng rose 0.5%. Australia’s S&P/ASX 200 gained 0.2%.
Japan’s Nikkei returned to action following a 10-day holiday while tanking 1.5%. South Korea’s Kospi fell 0.9%
Redbook Store Sales were up 5.9% for the year in the week ending May 4th.
The JOLTS report showed job openings rebounded 346,000 to 7,488,000 in March, topping expectations of 7,215,000.
The job opening rate jumped to 4.7% from 4.5%, one tick from the 4.8% all-time high. Hirings dropped 35,000 to 5,660,000 after falling 134,000 to 5,695,000 previously.
The hire rate was steady at 3.8%. Quitters fell 38,000 to 3,409,000, though the rate was unchanged at 2.3%.
Market Sentiment – Fed Vice Chairman Clarida reiterated the Committee view that the economy and monetary policy are in a good place right now. He said there is no strong case to either ease or tighten.
He added Inflation has been coming in on the soft side, though partly due to some temporary factors.
He stressed the focus is to get the inflation rate up to 2%, and the current policy setting and the outlook on the economy are consistent with that goal.
The iShares 20+ Year Treasury Bond ETF (TLT) extending its winning streak to 3-straight sessions following the intraday run to $125.14. Prior and lower resistance from late March at $125-$125.50 was cleared but held with a close above the latter getting $126.50-$127 and fresh 52-week peaks in play.
New support is at $124.50-$124.
Market Analysis – The S&P 400 Mid Cap Index ($MID) fell for the 2nd-straight session following the late day pullback to 1,926.
Upper support at 1,925-1,900 and the 50-day moving average held with a close below the latter and the 200-day moving average being a continuing bearish development.
Lowered resistance is at 1,950-1,975. A close above the latter would signal a return of strength with fresh 2019 highs back in play.
RSI is in a downtrend after failing major support at 50 from earlier this month and a level that now represents resistance.
There is risk towards 45-40 and the March low on additional weakness.
The Health Care Select Sector Spider (XLV) had its 3-session winning streak snapped following the pullback to $88.36. Prior and upper support from late April at $88.50-$88 held with a move below the latter signaling additional weakness towards $87-$86.50.
Lowered resistance is at $89-$89.50 followed by $90-$90.50 and the 200/ 50-day moving averages.
RSI is a downtrend with early April and prior March support at 40.
A close below this level would signal additional weakness towards 35-30 and mid-April lows. Resistance is at 50.
Liquidated NFLX and reasonable price.
Our exiting positions have plenty of time to decay.
Expecting volatility crush in the next few sessions.
Upside may start before end of week.
Whole lot depends on China and Trumps tweets over the near term.