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The U.S. markets were choppy on Tuesday after trading on both sides of the ledger and finishing mixed. The action likely signaled some caution ahead of Federal Reserve Chairwoman Janet Yellen’s testimony to Congress over the next couple of days. The tight trading range this week could loosen if she provides more details on monetary policy.

Global Economy – European stocks backed off a 1-week high after finishing in the red. Energy stocks were weak on concerns the global oil glut would persist. Goldman Sachs warned that measures taken by OPEC to curb production don’t go far enough without sustained U.S. inventory declines and a drop in the active rig count.

The U.S. Energy Information Administration cut its forecast for U.S oil production next year after a report showed European oil stockpiles fell.

Saudi Arabia said it pumped crude at a 10.07 million bpd rate in June, up from 9.88 million bpd in May. This was above its crude production limit of 10.058 million bpd agreed upon as part of OPEC’s production cuts.

Despite the worries, oil closed higher for the day.

U.S. Economy- The June NFIB Small Business Optimism Index level came in at 103.6 versus expectations of 104.5.

May JOLTS Job Openings fell 301,000 to 5,666,000 compared with a forecast of 5,975,000. This follows an April increase of 182,000 to 5,967,000 in adjusted down from 6,044,000. The headline figure is slightly negative, but the quit numbers, a Janet Yellen favorite, should offset some of the disappointment.

May Wholesale Trade Inventories up 0.4% versus estimates of 0.3% for the month.

The Treasury 4-week bill sale checked in at $40 billion and was considered average.

The Treasury’s 3-year auction pulled in $24 billion.

Market Sentiment – Fed news / Long bond TLT or 30 year bond analysis

Randel Quarles was nominated by President Trump to be the Fed’s Bank Supervisor and Fed Board nominee. He will still have to be approved under the Senate and would work for Janet Yellen if he is confirmed while her term is still intact. Mr. Quarles is not in favor of breaking up the big banks and has criticized Dodd/ Frank.

In other Fed news, San Francisco Fed President, John Williams, said he expects one more rate hike this year and is also looking for the central bank to start unwinding its massive balance sheet in the next few months. He want to add the recent softening in U.S. inflation is temporary and expects it to pick up to 2% over the coming year. However, if inflation doesn’t rise as expected, it could result in a slower pace for rate hikes.

The iShares 20+ Year Treasury Bond ETF (TLT) continued to work its way towards resistance at $123.50-$123.75 and the 50-day moving average. Today’s high tapped $123.33. Support is trying to move up to $123-$122.75.

Market Analysis- Two of the strongest sectors over the past week have been Aerospace and Computer and Technology. This helps explain the rebound in the Nasdaq and its attempt to clear the 6,200 level along with the Dow languishing near resistance at 21,500-21,600. However, nearly a dozen other sectors are down 1%-3% with another four sector basically flat.

The percentage of stocks in the Nasdaq 100 trading above their 200-day moving average is pushing 73%. This could reach 75%-80% on a continued market rebound and levels that historically signal a possible short-term market top forming.

Aerospace was strong again today following a British court ruling against an anti-arms trade group that was seeking to stop sales to Saudi Arabia. A judgment in favor of the arms group could have put in jeopardy deals U.S. companies have or future sales to the Saudis.

Gold continues to tumble towards the $1,200 level after after double-topping at $1,300 in mid-April and early June. The yellow metal tested a low of $1,204 today but closed the session higher.

A mini death cross is in the process of forming with the 50-day moving average on track to fall below the 100-day moving average on continued weakness. This is typically the start of a bearish setup that could lead to a tumble towards $1,180-$1,140 if $1,200 fails to hold over the near-term. This would violate the March lows on continued closes below this level.

The $1,220 area had been solid support since early May with $1,220-$1,225 now representing short-term resistance. A move back above $1,240-$1,250 and the 200-day moving average would help negate the current bearish setup.


I will update you tomorrow as usual.

All the best,

Roger Scott