U.S. markets opened Monday’s session with substantial losses following a weekend tweet from President Trump that trade talks with China are moving too slowly and that he plans on raising tariffs to 25% this Friday.

The unexpected news hit the major indexes with losses well north of 1% before a quick rebound recovered half the losses roughly an hour later.

The rest of the session was mostly flat with the final hour of trading seeing additional strength on news that a Chinese delegation was still headed to Washington this week.

Volatility spiked to its highest level since late January while closing above 15 and a level that had been holding for 26-straight sessions.

The Nasdaq dropped 0.5% after opening at a session low of 7,981.

Prior and upper support at 8,075-8,025 was breached but held with a close below the 8,000 level being a bearish development.

The S&P 500 also fell 0.5% after trading to a morning low of 2,898.

Major and lower support at 2,925-2,900 was breached but held on the close above the former with risk towards 2,875-2,850 and the 50-day moving average on a close below the latter.

The Dow declined 0.3% following the opening pullback to 26,033. Major and lower support at 26,250-26,000 held with the latter and the 50-day moving average holding into the closing bell?

The Russell 2000 was up 0.1% despite the opening backtest to 1,588.

Support at 1,585-1,570 was breached but held with a close below 1,565 and the 50/200-day moving averages being a warning sign for lower lows.

Healthcare was up 0.5% and was the only sector to show strength.

Materials sank 1.5% to lead sector weakness. Industrials and Technology were down 1% and 0.8%, respectively

Global Economy – European markets closed lower on trade tensions and weaker-than expected economic news.

France’s CAC 40 tumbled 1.2% and Germany’s DAX 30 gave back 1%. The Belgium20 and the Stoxx 600 Europe dropped 0.9%. UK’s FTSE 100 was closed for a holiday.

Eurozone IHS Markit index for April came in at 51.6 from a reading of 51.6 in March.

Asian markets finished lower in limited trading following the re-escalation in U.S./ China trade tensions.

China’s Shanghai plummeted 5.6% and Hong Kong’s Hang Seng sank 2.9%.
Australia’s S&P/ASX 200 fell 0.8%.

Japan’s Nikkei and South Korea’s Kospi were also closed for holidays.

April TD Ameritrade IMX Level checked in at 4.61.

Market Sentiment – Philadelphia Fed Patrick Harker reiterated his preference for a cautious approach on policy normalization.

He said the FOMC only has estimates on the demand for reserves, with the supply of reserves notoriously volatile and autonomous factors could inflict a substantial fluctuation in the supply of reserves to depository institutions.

He added analysts intend to walk toward the efficient and effective level, rather than charging at full speed.

As for the economy, Harker is forecasting a little better than 2% growth this year, and returning to that level next year. He noted the softening in inflation in recent months and he also suspects some of that is transitory.

He said he will keep his focus on prices too and added that would be the variable that would change his outlook on the appropriate path of policy. But, “analysts’re not there yet, and it, it would be inflation.

He continues to see one rate increase at most this year; possibly one, at most, next.

The iShares 20+ Year Treasury Bond ETF (TLT) showed strength for the 2nd-straight session after trading to a high of $124.38.

Prior and upper resistance $123.75-$124.25 was cleared but held with a move above $124.50 signaling additional strength.

Rising support is at $123.75-$123.25 with backup help at $123-$122.50 and the 50-day moving average.

Market Analysis – The Russell 2000 ETF (IWM) extended its winning streak to 3-straight session despite the pullback to $158.01. Near-term and upper support at $158-$157.50 held.

A close below the latter could lead to a further backtest towards $155.50-$155 and the 50/ 200-day moving averages that recently formed a golden cross.

New resistance is at $161-$161.50 following the recovery to a fresh 2019 peak of $161.11 ahead of the final bell.

Continued closes above the latter would be a bullish signal for a run towards $162-$162.50 and prior resistance from early October.

RSI is neutral with support at 60.

A close below this level would be a bearish signal for additional weakness towards 55-50 with the latter holding since early April. Resistance from early February is at 65 with a move above this level signaling additional strength towards 70-75.

The Consumer Discretionary Select Spiders (XLY) was down for the 1st time in 3 sessions following the opening backtest to $117.95. Near-term and upper support at $118-$117.50 held.

A move below the latter and a level that has been holding since mid-April opens up risk towards $116-$115.50.

Lowered and prior resistance is now at $119.50-$120 with the recent all-time and late April peak at $120.90.

Continued closes above the $121 level opens up blue-sky territory towards $122-$122.50.

RSI is in a slight downtrend with support at 55-50.

A move below 45 and the early March low would be a bearish signal for additional weakness. Resistance is at 60-65 with a close above the latter being a bullish development for additional strength.

All the best,
Roger Scott.