U.S. showed steep losses on the open after President Trump announced he had called off the planned summit meeting with North Korea. The disappointing news was clearly a setback and may be seen as clouding the outlook for a trade resolution with China.

However, the major indexes found afternoon strength after the President held a press conference where he is explaining he wouldn’t rule out a meeting with North Korea at a later date.

The Russell 2000 was up less than a point, or 0.04%, following a backtest to 1,616 but closed higher for the 6th time in 7 sessions. The Nasdaq was down a point, or 0.2%, after trading to an intraday low of 7,357 but closed above the 7,400 level for the 2nd-straight session.

Both indexes showed strength into the closing bell and was a slightly bullish signal ahead.

The Dow dipped 0.3% after testing an intraday low of 24,605 but was able to hold the 24,800 level into the closing bell. The S&P 500 slipped 0.2% after bottoming at 2,707 while holding major support at the 2,700 level.

Both indexes traded in negative territory throughout the session but remain over 1% above their 50-day moving averages.

Utilities and Industrials rose 0.8% and 0.4%, respectively, while Consumer Discretionary gained 0.2% and were the only sectors that closed higher. Energy paced sector laggards after dropping 1.7% while Financials fell 0.8%

Global Economy – European markets were lower for a 2nd-straight session. UK’s FTSE 100 and Germany’s DAX 30 were lower by 0.9% while the Belgium20 fell by 0.7%. The Stoxx 600 Europe declined 0.5% and France’s CAC 40 gave back 0.3%.

ECB Executive Board Member Praet said economic conditions are good despite clouds but there are risks of business uncertainty. He added there’s perhaps a more fundamental problem in confidence.

German June GfK consumer confidence unexpectedly slipped 0.1 to a 6-month low of 10.7, weaker than expectations for no change.

UK April retail sales ex-auto fuel rose 1.3%, stronger than expectations of +0.5%. April retail sales including auto fuel were at 1.6% m/m, topping forecasts of 0.9%.

Asian markets settled mixed with Japan’s Nikkei underperforming and sinking 1.1%. China’s Shanghai was off 0.4% and South Korea’s Kospi was down 0.2%. Hong Kong’s Hang Seng advanced 0.3% and Australia’s S&P/ASX 200 was up 0.1%.

Initial Jobless Claims rose 11,000 to 234,000 in the week ending May 19th, topping forecasts for a print of 222,000.

FHFA House Price Index climbed 0.1% to 261.7, missing estimates for a gain 0.4% to 262.2.

Existing Home Sales slid 2.5% to a 5.46 million rate in April, below expectations for a rise of 0.4% to a 5.6 million rate. Single family sales fell 3% after the prior 0.6% gain, while condo sales were up 1.6% after bouncing 5.2% previously.

Three of the four regions showed declines, led by the Northeast (-4.4%) and the West (-3.3%), while the Midwest was flat. The months’ supply of homes jumped to 4 from 3.5.

The median sales price increased to $257,900 from $249,800.

Kansas Fed Manufacturing Index came in at 29, topping forecasts for a print of 22.

Market Sentiment – Philadelphia Fed Patrick Harker views a 2019 end to the tightening cycle as a distinct possibility in his opinion. He believes the neutral rate is in the 2.75%-3% area, and he’s been expecting three 25 basis point tightenings this year and next.

He said he would consider a 4th hike this year if inflation accelerated. However, he said he wouldn’t really want to boost rates above the neutral rate for fear of having to backtrack subsequently.

Harker went on to discuss the topic of tech disruption in the job market, warning that employee skill sets need to be constantly updated in the modern world.

Atlanta Fed Raphael Bostic said uncertainty is likely to rise in the wake of the cancellation of the North Korean summit and would add to the various other risks impacting the economy, including trade. On monetary policy, he’s comfortable with three tightenings this year.

Bostic also said after starting the year expecting just 2 hikes, he shifted to 3 after passage of tax reform and fiscal spending measures. He sees the neutral rate in the 2.25%-2.75% range.

On inflation, he said he won’t be claiming victory when the goal is hit, and will continue to monitor developments. As far as rising oil prices and their effect on policy, he said he is taking a wait-and-see stance.

The iShares 20+ Year Treasury Bond ETF (TLT) showed continued strength after making a run to $119.06 while closing higher for the 4th-time in five sessions.

Resistance at $119-$119.50 and the 50-day moving average held with continued closes above the latter being a bullish development. Rising support is at $118.50-$118.

Market Analysis – The Russell 3000 Index ($RUA) has been trading in a tight range over the past 11 sessions following a pullback to 1,609. We highlighted the 1,600-1,620 area a few weeks ago with the upper end of this range getting more action this week.

Continued closes above resistance at 1,625-1,630 would be a bullish development for a possible push towards 1,640-1,650. Support is at 1,605-1,600 with a move the latter likely leading to a continued backtest towards 1,590-1,580 and the 50-day moving average.

RSI is trying to clear and hold multi-month resistance at 60 with continued closes above this level leading towards a possible run at 65-70. Support is at 55-50.

The Consumer Discretionary Select Spiders (XLY) closed higher for the second-straight session after reaching an intraday peak of $106.15. Lower resistance at $106-$106.50 held into the closing bell with continued closes above the latter being a bullish development.

Rising support at $105-$104.50.

The higher highs and lower lows throughout the month are bullish signals.

RSI cleared resistance at 60 with continued closes above this level being a bullish signal for a possible run towards 70 and late 2017 support.

All the best,
Roger Scott