U.S. markets were weak throughout Tuesday’s action as Fed Speak and disappointing economic news weighed on sentiment.

Chatter over interest rates, where the housing market is headed, and what the near-term outcome will be from this weekend’s G20 summit were too much to avoid a 3rd-straight overall pullback.

One bright spot was the small-caps showing some intraday strength and taking the least damage after leading the way to lower lows the previous few sessions.

However, volatility took another leg higher after closing above key resistance levels and could stay elevated until there is a clearer picture.

The Nasdaq tumbled 1.5% after trading to an intraday low of 7,879.

Major support at 7,900 failed to hold, and represents the prior breakout level from earlier this month, with a close below 7,850 and the 50-day moving average signaling additional weakness.

The S&P 500 was down 1% following the afternoon pullback to 2,916.

Prior and upper support at 2,925 was breached and failed to hold with risk towards 2,900-2,875 and the 50-day moving average on continued weakness.

The Dow dropped 0.7% after testing a 2nd half low of 26,527.

Near-term and upper resistance at 26,500-26,250 held with a move below the latter likely leading to a further backtest towards 26,000 and the 50-day moving average.

The Russell 2000 traded in a 13-point range before giving back 0.6%
while testing a midday high of 1,533.

Prior and lower resistance from mid-month at 1,535-1,550 and the 200/50-day moving averages held with a close below 1,520 and the late session low being a continuing bearish signal.

Materials were the only sector that closed higher after edging up 0.04%.

Communication Services and Technology were the weakest sectors after stumbling 1.8% while Real Estate and Consumer Discretionary were lower by 1.3% and 1%, respectively.

Global Economy – European markets finished mostly lower amid heightened Brexit talk along with ongoing debt concerns in Italy.

Germany’s DAX 30 gave back 0.4% while France’s CAC 40 and the Stoxx 600 dipped 0.1%. The Belgium20 was down a tenth-point while UK’s FTSE 100 was up 0.1%.

Boris Johnson, the favorite to replace British Prime Minister, reiterated his threat to take the UK out the EU in October with or without agreeing to a Brexit deal.

Meanwhile, the EU indicated in its meeting minutes that the Italian anti-establishment government may have anywhere between 3-6 months to demonstrate its commitment to reducing the country’s massive debt burden.

Asian markets closed lower across the board following news that a U.S. official said President Trump is comfortable with any outcome on trade talks, dampening optimism that the meeting will result in any progress.

Hong Kong’s Hang Seng sank 1.2% and China’s Shanghai fell 0.9%.

Japan’s Nikkei was down 0.4% and Australia’s S&P/ASX 200 slipped 0.2%. South Korea’s Kospi was off 0.1%.

Chain Store Sales rose another 2.7%, matching the same gain from the prior week. However, the 12-month rate slowed slightly to a 2.8% year-over-year pace versus 3.1%.

Redbook Store Sales were up 5% for the year in the week ending June 22nd.

FHFA House Price Index for April was up 0.4% versus forecasts for a rise of 0.2% for the month.

S&P Corelogic Case-Shiller home price index rose 0.8% in April to 215.68, following March’s 0.7% increase to 213.95. The 12-month pace slowed to 2.54% year-over-year versus 2.61% and has showed a slowing rate for 13 consecutive months. The 10-City index increased 0.75% to 229.06 after rising 0.66% in March to 227.35. The annual rate edged up to a 2.28% clip versus 2.23% with all 20 cities surveyed showing annual gains, led by Las Vegas at 7.14% year-over-year.

New Home Sales for May checked in at 626,000 versus estimates of 680,000. The months’ supply rose to 6.4 from 5.9. The median sales price fell 8.1% to $308,000 after March’s 8.1% increase to $335,100.

Prices are down -2.7% year-over-year versus 6.6% previously. Regionally, sales were down in the West and Northeast, and were up in the Midwest and the South

Consumer Confidence for June was at 121.5, missing expectations of 132, and representing the lowest reading since September 2017. The present situation index fell to 162.6 from 170.7 while the expectations component slid to 94.1 from 105.

The labor market differential declined to 27.6 from 33.5. The 12-month inflation gauge popped up to 5.1% versus 4.6%, and is the highest since October 2015.

Richmond Fed Manufacturing Index for June declined 2 points to 3 following the 2 point gain to 5 in May.

The employment component fell to 2 versus 17, with wages at 21 from 38 and the workweek at -2 from 1. New order volume inched up to 1 from unchanged while the order backlog rose to unchanged from -4.

Prices paid slid to a 1.58% versus 2.21%, with prices received at 1.68% from 1.53%. The 6-month shipment index dripped to 24 from 27.

The future employment gauge dropped to 11 from 24, with new order volume at 29 from 30, prices paid at 2.38% from 2.47%, and prices received at 186% from 1.60%. Capex was at 25 from 36.

Market Sentiment – Fed Chair Jerome Powell repeated the phrase from the FOMC that the Fed is closely monitoring the implications of incoming information, and will act as appropriate to sustain the expansion.

He added the picture has changed since the May 1st decision, as crosscurrents have reemerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy.

Powell said the Fed’s contacts in business and agriculture reported heightened concerns over trade developments and that some of those concerns may be starting to show through to the data.

He said the question the Fed is grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation.

Powell added inflation undershoot may be more persistent than hoped, and the softer inflation trends are an argument for easing policy.

He said he is looking at big data to better understand what is going on in the economy, adding a lot will depend on near term events and information.

Short term moves in the financial markets aren’t really impacting the Fed’s decision, Powell went on to say, and the Committee is trying to set policy to further medium term goals.

He said the Fed is not targeting the dollar and that it is not good for the Fed to be the only game in town. Low rates are a challenge to the existing tool kit of central banks but stressed, however, the Fed has the tools needed to conduct policy.

St. Louis Fed James Bullard doesn’t believe a 50 basis point easing is necessary right now, as it would be overdone. However, he does think it is a good time for a rate cut, and he added that holding rates unchanged this month puts a really high probability on a July easing.

Bullard added both Q2 and Q3 growth look slower, but he is hopeful that if the FOMC were to act, the yield curve could get back to normal and the risk of a recession would diminish.

He doesn’t see much risk of being too dovish currently.

The iShares 20+ Year Treasury Bond ETF (TLT) closed in positive territory for the 10th time in 11 sessions following the intraday run to $133.09.

Prior and lower resistance at $133-$133.50 was breached but held with last week’s 52-week peak at $133.51.

Rising support is at $132.50-$132.

Market Analysis – The Russell 2000 ETF (IWM) fell for the 3rd-straight session following the late day slide to $151. Prior and lower support from mid-month at $151.50-$151 held on the close back below the 200-day moving average.

A move below the $150 level would be an ongoing bearish development and indicate a continued selloff towards the $147.50-$145 area, depending on the severity.

Current and lowered resistance is at $151.50-$152 with additional hurdles at $153-$153.50 and the 50-day moving average.

RSI is in a downtrend with upper support at 45-40 holding.

A close below 40 would signal additional weakness towards 35-30 and the latter representing the late May low.

Resistance is at 50 and prior support from mid-month.

The Health Care Select Sector Spider (XLV) closed in the red for the 2nd-straight session following the pullback to $92.77 ahead of the closing bell.

Near-term and upper support at $92.50-$92 held with a move below the latter signaling additional weakness towards $91.25-$90.75.

Lowered resistance is at $93.50-$94.

Continued closes above the latter would signal renewed strength with upside potential towards 52-week and fresh all-time highs north of $95.

The death cross from a month ago is improving following the lower lows with the 50-day moving average back in an uptrend.

However, it remains to be seen if it will clear the 200-day moving average to form a golden cross on continued strength. If so, it is typically a bullish signal for higher highs.

RSI is in a decline with support at 65-60. The latter has held for much of June with a close below the 60 level signaling additional weakness towards 55-50.

Resistance is at 70-75.

All the best,
Roger Scott.