U.S. markets showed weakness for a 2nd-straight session while closing slightly lower in anticipation of what the Fed may or may not do ahead of next week’s FOMC update.
The pullback held near-term support levels with the possibility of a mini-trade range developing into the announcement on interest rates.
The Nasdaq was down 0.4% after testing a morning low of 7,773 and failing to clear its 50-day moving average for the 3rd-straight session. Near-term and upper support at 7,750-7,700 easily held with a close below the latter opening up risk towards 7,650-7,600.
The Dow was lower by 0.2%, after trading to an intraday low of 25,958.
Near-term and upper support at 26,000-25,750 and the 50-day moving average was breached but held with a close below the latter being a bearish development.
The S&P 500 also slipped 0.2% following the intraday pullback to 2,874.
Fresh and upper support at 2,875-2,850 was breached but held with the index holding its 50-day moving average for the 4th-straight session.
The Russell 2000 bucked the trend after edging up less than a point, or 0.05%, while testing a 2nd-half high of 1,522. Upper support at 1,515-1,500 was breached but held following the opening pullback to 1,512.
Utilities led sector strength after jumping 1.3%. Healthcare and Real Estate were higher by 0.5% and 0.4%.
Energy and Financials were the weakest sectors after dropping 1.4% and 1%, respectively.
Global Economy- European markets settled lower after ECB President Mario Draghi, and Christine Lagarde, the managing director of the International Monetary Fund warned about the global trade dispute.
France’s CAC 40 was down 0.6% while the Belgium20 and UK’s FTSE 100 fell 0.4%. Germany’s DAX 30 and the Stoxx 600 gave back 0.3%.
Asian markets closed in the red as protests in Hong Kong continued over the contentious Chinese extradition law.
Hong Kong’s Hang Seng sank 1.7% and China’s Shanghai was down 0.6%.
Japan’s Nikkei dropped 0.4% and South Korea’s Kospi was off 0.1%. Australia’s S&P/ASX 200 slipped 2 points, or 0.04%.
China’s Producer Price Index rose 0.6% in May, matching expectations.
The consumer price index rose 2.7% in the same period, also matching forecasts.
MBA Mortgage Applications zoomed 26.8%, following a 1.5% increase the previous week, and the largest increase since January 2015. Refinancings paced the surge with a 45.6% jump, and were 49.8% of the loans, up from 42.2% previously.
The purchase index was 10% higher. The 30-year fixed rate fell to 4.12% last week from 4.23% in the prior week.
The 5-year ARM declined to 3.43% from 3.62%.
May CPI rose 0.1% on the headline and core with no revisions to April’s respective gains of 0.3% and 0.1%. The 12-month growth rate slowed to 1.8% year-over-year overall, versus 2%, with the core at 2% from 2.1%.
Energy prices dipped 0.6% from 2.9% and breaks a string three straight months of gains. Transportation costs slid 0.3% from the prior 1.2% gain.
Services prices were up 0.1% from 0.3%, and housing costs also were up 0.1% from 0.3%. Food/beverage prices rose 0.3% from -0.1%. Apparel was unchanged from -0.8% and -1.9% in March.
Real average hourly earnings rose 0.2% from -0.1%, leaving the year-over-year clip at 1.3% from 1.2% previously.
The Treasury Budget posted a $207.8 billion budget deficit in May, wider than the -$146.8 billion in red ink from a year ago. Spending climbed at a 20.9% year-over-year pace, while receipts increased at a 6.9% pace.
For the 8 months of fiscal 2019 to date, the deficit totaled -$738.6 billion, larger than the -$532.2 billion for the same period for fiscal 2018, with with year-to-date spending up 9.3% year-over-year and receipts at a 2.3% rate.
Atlantic Fed Business Inflation Expectations for June was up 2% for the year.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) traded to a tight range for the 3rd-straight session with the high reaching $130.75.
Lower resistance at $131-$131.50 held with a move above $132 signaling additional strength.
Near-term support is at $130.50-$130. A close below the latter would signal additional weakness towards $129-$128.50.
Market Analysis – The Spider S&P 500 ETF (SPY) was lower for the 2nd-straight session following the intraday pullback to $287.82. Upper support at $287.50-$287 was breached but held with a close below the latter and the 50-day moving average being a slightly bearish development.
Lowered resistance is at $289-$289.50.
Continued closes above the $290 level would be a more bullish signal for additional strength.
RSI is in a downtrend with support at 55-50. A close below the latter would be a bearish signal for additional weakness towards 45-40 and prior support from mid-May.
Resistance is at 60 with a move above this level signaling additional momentum towards 65-70.
The Financial Select Sector Spiders (XLF) was down for just the 2nd time in 8 sessions following the intraday pullback to $27.03.
Upper support at $27-$26.75 held on the 6th-straight close above the 50-day moving average.
A close below $26.50 could lead to further weakness towards $26.25-$26 and the 200-day moving average.
Near-term resistance is at $27.25-$27.50.
Continued closes above the latter would be a more bullish signal for a retest towards the $27.75-$28 and late April/ early May peaks.
RSI is in a slight downtrend with support 50. A close below this level opens up risk towards 45-40 with the latter representing support throughout much of May.
Resistance is at 55 with a move above this level signal a return of strength with upside potential towards 60-65 and mid-April highs.
Existing Position Update
Downside is expected to predominate.
More balance to bear call side anticipated.
Unless FED data is far above expectations, the week may see more downside.
Don’t expect China and Trump to work out anything just yet…maybe later in the summer.
Mostly likely scenario…200 day moving average test ones again.
This is why we are so leverage to the bear side.