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Thursday, July 11, 2019

Market Action

U.S. markets showed momentum for the 2nd-straight session with the blue-chips tapping fresh all-time highs after Fed Chairman Powell all but confirmed a rate cut in his 2nd day of testimony. However, the small-caps traded lower throughout much of the session while Tech showed 2nd-half weakness with both indexes closing lower.

The Dow jumped 0.9% after closing on the session peak and fresh all-time high of 27,088. Near-term and upper resistance at 26,750-27,000 was cleared and held with fresh hurdles at 27,250-27,300 on continued strength.

The S&P 500 added 0.2% following the intraday run to 3,002. Fresh and lower resistance at 3,000-3,025 was cleared but held with the index missing a new all-time high by just over a half-point while settling a tenth-point below the 3,000 level.

The Nasdaq slipped 6 points, or 0.1%, despite testing a midday high of 8,228

And falling just shy of its record high of 8,228. Fresh and lower resistance is at 8,225-8,300 held on the 2nd-straight close above the 8,200 level.

The Russell 2000 traded in a 15-point range with the session low reaching 1,552 shortly after the opening bell. Near-term and upper support at 1,555-1,540 and the 50-day moving average held with a move below the latter being a bearish development.

Industrials were up 0.7% to pace sector leaders while Financials advanced 0.6%. Real Estate was the only sector laggard after sinking 1.3%.

Global Economy

European markets closed lower. The Belgium20 fell 0.5% while Germany's DAX 30, UK's FTSE 100, and France’s CAC 40 were down 0.3%. The Stoxx 600 was lower by 0.1%.

Asian markets closed higher across the board on the possibility that the U.S. central bank could be cutting interest rates soon.

South Korea’s Kospi soared 1.1% and Hong Kong's Hang Seng jumped 0.8%.

Japan’s Nikkei added 0.5% and Australia’s S&P/ASX 200 was up 0.4%. China's Shanghai edged up 0.1% and

U.S. Economy

Initial Jobless Claims declined 13,000 to 209,000 versus expectations for a print of 220,000. This lowered the 4-week moving average to 219 250 from 222,500. Continuing claims climbed 27,00p to 1,723,000 after rising 2,000 to 1,686,000 the prior week.

CPI rose 0.1% in June, while the core rose 0.3%, versus forecasts for a gain of 0.2% for both. On a 12-month basis, headline prices slowed to a 1.6% year-over-year pace versus 1.8%. Excluding food and energy, the pace increased to 2.1% year-over-year from 2%. There was strength in apparel prices whice climbed 1.1% from unchanged in May. Housing costs rose 0.3% versus the prior 0.1% gain, with medical care also up 0.3%, and matching May’s rise. Services rose 0.2% versus 0.1%. Food/beverage prices edged up 0.1% after a prior 0.3% gain. Energy prices dropped 2.3% versus -0.6%, while transportation costs slid -0.7% from -0.3%. Commodities were down -0.2% from unchanged.

Market Sentiment

Fed Chairman Powell didn't retrench from Wednesday’s comments which supported market expectations for a rate cut at the end of the month. Powell did suggest some potential for firmer action when he said it's important not to let inflation fall too far below the 2% level, citing Japan as an example. In the prepared text there were worries that weak inflation would be even more persistent than the Fed anticipated.

Atlanta Fed Raphael Bostic said the slowing in 2019 is not a surprise and the aggregate U.S. numbers are looking pretty good. He agreed with the general assessment among policymakers that economic risks are growing, but said he is not seeing storm clouds. He also suggested most firms aren't seeing much impact from the global slowing and added inflation data isn't as bleak as some think. 

In his earlier prepared remarks he said he has an open mind on the July decision and won't front run the call. He said the Fed was in a good position with respect to its dual mandate. He doesn't believe inflation expectations are trending away from the 2% goal.

New York Fed John Williams sees U.S. growth in the 2.25% range this year while saying data is presenting a mixed picture. He said consumer spending is very positive but business fixed investment has softened and manufacturing production is in decline. He added the dimming in outlooks for growth abroad will weigh on demand for U.S. goods. On inflation, he said the latest data showed prices below the 2% target and he is worried that low inflation expectations will become embedded and create a vicious circle.

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The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 3-straight sessions following the intraday plunge to $129.76. Prior and lower support at $130.50-$130 was breached but held. Lowered resistance is at $131-$131.50.

Volatility Index

The S&P 500 Volatility Index ($VIX) fell for the 2nd-straight session while testing an intraday low of 12.39. Prior and upper support at 12.50-12 held. Continued closes below the 12.50 level would continue to confirm near-term strength for the market.

Lowered resistance is at 13.50-14.

Market Analysis

The Spider Small-Cap 600 ETF (SLY) was lower for the 3rd time in 4 sessions despite testing an intraday high of $67.49. Current and lower resistance at $67.50-$68 was challenged but held. Continued closes above the $68.50 level would be a more bullish signal for a run towards $69-$70 and the early May highs.

Near-term support at $67-$66.50 and the 50/200-day moving averages held on the backtest to $66.75 afterwards. A close below the latter would be a renewed bearish development with risk towards $66-$65.50.

RSI is in downtrend with support at 50-45. A move below the latter would be a bearish development and signal additional weakness. Resistance is at 55-60.

Sector

iShares MSCI Emerging Markets (EEM) fell for the 6th time in 7 sessions despite testing a morning high of $43.05. Near-term and lowered resistance at $43-$43.25 was cleared but held. A close above $43.50 would be a more bullish signal near-term selling pressure has abated.

Near-term and upper support at $42.75-$42.50 held on the pullback to $42.70. A close below the latter would signal a false rebound with risk towards $42-$41.75 and and the 50-day moving average.

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RSI is flatlining with resistance at 60. Continued closes above this level would signal additional strength towards 65-70 with the latter representing the February top. Support is at 55-50.

All the best,

Roger Scott
WealthPress