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Tuesday, May 14, 2019

Market Action

U.S. markets showed strength throughout Tuesday's session following conciliatory comments from President Trump who said he and President Xi will meet in June at the G20. The market took the comments as a possible sign that President Trump will hold off on additional tariffs for now.

China also indicated the nation does not want a trade war with the U.S. but there were also indications of a prolonged delay. In any event, the major indexes rebound from slightly oversold levels as volatility closed back below a key level of resistance.

The Russell 2000 rallied 1.3% after testing a late session high of 1,547. Near-term and lower resistance at 1,550-1,575 was tapped but held with continued closes back above the latter and the 50/200-day moving averages being a more bullish signal.

The Nasdaq was higher by 1.1% following the second half run to 7,776. Current resistance at 7,750-7,800 was split but held with a move above 7,850 and the 50-day moving average signaling a possible near-term bottom.

The Dow jumped 0.8% to reach an intraday peak of 25,688. Prior and lower resistance at 25,600-25,800 was cleared but held on the close back above the 200-day moving average. A close above 26,000 and the 50-day moving average would be a more bullish development for additional strength.

The S&P 500 also rose 0.8% after reaching a late day peak of 2,852. Near-term and lower resistance at 2,850-2,875 was cleared but held with a close above the latter and the 50-day moving average being a more bullish signal.

Technology led sector leaders after surging 1.6% while Energy and Industrials soared 1.3% and 1.1%, respectively.

Utilities gave back 0.7% and was the only sector laggard.

Global Economy 

European markets rebounded on better-than-expected unemployment numbers out of the UK.

France's CAC 40 jumped 1.5% and the Belgium20 was up 1.3%. UK's FTSE 100 gained 1.1% while Germany's DAX 30 and the Stoxx 600 Europe added 1%.

UK March unemployment rate checked in at 3.8% versus 3.9% in February.

Asian markets settled mostly lower with Hong Kong's Hang Seng sinking 1.5% after returning to action following a holiday.

Australia's S&P/ASX 200 slipped 0.9% and China's Shanghai fell 0.7%. Japan's Nikkei was down 0.6%. South Korea's Kospi nudged up 0.1%.

U.S. Economy

NFIB Small Business Optimism Index rose 1.7% to 103.5 in April after inching up 0.1% to 101.8 in March. Expectations for a better economy improved, as did plans to hire, along with expectations for higher sales, while expectations on capital spending were unchanged.

Chain Store Sales dropped 1.3% in the week ending May 11th, after falling the same 1.3% in the prior week. The annual pace slowed to 2.1% year-over-year from 2.6% previously.

April Import and Export Prices were up 0.2%, both below expectations for a rise of 0.7%. On a 12-month basis, import prices contracted at a -0.2% year-over-year clip versus 0.1% previously while export prices were up 0.3% year-over-year versus 0.6%. For import prices, petroleum increased 6.1% last month versus 5.3%, previously. Excluding petroleum, import prices declined 0.6% versus the 0.2% gain previously. Food/beverage costs increased 2.8% from -0.2%. Industrial supplies prices were up 1% from 2.9%. Capital goods prices dipped 0.4% from -0.1%. Import prices with China were down 0.2% from unchanged, and were up 1.3% with Canada from 3%. For export prices, agricultural dropped 1.5% from 1%, and were up 0.4% excluding agricultural, versus 0.7%. Food/beverage prices dropped 1.8% from 1.2%. Industrial supplies prices were 0.9% higher from 1.8% while capital goods prices were flat at 0.1%.

Market Sentiment

Fed Reserve Bank of New York President John Williams said policy makers are most focused on confidence and the impact of uncertainty, but for now the U.S. economy and monetary policy are in a good place. Williams added that he views the tariffs as a negative supply shock and that it has various effects on the economy. One is inflation and it will probably will boost inflation by a few tenth over the next year, he added. It affects demand a bit and growth in the short

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On interest rate Willian said he doesn't see any reason to have a bias upward or downwards in the current circumstances, adding that the Fed will evaluate, reassess and see what is the best decision to get them to their goals.

Kansas City Fed Esther George reiterated the appropriateness of the wait and see stance given the lack of inflation pressures. She said current inflation does not demand a policy response and she is not convinced that a slight undershoot of inflation below objective requires and offsetting overshoot. She added that a 50 basis point deviation from the inflation goal seems acceptable.

George worries that lower rates might fuel asset price bubbles, create financial imbalances, and ultimately a recession. She said there is a legitimate concern over the limited policy space. The biggest risks she sees are trade policy uncertainties and slowdown in growth abroad, particularly in China, the euro area, and the UK. She believes the details of Q1 GDP are not as strong as the 3.2% headline gain suggests.

The iShares 20+ Year Treasury Bond ETF (TLT) was weak throughout the session while trading to an intraday low of $125.20. Fresh support at $125-$124.50 held with backup help at $124-$123.50.

Near-term resistance remains at $125.50-$126 with a close above the latter getting $126.50-$127 and fresh 52-week peaks in play.

Volatility Index

The S&P 500 Volatility Index ($VIX) stayed deflated throughout the session after testing a low of 17.45. Fresh and upper support at 18.50-18 was cleared and held with a close below 17.50 being a more signal for the market.

Resistance remains at 20-20.50 with risk towards 22.50-23 on a move above the latter. Last week's peak reached a high of 23.38.

Market Analysis

The Invesco QQQ Trust (QQQ) was up for just the 2nd time in 7 sessions with Tuesday's peak reaching $181.63. Current and lower resistance at $181-$181.50 was cleared but held with more important hurdles at $182.50-$183 and the 50-day moving average.

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Near-term support is at $180-$179.50. A close back below $177.50 would be a bearish signal for additional weakness.

RSI is back in a slight uptrend with resistance at 40. A move above this level could lead to a push towards 45-50. Support is at 35-30 with a move below the latter signaling additional weakness towards 25 and December lows.

 Market Analysis

The Invesco QQQ Trust (QQQ) was up for just the 2nd time in 7 sessions with Tuesday's peak reaching $181.63. Current and lower resistance at $181-$181.50 was cleared but held with more important hurdles at $182.50-$183 and the 50-day moving average.

Near-term support is at $180-$179.50. A close back below $177.50 would be a bearish signal for additional weakness.

RSI is back in a slight uptrend with resistance at 40. A move above this level could lead to a push towards 45-50. Support is at 35-30 with a move below the latter signaling additional weakness towards 25 and December lows.

All the best,

Roger Scott
WealthPress