U.S. markets were choppy on Monday’s opening following a number of positive developments concerning coronavirus vaccines and chatter of new stimulus measures. However, first half gains were somewhat limited as a number of states are still showing a rise in cases with the possibility of lockdowns coming back into play.
Market Action
U.S. markets traded lower throughout Thursday’s session as heightened frictions with China outweighed upbeat economic news and corporate earnings. Specifically, President Trump is reportedly considering a ban on members of the Chinese Communist Party and their families from entering the country.
The pullback slowed the week’s breakout to higher highs but no major technical damage was done as the major indexes held fresh support levels. Volatility was slightly elevated throughout the session but held resistance to keep the current bullish sentiment intact.
The Russell 2000 was lower by 0.7% following the afternoon pullback to 1,460. Fresh and upper support at 1,465-1,450 was tripped but held with a move below the latter and the 200-day moving average suggesting a retest towards 1,435-1,420.
The Nasdaq gave back 0.7%, as well, after bottoming at 10,364 shortly after the opening bell. Near-term and upper support at 10,350-10,250 was challenged but held with a close below the latter suggesting a near-term top with backtest potential towards 10,150-10,000.
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The Dow was down 0.5% to snap a 4-session winning streak with the morning low reaching 26,590. Current and upper support at 26,750-26,500 was breached and failed to hold with a close below the latter signaling further weakness towards 26,250-26,000 and the 200-day moving average.
The S&P 500 declined 0.3% while testing an intraday low of 3,198. Short-term and upper support at 3,200-3,175 was breached but held with a close below the latter indicating a further backtest towards 3,150-3,125.
Utilities and Materials paced sector strength after rising 1.2% and 0.3%. Technology and Real Estate were the leading sector laggards after dropping 1.4% and 1.3%, respectively.
Global Economy
European markets closed lower after the ECB decided to keep its interest rates and emergency coronavirus stimulus program unchanged.
UK’s FTSE 100 fell 0.7% while France’s CAC 40 and the Stoxx 600 were off 0.5%. Germany’s DAX 30 slipped 0.4% and the Belgium20 dipped 0.1%.
The ECB said asset purchases under PEPP would continue to be conducted in a “flexible manner” over time, across asset classes and jurisdictions. The interest rate on its main refinancing operations currently stands at 0%, and the interest rates on its marginal lending facility and deposit facility remain at 0.25% and -0.50% respectively.
The ECB added they expect rates to remain at their “present or lower” levels until it has seen the inflation outlook “robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.”
Asian markets settled lower across the board despite better-than-expected GDP news out of China.
China’s Shanghai sank 4.5% while Hong Kong’s Hang Seng tumbled 2%. Japan’s Nikkei and South Korea’s Kospi gave back 0.8% while Australia’s S&P/ASX 200 was lower by 0.7%.
China’s 2Q gross domestic product rose 3.2%, above estimates for growth of 2.5%. However, China retail sales dropped 1.8% in June, missing forecasts for a rise of 0.5%.
U.S. Economy
Initial Jobless Claims declined -10,000 to 1,300,000 following the -98,000 drop to 1,310,000, previously. The 4-week moving average fell to 1,375,000 from 1,435,000. Continuing claims were -422,000 lower at 17,338,000 after the prior week’s -1,000,000 drop to 17,760,000. The insured unemployment rate dropped to 11.9% from 12.2%.
Retail Sales rose 7.5%, and were up 7.3% excluding autos, topping expectations for a rise of 5%. Sales excluding autos, gas, and building materials increased another 7.3% from 12.3%. Auto sales were up 8.2% from the prior 48.7% bounce. Clothing sales remained big movers, with a 105.1% surge versus May’s 176.7% gain. Gas station sales were up 15.3% from 11.9%. Sporting goods sales rose 26.5% from 78% as leisure bounced back. Eating/drinking rose 20% versus 31.5%. The only declines in sales were in foods/beverage at -1.2%, building materials at -0.3%, and non-store retailers at -2.4%.
Philadelphia Fed Business Outlook Survey dipped -3.4 points to 24.1 in July versus forecasts for a print of 20. The employment index bounced to 20.1 from -4.3. The workweek climbed to 17.2 from -6.5 in June. New orders rallied to 23.0 from 16.7. Prices paid edged up to 15.7 from 11.1, with prices received little changed at 11.5 from 11. The 6-month index disappointed, dropping to 36 after jumping 16.6 points to 66.3 last month. The future employment gauge edged up to 32.4 from 29.6, with new orders slipping to 55.6 from 67.9. Prices paid dipped to 43 from 44.3 and prices received were at 24.7 versus 28.9. Capex was edged up to 26.6 from 26.3.
NAHB Housing Market Index climbed another 14 points to 72 in July after surging a record 21 points to 58 in June. The present single family index jumped to 79 from 63, while the future sale index rose to 75 from 68. The index of prospective buyer traffic improved to 58 from 43. The report noted a flight from the inner cities to the suburbs and lower density neighborhoods.
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Business Inventories declined 2.3% in May, with sales jumping 8.4%, as expected. This follows April’s -1.4% slide in inventories and the record -14.4% plunge in sales. The bounce in sales broke a string of 3-straight monthly declines. The inventory-sales ratio fell to 1.51 from 1.67.
Market Sentiment
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to close higher for the 3rd rime in 4 sessions with the intraday peak reaching $167.77. Current and lower resistance at $167.50-$168 was cleared but held. A close above the latter would be a bullish signal of a possible breakout with upside potential towards $169.50-$170.
Support is at $167-$166.50 followed by $165.50-$165.
Volatility Index
The S&P 500 Volatility Index ($VIX) closed higher despite testing a 2nd half low of 26.98. Prior and upper support at 27-26.50 was breached but held. A close below the latter and the 200-day moving average would signal additional weakness towards 26-25.50.
Resistance remains at 30-30.50 and the 50-day moving average with the opening high hitting 29.29. A close above the 30.50 level would suggest a retest towards the 32-32.50 area.
Market Analysis
The Spider S&P 500 ETF (SPY) had its 2 session winning streak snapped following the intraday pullback to $319.09. Current and upper support at $319.50-$319 was breached but held. A close below the latter would suggest further weakness towards $318-$317.50.
Resistance from early June at $321-$321.50 remains in play. A close above Wednesday’s peak at $323.04 and the early June high of $323.41 would be more bullish signals for additional strength towards $324.50-$325.
RSI is back in a slight downtrend with upper support at 60-55 holding. A close below the latter would signal additional weakness towards 50-45. Resistance is at 65-70.
Sector
The Industrials Select Sector Spider (XLI) extended its winning streak to 4-straight sessions after tagging an intraday of $71.92. Current resistance at $72-$72.50 was challenged but held. A close above the latter and the 200-day moving average would be an ongoing bullish signal with retest potential towards $74.50-$75.
Support is at $71-$70.50. A close below the $70 level would reopen additional downside risk towards $68.50-$68.
RSI has leveled out on the close below upper support at 60-55. A move below 55 would signal weakness towards 50-45 with the latter holding since late June and mid-May. Resistance is at 65 and the late May peak. A close above this level would suggest ongoing momentum towards 70-75 and early June peaks.
All the best,
Roger ScottWealthPress