U.S. markets showed some strength on Monday’s open but spent most of the session in negative territory as Wall Syreet prepares for the Fed.

The Nasdaq was the weakest of the indexes, falling more than 1% amid calls of a potential market top for the so-called “FANG” group of tech stocks.

Support was tested and breached on the pullback as the major indexes closed near session lows. Volatility remains heightened and is showing signs of a continued market selloff if the VIX clears 15.

The Nasdaq stumbled 1.4% after testing an intraday low of 7,604.

Upper support at 7,650-7,600 and the 50-day moving average failed to hold with a close below the latter being a continued bearish development.

The Russell 2000 fell 0.6% following the backtest to 1,653. It was the 2nd-straight close below the 50-day moving average with fresh support at 1,650-1,640 holding.

The S&P 500 slid 0.6% after trading to a low of 2,798. The index held key support at 2,800 and a level that has held for 10-straight sessions. A close below this level would be a bearish development.

The Dow also fell 0.6% after testing a low of 25,287. The close back below the 25,400 level was a slightly bearish development with risk to 25,000 on continued weakness.

Energy was up 0.8% to lead sector strength. Healthcare added 0.1% while Financials were flat.

Communications Services and Technology tumbled 1.6% to pace sector laggards. Industrials were down 1%.

Global Economy – European markets closed lower ahead of several key central bank meetings this week.

Germany’s DAX 30 was down 0.5% and France’s CAC 40 fell 0.4%.

The Belgium20 and the Stoxx 600 Europe slipped 0.3% while UK’s FTSE 100 was off a half-point, or 0.01%.

Eurozone July economic confidence slipped 0.2 to 112.1, stronger than expectations of for a drop of 0.3 to 112.

The July business climate indicator fell 0.09 to 1.29, weaker than expectations for a print of 1.35.

UK June net consumer credit rose 1.6 billion pounds, topping forecasts of 1.4 billion pounds.

Asian markets were weak as trade tensions between the U.S. and China remained in focus. China’s foreign minister, Wang Yi, said American policies were to blame for its trade deficit and the collapse of trade talks.

Japan’s Nikkei dropped 0.7% and Australia’s S&P/ASX 200 declined 0.4%. Hong Kong’s Hang Seng gave back 0.2%. South Korea’s Kospi and China’s Shanghai dipped 0.1%.

Japan June retail sales rose 1.5%, matching expectations.

The NAR Pending Home Sales index bounced 0.9% to 106.9 in June , more than erasing the 0.5% dip in May to 105, and ahead of forecasts of 106.4.

Regionally, sales were higher on the month, with the Northeast (1.4%) and the South (1.1%) leading the way, followed by the West (0.7%) and the Midwest (0.5%).

The Dallas Fed manufacturing index fell 4.2 points to 32.3 in July, after jumping 9.7 points to 36.5 in June, but ahead of expectations for a print of 32.

The employment index rose to 28.9 from 23.9, with the workweek at 22.2 from 20.2, reflecting the strong labor market. New orders declined to 23.3 from 29.6, while the company outlook dropped to 20.4 after climbing to 33.2 in June.

Prices paid came off to 48.6 after surging to 53.6, while prices received slid to 22.9 from 26.2, which was a 10-year high.

Wages and benefits improved to 32.4 from 31.4.

The 6-month general business activity index increased to 36.2 from 35.9. The outlook on future employment inched up to 39.9 from 39.8, with the workweek essentially doubling to 18.1 from 9.7.

The prices paid index fell to 46.1 from 49.0, with prices received at 26.6 from 28.1. The outlook on capital expenditures edged down to 31.9 from 33.9.

Market Sentiment – The Fed meets Tuesday and Wednesday, but no change is expected in rates. There has been no signal from policymakers that they are preparing to boost rates again after hiking in June.

The policy statement, however, should be supportive of a move up in rates at the September 25th, 26th meeting.

Analysts believe the Fed will be a little more upbeat in its outlook on the economy given the 4.1% increase in growth, and can note the fact that most inflation measures have hit the goal.

However, Chairman Powell has indicated he’s not ready to declare victory on inflation just yet, while others remain concerned over the potentially recessionary signals from a yield curve inversion, and cautious over the effects of tariffs.

The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 5th time in 7 sessions with Monday’s low tapping $118.97.

Lower support at $119.25-$119 was breached but held into the closing bell. Backup help is at $118.50-$118 on continued weakness.

Lowered resistance is at $119.50-$120 and the 50-day moving average.

Market Analysis – The Spider S&P 500 ETF (SPY) fell for the 3rd-straight session following the intraday backtest to $279.36.

Upper support is at $279.50-$279 held with a move below the latter signaling additional weakness towards the $277.50 area.

Lowered resistance is at $280-$280.50 with a close back above the latter being a slightly bullish signal for another possible push towards $282-$282.50.

The 50/200-day moving averages remain in solid uptrends and are signaling longer-term higher highs.

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

A close below this level would signal additional weakness towards 45-40 and June lows. Resistance is at 55-60.

The Financial Select Sector Spiders (XLF) has been in a tight trading range over the past 5 sessions with Monday’s high reaching $28.35. Continued closes above May resistance at $28.25 would be a bullish development.

The 50-day moving average is trying to level out after falling below the 200-day moving average earlier this month.

The lower lows ahead of the death-cross formed a nice bottom before the back of the month rebound.

Support is at $28-$27.75 with a close below the latter likely signaling additional weakness towards the major moving averages.

RSI is trying to clear upper January resistance at 65-70.

Continued closes back above the latter would be a slightly bullish signal for continued strength.

A close below support at 60 would suggest another backtest towards 55-50.

All the best,
Roger Scott