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U.S. markets struggled throughout Wednesday’s action after trading on both sides of the ledger while closing mostly lower for the the first time in 4 sessions. Weaker-than-expected economic news was mostly ignored as Wall Street focused more on another update from Fed Chairman Powell that had little effect.
Late day selling pressure resumed following news the Department of Justice will propose a reform of legal protections for online platforms that have been in place for more than two decades. The reported DOJ action follows President Trump’s recent executive order seeking to weaken broad immunity enjoyed by some of the top U.S. social media companies.
The Russell 2000 was hit the hardest after falling 1.8% with the late day low reaching 1,424. Fresh and upper support at 1,425-1,410 was breached but held with a close below the latter signaling additional weakness towards 1,400-1,385.
The Dow was down 0.7% after testing a low of 26,068 ahead of the closing bell. Near-term and upper support at 26,250-26,000 failed to hold with a move below the latter signaling a further backtest towards 25,750-25,500.
The S&P 500 was lower by 0.4% with the afternoon low tapping 3,108. Current and upper support at 3,100-3,075 was challenged but held with a close below the latter getting 3,050-3,025 back in focus.
The Nasdaq bucked the trend to record its 4th-straight win after climbing 0.2% with the intraday high reaching 9,991. Current and lower resistance at 9,950-10,050 was cleared but held for the 2nd-straight session with a move above the latter and the recent all-time high at 10,086 signaling additional momentum towards 10,100-10,200.
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Communication Services and Technology were the only sectors that settled higher after posting gains of 0.1% and 0.04%, respectively. Energy paced sector laggards after sinking 3.4% while Financials and Real Estate fell 1.5% and 1.2%, respectively.
European markets closed mostly higher following a drop in consumer prices.
France’s CAC 40 rallied 0.9% and the Stoxx 600 gained 0.7%. Germany’s DAX 30 rose 0.5% and UK’s FTSE 100 added 0.2%. The Belgium20 slipped 0.2%.
Eurozone May Consumer Prices were down 0.1%, the lowest since a flat reading in June 2016, and follows April’s 0.3% rise. Energy prices tumbled -11.9% versus -9.7% in April, while inflation slowed for both food, alcohol & tobacco (3.4% versus 3.6%) and non-energy industrial goods (0.2% versus 0.3%). Meanwhile, services prices rose 1.3%, up from 1.2% in April.
Asian markets also finished mostly higher despite increasing tensions on the Korean peninsula between North and South Korea and clashes between India and China.
Australia’s S&P/ASX 200 jumped 0.8% and Hong Kong’s Hang Seng gained 0.6%. South Korea’s Kospi and China’s Shanghai nudged up 0.1%.
Japan’s Nikkei fell 0.6% after announcing exports fell 28.3% for May, worse than expectations for a 26.1% decrease.
MBA Mortgage Applications rose 8% and follows the 9.3% surge in the prior week. Refis continued to pace the strength with the index rising 10.3% after the prior 11.4% gain. The purchase index increased 3.5% following 5.3% gains over the prior two weeks. The 30-year mortgage rate fell to 3.30%, a new record low, while the 5-year ARM edged up to 3.07% from 3.02%.
Housing Starts were up 4.3% to 974,000 in May, disappointing expectations for a print of 1.25 million, after tumbling -26.4% to 934,000 in April. Meanwhile, Building Permits jumped 14.4% to 1,220,000 following the -21.4% drop to 1,066,000 previously. April’s housing starts print was the weakest since February 2015, while permits were the worst since March 2015. Single family starts inched up only 0.1%, while multi-family increased 15% after respective revised drops of -23.4% and -33.2%.
Fed Chairman Jay Powell repeated he doesn’t see a spike in inflation due to the unprecedented monetary and fiscal measures because the velocity of money has been deeply depressed. He added that while inflation pressures have dropped given the weakness in demand, long term inflation expectations remain stable, though still below the 2% goal.
As for bond buying, the Fed will gradually move away from purchasing ETFs and toward bonds, Powell said. He added it is a better tool for supporting liquidity and market functioning.
Powell also stated as the Covid-19 lockdown ends the Fed will be supervising how banks deal with borrowers and added there is more for Congress to do as well.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded after trading to an intrady high of $160.75. Lower resistance at $160.50-$161 was cleared and held. A close above the $162.50 level would be a more bullish signal for a retest towards $164-$164.50 and the 50-day moving average.
Current support is at $159-$158.50. A close below the $157.50 level would be a renewed bearish development with gap down potential towards $155-$152.50 and the monthly low at $153.16.
The S&P 500 Volatility Index ($VIX) fell for the 4th-straight session after testing an afternoon low of 32.25 while closing back below the 50-day moving average. Near-term support at 32.50-32 was split but held. A move below the latter would signal a further retreat towards 30.50-30.
Lowered resistance is 35-35.50 followed by 37.50-38.
The Russell 2000 ETF (IWM) was down for the 1st time in 4 sessions with the 2nd half low hitting $141.32. Near-term and upper support at $141.50-$141 was breached but held. A close below the $140 level would be a bearish signal for continued weakness towards $138-$137.50.
Lowered resistance is at $142-$142.50 followed by $144.50-$145.
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RSI is back in a slight downtrend with upper support at 55-50 failing to hold. A move below the latter would signal additional weakness towards 45-40 and levels from late March and early April. Resistance is at 60.
The Utilities Select Spider (XLU) had its 2-session winning streak snapped following the morning pullback to $58.59. Upper support is at $59-$58.50 was breached but held. A close below $58 and the 50-day moving average would confirm a possible near-term top with additional weakness towards $57-$56.50.
Lowered resistance is at $59.50-$60 with more important hurdles at $61-$61.50 and the 200-day moving average
RSI has leveled out with key support at 50 holding. A close below this level would signal additional weakness towards 45-40 and prior levels throughout the first half of May. Resistance is at 55-60.
All the best,