U.S. markets struggled throughout Wednesday’s session after the Trump administration released a new list of Chinese products that may face tariffs.

The rally since the July 4th holiday hit a snag after the U.S. targeted 10% tariffs on another $200 billion in Chinese goods.

China, in turn, threatened to retaliate again with the market once again taking a defensive posture.

Fresh support levels were tested, and held, with volatility getting stretch before holding key levels of resistance.

The Dow fell 0.9% to snap a 4-session win streak following the backtest to 24,663.

Support at 24,700-24,600 and the 50-day moving average held into the close with a move below the latter being a slightly bearish development.

The S&P 500 sank 0.7% after trading to a low of 2,770 intraday.

Upper support at 2,775-2,770 failed to hold by a point with a move below 2,765 likely signaling additional weakness.

The Nasdaq closed lower for the first time in 5 sessions after giving back 0.6% and tapping an intraday low of 7,696. Prior support from mid-June at 7,700-7,650 held with a close below this level being a warning sign for lower lows.

The Russell 2000 extended its losing streak to two-straight with a pullback of 0.7% on the backtest and close at 1,683.

Near-term support is at 1,680-1,675 with a move below 1,670 being a cautious signal.

Utilities were the only sector that closed in positive territory after advancing 0.9%.

Energy paced sector laggards after giving back 2.2% while Materials and Industrials were hammered with losses of 1.6%.

Global Economy – European markets dropped sharply, falling by the most in two weeks, as the trade fight between the world’s largest economies intensifies.

The wobbly NATO meetings have also kept risk aversion high and forced traders back to the sidelines.

France’s CAC 40 and Germany’s DAX 30 tanked 1.5% while UK’s FTSE 100 and the Stoxx 600 Europe sank 1.3%. The Belgium20 slid 0.6%.

Asian markets were slammed after China’s Commerce Ministry said it would be forced to retaliate as the latest tariff move by the U.S. was totally unacceptable.

China’s Shanghai plummeted 1.8% and Hong Kong’s Hang Seng stumbled 1.3%.

Japan’s Nikkei tumbled 1.2%. Australia’s S&P/ASX 200 declined 0.7% and South Korea’s Kospi fell 0.6%.

Japan June PPI rose 0.2% for the month and was up 2.8% year-over-year, right on expectations.

Japan May core machine orders fell 3.7%, versus forecasts for a drop of 4.9%.

The Japan May tertiary industry index unexpectedly rose 0.1%, stronger than estimates for a decline of 0.3%.

MBA Mortgage Applications rose 2.5%, along with a 6.5% jump in the purchase index and a 3.8% drop in the refinancing index for the week ending July 6th.

The average 30-year fixed mortgage rate drifted 3 basis points lower to 4.76%.

The PPI-FD report revealed stronger-than-expected gains, with the headline and core index rising 0.3%, mostly reflecting a 0.4% gain in services prices, and a 0.1% gain in goods prices.

The year-over-year rise in the headline index at 3.4% was the strongest since November 2011 while the core index rose to 2.8%, and its best showing since September 2011.

Overall, beyond the June jump, analysts continue to assume only a gradual uptrend in the inflation measures. Analysts expect more benign PPI readings of 0.2% for the headline and 0.2% for the core in July.

July Atlantic Fed Business Inflation Expectations was up 2.1% for the year.

May Wholesale Sales Inventories jumped 2.5%, with inventories rising 0.6%, and topping forecasts for a gain of 0.5%.

Atlanta Fed’s Q2 GDPNow model estimate rose to 3.9%, up from 3.8%.

Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) snapped a two-session slide after trading to a high of $122.55.

Prior resistance at $122.50-$123 held with a move above the latter signaling additional strength. Support is at $122-$121.50.

Market Analysis – The Spiders Dow Jones Industrial Average ETF (DIA) traded lower for the first time in five sessions following the pullback to $246.64.

Fresh and upper support at $246.50-$246 held with a close below the latter and the 50-day moving average being a slightly bearish development.

Lowered resistance is at $249-$249.50 with a close above $250 signaling a possible breakout towards $252.50-$253 and early June highs.

RSI is back in a slight downtrend after failing resistance at 60.

There is risk to 50-45 and late May support on continued weakness.

The Consumer Discretionary Select Spiders (XLY) saw its four-session win streak come to an end following the backtest to $111.07.

Near-term support at $111-$110 held. A close below the latter would signal a short-term peak and risk to the prior trading range between $108-$110.

Resistance is at $112-$112.50 with the June all-time high at $112.24.

RSI is curling lower with near-term support at 55-50 if 60 fails to hold.

Resistance is at 65-70 with a close above the latter signaling renewed strength.

All the best,
Roger Scott