Market Update: Tuesday, August 4, 2020

 

 

 

U.S. markets opened slightly lower on Tuesday while trading in tight ranges as concern over the stalemate in Washington on the relief package and ongoing U.S./ China frictions weighed on sentiment. White House and Democratic party leaders struck a cautiously optimistic tone to start the week but remain miles apart.

 

President Trump suggested he is open to using an executive order if Congress fails to act, though it’s not clear such an action is legally possible. The major indexes added to their gains into the closing bell close with the Nasdaq tapping another lifetime high and 30th record close for 2020.

 

The Russell 2000 rose 0.7% after closing on the session peak of 1,517. Current and lower resistance at 1,510-1,525 was cleared and held with a close above the latter indicating a retest towards 1,535-1,550.

 

The Dow added 0.6% after tagging a 2nd half high of 26,832. Prior and lower resistance from mid-July at 26,750-27,000 was recovered with a move above the latter and the July high at 27,071 getting 27,250-27,500 in focus.

 

The Nasdaq was up 0.4% while finishing on the session high of 10,941. New and lower resistance at 10,950-11,050 was challenged but held with a move above the latter indicating additional momentum towards 11,100-11,200.

 

The S&P 500 also gained 0.4% while settling at 3,306 and the session top. Early February and lower resistance at 3,300-3,325 was cleared and held with a close above the latter suggesting continued upside towards 3,350-3,375.

 

Energy was the strongest sector after soaring 2.4% while Real Estate and Materials were higher by 1.5% and 1.4%, respectively. Financials and Healthcare were the only sector laggards after falling 0.4%.

 

 

 

 

 

European markets were mixed following disappointing earnings news.

 

Germany’s DAX 30 climbed 0.4% and France’s CAC 40 rose 0.3%. UK’s FTSE 100 edged up 0.1%. The Stoxx 600 and the Belgium20 slipped 0.1%.

 

 

Asian markets posted strong gains with the Financial and Tech sectors leading the way higher.

 

Hong Kong’s Hang Seng surged 2% and Australia’s S&P/ASX 200 jumped 1.9%. Japan’s Nikkei soared 1.7% and South Korea’s Kospi rose 1.3%. China’s Shanghai nudged up 0.1%.

 

 

 

 

 

 

Chain Store Sales climbed 3.1% last week following gains of 1.1% in the prior week. Back-to-school shopping was underpinned, though computers were in high demand for on-line learning. Electronic stores saw 12-month gains on the week while retail sales also showed an encouraging sign.

 

Redbook Store Sales were down -7.1% for the year in the week ending August 1st.

 

ISM New York Business Conditions improved with the Current Business Conditions rising 14 points to 53.5 in July from 39.5, previously. The Six-Month Outlook fell 17.5 points to 49.6, down from the 10-month high of 67.1 reported in June. Employment rose 16.8 points to reach a 6-month high of 50.3 while Quantity of Purchases fell 2.7 points to 42 from the 7-month high of 44.7 reported in June.

 

Factory Orders climbed 6.2% in June following the 7.7% bounce in May. Expectations were for a rise of 5.2%. Durable goods orders were bumped up to 7.6% from 7.3% in the advance report. Transportation orders rose 20.2% after May’s 78.8% jump. Excluding transportation, orders were 4.4% higher following the 2.6% May rebound. Nondefense capital goods orders excluding aircraft increased 3.4% from 1.6% previously. Shipments surged 9.8% versus the 3% increase in May. Nondefense capital goods shipments excluding aircraft were up 3.3% from 1.5%. Inventories rose 0.6% after the 0.2% May gain. The inventory-shipment ratio dropped to 1.51 from 1.65. The factory sector is clearly benefiting from the reopenings in the economy, though there’s still a long way to go with orders -10.6% and shipments -9.1% year-over-year.

 

 

 

 

 

 

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide following the afternoon run to $171.58 and fresh multi-month high. Lower resistance at $171.50-$172 was breached and held. A close above the latter and the late April peak at $172.15 would be a very bullish signal with gap up potential towards $172.50-$175.

 

Fresh support is at $170.50-$170 followed by $168.50-$168.

 

 

 

 

 

 

The S&P 500 Volatility Index ($VIX) traded in a tight range with the intraday low hitting 22.92. Current and upper support at 22.50-22 was challenged but held. There is a huge gap down to fill on a close below the 22 level that could signal a retrace towards the 20-17.50 area.

 

Lowered resistance is at 25-25.50 followed by 26.50-27 and the 200-day moving average.

 

 

 

 

 

The S&P 400 Mid Cap Index ($MID) extended its winning streak to 2-straight after closing on the session high of 1,894. Lower resistance from early June at 1,900-1,925 was challenged but held. A close above the latter would signal a retest towards 1,950-1,975 with the June peak at 1,946.

 

Current support at 1,850-1,825. A close below the latter and the 200-day moving average would be a slightly bearish signal with additional weakness towards 1,800-1,775 and the 50-day moving average. A golden cross remains in play with the 50-day MA on track to clear the 200-day MA.

 

RSI is in a slight uptrend after clearing lower resistance at 60-65. A close above the latter would signaling additional strength towards 70-75 and levels from early June. Support is at 55-50.

 

 

 

 

 

 

 

The Communication Services Select Sector Spider (XLC) extended its winning streak to 5-straight sessions after tapping a new all-time high of $58.56. Fresh and lower resistance at $58.50-$59 was cleared and held. A close above the latter would be an ongoing bullish signal for blue-sky territory towards $60-$60.50.

 

Rising support is at $58-$57.50 followed by $56.50-$56 and the 50-day moving average.

 

RSI is in an uptrend with key resistance at 65 holding. A close above this level would indicate additional strength towards 70-75 with the latter representing the mid-June peak. Support is at 60 with a move back below this level suggesting additional weakness towards 55-50.

 

 

Rick Rouse

CEO, Editor and Chief Options Strategist