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Thursday, May 9, 2019

Market Action

U.S. markets showed weakness for a 4th-straight session while testing lower lows on worries the U.S. and China will be unable to reach a trade agreement before new tariffs go into effect on Friday. President Trump said he has an excellent alternative if no agreement is reached that will take in well over a $100 billion a year.

Unless an 11th hour deal is reached, fresh tariffs will likely be placed on the last $200 billion of imports from China from 10% to 25%. Although the major indexes rebounded in the 2nd-half of action, volatility stayed elevated after trading to a higher high but continues to hold the 20 level.

The Dow declined 0.5%, after trading to a morning low of 25,517. Prior support from late March at 26,600-26,400 was split but held with a close below the latter and the 200-day moving average being a continuing bearish development.

The Nasdaq fell 0.4% following the backtest to 7,796 in the first hour of action. Prior and upper support from early April at 7,825-7,775 and the 50-day moving average was breached but held on the close just above the 7,900 level.

The Russell 2000 was down 0.3% after tapping an intraday low of 1,546. Major and lower support at 1,565-1,550 was breached but held on the close above the former and the 50/200-day moving averages.

The S&P 500 also lost 0.3% following the morning pullback to 2,836. Prior and upper support at 2,850-2,825 and the 50-day moving average was breached with both levels holding into the closing bell.

Real Estate climbed 0.3% and was the only sector that showed strength.

Materials Technology and Materials were the weakest sectors after giving back 0.8% and 0.7%, respectively. Consumer Discretionary was down 0.4%.

U.S. Economy

The International Trade deficit widened 1.5% to -$50.0 billion in March, versus forecasts of -$50.2 billion, and follows the 3.6% decline to -$49.3 billion in February. Exports increased 1% after the prior 1.2% gain, while imports were up 1.1% following February's 0.3% rise. Excluding petroleum, the deficit was little changed at -$48.2 billion versus -$48.1 billion. The "real" trade deficit widened to -$82.1 billion from -$81.6 billion revised from -$81.8, with real exports rising 0.7% from 0.6%, and real imports bouncing 0.7% from -0.5%. The deficit with China checked in at -$20.7 billion from -$24.8 billion.

Initial Jobless Claims dipped 2,000 to 228,000 versus forecasts for a print of 215,000. This left the 4-week moving average at 220,250 versus 212,500. Continuing claims rose 13,000 to 1,684,000 after rising 17,000 to 1,671,000 previously.

PPI rose 0.2% in April, with the core rate up 0.1%, compared to increases of 0.6% and 0.3% in March. On a 12-month basis, prices were steady at 2.2% year-over-year, with the core rate also unchanged at 2.4%. Good prices were up 0.3% from 1%, with energy rising 1.8% from 5.6%, while food prices fell -0.2% from 0.3%. Services prices were up 0.1% from 0.3%.

March Wholesale Inventories dipped 0.1%, while sales surging 2.3%. This follows a 0.4% inventory print in February, and a 0.3% increase in sales. Expectations were for no change for inventories with sales up 0.8%. The sales strength was in petroleum which climbed 9.4%, with grocery up 2.7%. The inventory-sales ratio slipped to 1.32 from 1.35 in January and February, and is the lowest since November.

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Market Sentiment

Fed Bostic believes he is seeing signs the economy is overheating and said while the unemployment rate is at an historic low, the the natural rate could be lower than estimated. He said business contacts say they are willing to forbear on 10% tariffs, but that 25% is a different ballgame. He added that so far, not a lot of the levies have been passed on to consumers, but 25% tariffs across a wider array of goods could be passed through and that could push up prices.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 3rd time in 4 sessions following the intraday push to $125.30 and the prior session peak. Lower resistance at $125-$125.50 held for the 2nd-straight session.

Support remains at $124-$123.50 with a close below the latter signaling additional risk towards $123-$122.50 and the 50-day moving average.

Volatility Index

The S&P 500 Volatility Index ($VIX) soared to a morning high of 23.38 with early and lower January resistance at 23.50-24 holding. A move above the latter could lead to panic selling with additional risk towards 26-26.50 and levels from early December.

Support remains at 18.50-18. A move back below 17.50 ahead of the weekend would be a slightly bullish signal for next week.

Market Analysis

The Spider Small-Cap 600 ETF (SLY) fell for the 4th-straight session after trading to an intraday low of $67.40. Early April and upper support at $68-$67.50 held along with the 50-day moving average. A close below $67 would be a bearish development with risk towards $66-$64.50 and March lows.

Current resistance is at $68.50-$69. A move above the latter and the 200-day moving average would be a bullish development for a possible near-term push towards $70.50-$71. These levels also represent the recent and the February peak to form a near-term double-top.

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RSI continues in a downtrend after closing below major support at 50 the prior 2 sessions and a level that had been holding since early April. There is risk towards 45-40 on continued weakness with the latter representing the March low. Resistance is at 55-60 with the latter representing the recent and April highs.


The iShares PHLX Semiconductor ETF (SOXX) fell for the 4th-straight session after tapping a morning low of $196.35. Early April and backup support at $197-$196.50 was breached with both levels holding into the closing bell. A move close the latter and the 50-day moving average opens up risk towards $190.50-$190.

Lowered resistance is at $201.50-$202. A move above $202.50 would be a slightly bullish signal with upside potential towards $204.50-$205 over the near-term. Continued closes back above $210 would complete a nice short-term v-shape recovery and would be a more bullish signal a near-term bottom has been established.

RSI remains in a downtrend with upper support at 45-40 getting breached and failing to hold. A close below the latter would be a continuing bearish signal with weakness towards 35-30 and the latter representing the December low. Resistance is at 50 and a level that had been holding since the beginning of the year before the recent downturn.

All the best,

Roger Scott