U.S. markets were choppy throughout Monday’s action after trading on both sides of the ledger before settling mixed.
The yield curve inversion remained a concern as the opening lows continued to push early March, and February support levels for the small-caps, before a rebound shortly afterwards.
News that the Mueller investigation didn’t overtly link President Trump to any Russian collusion failed to inspire much bullish sentiment. Meanwhile, volatility stayed slighted elevated but held key resistance for a 2nd-straight session.
The Russell 2000 gained 0.5% despite the opening pullback to 1,494. Lower support at 1,500-1,490 held on the close above the former with a move back above 1,525 and the 50-day moving average signaling a near-term bottom.
The Dow edged up 0.1% after testing a low of 25,372 shortly after the opening bell.
Fresh and upper support at 25,400-25,150 and the 50/200-day moving averages held with the a close below the monthly low of 25,208 signaling additional weakness.
The Nasdaq slipped 0.1% after trading to a morning low of 7,579.
Fresh support at 7,600-7,550 was split with a close below the latter being a bearish signal with additional weakness towards 7,500-7,450 and the 200-day moving average.
The S&P 500 also dipped 0.1% following the first half pullback to 2,785. Major and upper support at 2,800-2,775 failed to hold on the close below this level for the first time in 9 sessions.
Consumer Discretionary led sector strength after advancing 0.6% while Consumer Staples and Industrials were higher by 0.2%.
Technology and Financials paced sector laggards after falling 0.4%. Communication Services and Materials were down 0.2%.
Global Economy – European markets closed lower despite an upbeat business outlook from Germany for the first time in 6 months.
The Belgium20 declined 0.8% and the Stoxx 600 Europe gave back 0.5%.
UK’s FTSE 100 dropped 0.4% while France’s CAC 40 and Germany’s DAX 30 were down 0.2%.
Germany’s business climate index rose to 99.6, beating forecasts for a reading of 98.5, and ending a streak of six-straight monthly declines.
Asian markets were punished with steep losses and ahead of Thursday’s start of continued trade talks between the U.S. and China.
Japan’s Nikkei plummeted 3% while China’s Shanghai and Hong Kong’s Hang Seng sank 2%. South Korea’s Kospi tumbled 1.9% and Australia’s S&P/ASX 200 dropped 1.1%.
Chicago Fed National Activity Index slipped 0.04 ticks to -0.29 in February, missing estimates for a rebound to 0.1.
The 3-month average slid to -0.18 in February from January’s unchanged reading According to the report, 47 of the 85 indicators made negative contributions, while 38 made positive contributions.
The Dallas Fed Manufacturing Survey fell 4.8 points to 8.3 in March, weaker than forecasts for a print of 9.8.
The employment sub-index edged up to 13.1 from 12.6, with the workweek at 4.6 from 1.8, and wages at 30.1 from 28.9.
New orders slumped to 2.4 from 6.9, with the orders growth rate at -1.9 from 3.4.
Prices paid dipped to 20.4 from 21.8, while prices received rose to 6.9 from 5.2. As for the 6-month future view, the general business outlook index climbed to 19.7 from 17.7, with the employment index at 37.9 from 33.2.
Orders fell to 43.5 from 44.9, while prices paid jumped to 28.2 from 23.7, with prices received at 20 from 25.9. Capex was at 36.2 from 24.
Market Sentiment – Philadelphia Fed Patrick Harker sees no reason to increase rates, given current economic conditions, though he doesn’t feel boxed in on rates and believes the Fed is approaching normal concerning rates.
He said that if the markets believe yield curve inversion is a recession indicator, then it is.
Harker sees some value in the U.S. inflation target not getting out of sync with the rest of the world, while tariff uncertainty is weighing on some U.S. businesses.
He said if there was a deep recession, the Fed would need to dip into its unconventional monetary policy toolkit. He noted labor shortages as a big risk and argued that inflation would need to clear and stay above 2% to raise rates this year, with neutrality perhaps 1-2 moves away.
Chicago Fed President Charles Evans said the U.S. economy has slowed, but he downplayed chances of a recession. As far as the inverted yield curve, he said the Fed has has to be a little bit nervous obviously, noting whenever the yield curve gets flat, growth decelerates.
Evans is looking for nearly 2% growth this year and said that although that sounds kind of low, it’s actually relative to trend of one-and-three-quarters, so it’s a good growth rate.
His outlook on the U.S. and the economy remains robust.
Fomer Fed Head Janet Yellen said the yield curve might be a signal that at some point the Fed may have to cut rates, but doesn’t necessarily mean there is a recession.
She said that in contrast to the past there is a tendency for the yield curve to be very flat.
The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 4-straight sessions following the intraday push to $125.94.
Lower resistance at $125-$125.50 from October 2016 was cleared and held with a close above the latter keeping $126-$126.50 in play.
Current support is at $124.50-$124 with the latter representing the lower end of last week’s breakout.
A move below this level would signal additional weakness towards $123-$122.50.
Market Analysis – The Spider S&P 500 ETF (SPY) closed in the red for the 2nd-straight session following the backtest to $277.64.
Current support at $277.50-$277 held with a move below the latter opening up risk towards $275.50-$275.
The 50-day moving average is 6 cents away from clearing the 200-day moving average to form a golden cross.
This is typically a bullish signal for higher highs.
Near-term resistance is at $279.50-$280 with a move above the latter getting $282.50-$283 back in play.
RSI is trying to level out with support at 50 and the monthly low.
A move below this level would be a bearish signal with additional weakness towards 45-40 with the latter representing the January bottom.
The Utilities Select Spider (XLU) rose for the 4th-straight session after trading to an intraday high of $58.72. Prior and multi-year resistance at $58.75-$59 held with a move above the latter signaling additional strength towards $60-$60.50.
Friday’s 52-week peak reached $58.90.
Near-term support is at $58.25-$58.
A move below the latter would signal a possible near-term top with additional risk towards $57.50-$57 and mid-month support levels.
RSI is in an uptrend with resistance at 75.
Continued closes above this level would get 80 back in the mix but signaling oversold levels from earlier this month and July 2018. Support is at 70 with risk towards 65-60 on a move below this level.
All the best,
Roger Scott.