U.S. markets settled mixed on Monday following a fresh round of Fed speak on the economy and interest rates.

The choppy action showed some strength in the morning but weakness in Tech throughout the session weight on sentiment along with ongoing tariff tiffs and chatter.

The small-caps and blue-chips showed closed in positive territory but remain on shaky ground as near-term resistance held.

Volatility stayed elevated but once again held a key level of support.

The Nasdaq tanked 1.6% after testing a late session low of 7,292.

Prior and upper support from early March at 7,300-7,250 was breached but held with risk towards 7,250-7,200 and early February lows on continued weakness.

The S&P 500 gave back 0.3% following the late day pullback to 2,728.

Fresh and upper support at 2,725-2,700 held with a close below the latter being an ongoing bearish signal.

The Dow was up 4 points 0.02% despite testing an intraday low of 24,680.

Prior and upper support from late January at 24,750-24,500 was breached but held with risk towards 24,250-24,000 on a close below the latter.

The Russell 2000 snapped a 4-session slide after rising 0.3% while reaching an intraday peak of 1,476.

Fresh and lower resistance at 1,475-1,490 held with continued closes back above the 1,500 level signaling a possible near-term bottom.

Materials zoomed 3.2% to easily pace sector leaders. Consumer Staples and Energy rallied 1.3%

Communications Services and Technology fell 3.1% and 1.8%, respectively, to lead sector laggards.

Global Economy – European markets closed mostly higher despite weaker-than-expected manufacturing news from the United Kingdom.

France’s CAC 40 rose 0.7% and Germany’s DAX 30 gained 0.6%. The Stoxx 600 advanced 0.4% and UK’s FTSE 100 added 0.3%. The Belgium20 slipped 0.2%.

UK IHS Markit purchasing managers’ fell to 49.4 in May, dropping below 50 for the first time since July 2016, and well below forecasts of 52.

Asian markets settled mostly lower amid increasing concerns over the state of global trade.

Australia’s S&P/ASX 200 dropped 1.2% and Japan’s Nikkei was lower by 0.9%.

China’s Shanghai gave back 0.3% and Hong Kong’s Hang Seng dipped 7 points, or 0.03%. South Korea’s Kospi soared 1.3%

China’s Caixin/Markit factory Purchasing Managers’ Index for May came in at 50.2, topping expectations of 50.

PMI Manufacturing Index for May checked in at 50.5, just below estimates of 50.6.

ISM Manufacturing Index for May was at 52.1, missing forecasts of 53.

April Construction Spending was flat for the month versus estimates for a rise of 0.4%.

Market Sentiment – St. Louis Fed James Bullard said the U.S. economy is expected to grow more slowly in 2019 and that inflation expectations appear to be too low to be consistent with the inflation target of the FOMC.

He also added the Treasury yield curve has moved more decisively toward inversion. Bullard said all of these considerations suggest a downward adjustment in the policy rate that may be warranted soon.

San Francisco Fed Mary Daly said she is remaining patient on a possible rate cut this year.

So far she doesn’t see a sustained, deep inversion of the yield curve and agreed with the FOMC that the economy is in a really good place.

However, she added that potential tariffs on Mexico raise uncertainty, which in turn hurts GDP growth, and they could put small, upward pressure on inflation.

Richmond Fed President Tom Barkin said the labor market is running hot, but so far inflation remains tame. He is nervous about the global economy, however, noting the slowing in Europe. He added tariffs are making consumers a little discombobulated.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 8th-straight after trading to a high of $132.58 and fresh 52-week peak.

Lower resistance from late June 2016 at $132-$132.50 was cleared and held with additional longer-term hurdles at $133.50-$134.

Rising support is at $132-$131.50 followed by $130.50-$130.

Market Analysis – The Spider S&P 500 ETF (SPY) was down for the 4th time in 5 sessions following the backtest to $273.09 and close below the 200-day moving average.

Upper support from early March at $273.50-$273 was breached but held with a move below the latter signaling additional weakness towards $272.50-$270 and early February levels.

Lowered resistance is at $275.50-$276. Continued closes above the $280 level would be a more bullish signal near-term selling pressure has abated.

RSI is in a downtrend with crucial support at 30.

A close below this level would be a bearish signal for additional weakness towards 25-20 and the December lows. Resistance is at 35-40.

The Spiders S&P Homebuilders ETF (XHB) was up for just the 2nd time in 5 sessions after rebounding to a high of $39.22. Near-term and lower resistance at $39-$39.50 was cleared but held.

Continued closes above $40 and the 50-day moving average would be a more bullish signal for higher highs.

Late March support is at $38.50-$38.

A move below the latter opens up risk towards $37.50-$37 and the 200-day moving average.

RSI is back in a slight uptrend with resistance at 45-50.

Continued closes above the latter and a level that has been holding since early May would be a bullish signal for additional strength.

Support is at 40. A move below this level would signal additional weakness towards 35-30 and late December lows.

Existing Position Update

AMZN should bounce next few sessions. Price is oversold.

Put/Call Ratio telling us that price action is becoming a bit emotional to the downside, especially with tech and consumer discretionary sector.

% of stocks trading below 50 day line is above 80th percentile.

Volatility remains just below danger zone.

Expect a bounce to the upside next few sessions, possibly giving us chance to turn current positions into iron condors.

Roger Scott
Head Trader
Market Geeks