U.S. markets showed strength on Tuesday’s open despite mixed economic news and continued trade rhetoric after President Trump said his administration was not ready to make a trade deal with China.

The strength faded about an hour into the session with the major indexes assuming a tight trading range before a mostly lower close as selling pressure picked up in the final hour of action.

Near-term support levels held with the overall market barely avoiding lower lows.

However, volatility is once again pushing key levels of resistance and remains at heightened levels.

The S&P 500 slipped 0.8% following the late day backtest to 2,801.

Major support at 2,800 held for the 3rd-straight session with risk towards 2,775-2,750 and the 200-day moving average on a move below this level.

The Dow was off 0.9% after trading to a 2nd-half low of 25,342.

Upper support at 25,500-25,250 failed to hold on the close back below the 200-day moving average with a move below the latter being an ongoing bearish signal.

The Russell 2000 fell 0.7% after tapping an afternoon low of 1,503.

Near-term and upper support at 1,500-1,485 held with risk towards 1,475-1,460 on a close below the latter.

The Nasdaq was down 0.4% after tapping a low of 7,603.

Major support at 7,600 held by a thread with a close below this level opening up risk towards 7,550-7,500 and the 200-day moving average

Communication Services was the only sector to show strength after rising 0.6%.

Consumer Staples and Utilities led sector weakness with losses of 1.6%. Healthcare sank 1.4%.

Global Economy – European markets were mostly lower following the results from the EU Parliament elections over the weekend along with fresh worries over Italy’s debt.

France’s CAC 40 and Germany’s DAX 30 fell 0.4%. The Stoxx 600 Europe was lower by 0.2% and UK’s FTSE 100 edged down 0.1%. The Belgium20 rose 0.4%.

The European Commission said it could tackle Italy with a hefty fine for failing to rein in its budget.

On Sunday, Italy’s Deputy Prime Minister Matteo Salvini said he would use all of his energy to fight what he claimed were outdated and unfair European fiscal rules.

Asian markets closed higher following President Trump’s four-day trip to Japan, as the two countries seek to hash out a trade deal for later in the summer.

China’s Shanghai rose 0.6% and Australia’s S&P/ASX 200 gained 0.5%.

Hong Kong’s Hang Seng and Japan’s Nikkei advanced 0.4% while South Korea’s Kospi nudged up 0.2%.

S&P Corelogic Case-Shiller home price index for March climbed 0.7% to 214.09 for the 20-city composite, after increasing 0.17% to 212.61 in February.

However, price appreciation slowed to a 2.68% year-over-year rate versus 2.95%, previously. The 10-city index increased 0.67% to 227.57 after the prior 0.16% gain to 226.06. The annual pace slowed to 2.33% year-over-year versus 2.53%.

FHFA House Price Index rose 0.1% to 273.4 in March, just below estimates for a gain of 0.2%, and follows the 0.4% rise to 273.1 in February. Increases were seen in 5 of the 9 regions, led by a 1.1% gain in the West North Central.

Declines were noted in the East North Central, the East South Central, and New England. Home prices increased 1.1% in Q1 and were up 5.1% from Q1 2018 to Q1 2019.

Moreover, home prices were up in all 50 states and the District between the first quarters of 2018 and 2019, led by Idaho, Nevada, and Utah.

Consumer Confidence rose 4.9 points to 134.1 in May, after rising 5 points to 129.2 in April, while topping forecasts of 129.9.

The index has rebounded from a 16-month low of 121.7 in January, and appears to be headed back towards the 18-year high of 137.9 that was tapped last October.

Specifically, the current conditions index rose to 175.2 from 169 while the expectations component improved to 106.6 from 102.7. The labor market differential increased to 36.3 from 33.2 and represented the highest reading since December 2000. The 12-month inflation expectations gauge slipped to 4.4% versus 4.6%, previously.

Dallas Fed Manufacturing Survey dropped 7.3 points to -5.3 in May, after falling 4.9 points to 2 in April, and much weaker than expectations for a print of 6.

The employment index bounced to 11.6 from 4.6, with wages slipping to 27.6 from 28.2. New orders declined to 2.4 from 9.8 while prices paid dipped to 7.4 from 7.9, with prices received at 0.7 from 0.6.

The 6-month outlook index tumbled to 9.1, nearly halved from 18.4, with the future employment gauge at 28.9 from 33.4, and wages at 32.8 from 38.8.

The 6-month new order index was at 35.2 from 35.9, with prices paid jumping to 28.9 to 14, prices received falling to 6.7 from 8, and future capex at 22.8 from 26.2.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 4-straight sessions after trading to a fresh 52-week peak of $128.90.

Prior and upper resistance from January 2016 at $128-$128.50 was cleared and held with fresh hurdles at $129.50-$130 on continued momentum.

Rising support is at $128-$127.50. A close back below $127 would signal a possible near-term top.

Market Analysis – The S&P 400 Mid Cap Index ($MID) fell for the 3rd time in 4 sessions after testing a low of 1,843.

Shaky and major support at 1,850 was breached and failed to hold with a close below 1,842 and the late March low likely leading towards 1,825-1,800 and late January support levels.

Near-term resistance is at 1,875-1,900 and the 200-day moving average.

A close above these levels would be a slightly bullish signal a near-term bottom is in process.

RSI is in a downtrend with support at 35 and an area that has been tested twice this month.

There is risk towards 30-25 and December lows on a close below 35. Resistance is at 40-45 with a move above the latter signaling a return of strength.

The Consumer Staples Select Spiders (XLP) extended its losing streak to 3-straight sessions following the pullback to $56.53. Near-term and upper support at $57-$56.50 was breached and failed to hold.

A close below below the latter and the 50-day moving average would be an ongoing bearish development with additional weakness towards $56-$55.50 and early April support levels.

Lowered resistance is at $57-$57.50.

RSI is in a nasty downtrend with support at 40.

A move below this level would signal additional weakness towards 35-30 and early January lows. Resistance is at 45-50.

All the best,
Roger Scott.