Market Update: Wednesday, August 13, 2020

U.S. markets settled mostly lower as ongoing stimulus talks continue to stall with House speaker Nancy Pelosi rejecting Secretary of the Treasury Steven Mnunchin’s call to resume negotiations.

The stalemate overshadowed a better-than-expected jobless claims number and news of President Trump’s peace agreement with Israel and the United Arab Emirates.

The Nasdaq was up for the 2nd-straight session after adding 0.3% with the intraday peak reaching 11,124. Near-term and lower resistance at 11,050-11,150 was cleared but held. A close above the latter and last Friday’s all-time high at 11,126 would indicate additional upside towards 11,200-11,300.

The Dow gave back 0.3% after tagging a late day low of 27,789. Current and upper support at 27,850-27,750 was breached but held. A move below the latter would signal additional weakness towards 27,600-27,500.

The Russell 2000 was down 0.2% following the intraday pullback to 1,575. Key and upper support at 1,575-1,560 was kissed but held. A close below the latter would suggest a further backtest towards 1,550-1,535.

The S&P 500 slipped 0.2% after testing a low of 3,363 ahead of the closing bell. Near-term and upper support at 3,375-3,350 was breached and failed to hold with a drop below the latter signaling additional downside risk towards 3,325-3,300.

Communication Services and Technology was the only sector that closed higher after gaining 0.5% and 0.04%, respectively. Energy and Real Estate led sector weakness after falling 1.9% and 1.1%.

European markets settled lower across the board.

UK’s FTSE 100 sank 1.5% while the Belgium20, the Stoxx 600, and France’s CAC 40 lost 0.6%. Germany’s DAX 30 gave back 0.5%.

Asian markets were mixed ahead of a crucial U.S. and China meeting this weekend to discuss the progress of the bilateral trade deal.

Japan’s Nikkei jumped 1.8% and South Korea’s Kospi climbed 0.2%. China’s Shanghai edged up just over a point, or 0.04%. Australia’s S&P/ASX 200 fell 0.7% and Hong Kong’s Hang Seng dipped 0.1%.

Initial Jobless Claims dropped -228,000 to 963,000 following the -244,000 decline to 1,191,000 previously. The move to under 1 million was a relief from the huge gains that began in the second half of March as the coronavirus pandemic struck. Not seasonally adjusted initial claims eased -156,000 to 832,000 after contracting -219,000 to 988,000. The 4-week moving average was at 1,252,750 versus 1,339,000. Continuing claims declined -604,000 to 15,486,000 after falling -861,000 to 16,090,000 previously.

July import prices rose 0.7% with export prices increasing 0.8%. This follows respective June gains of 1.4% and 1.2%. On a 12-month basis, import prices rose to a -3.3% year-over-year pace from -3.9% while export prices improved to -4.4% from -5.1%. For imports, petroleum prices remained firm and climbed another 7.8% from June’s 23.1% pop. Excluding petroleum, import prices edged up to 0.5% from 0.3% previously. Foods, beverage prices dropped -1.2% from -0.4% previously. As for exports, agricultural prices were up another 1.5%, the same as in July. Excluding ag, prices were up 0.7% from 1.2%.

Dallas Fed Robert Kaplan says unemployment benefits are critical to growth to continue to provide some underpinning to consumers. He said GDP is higher than it would be otherwise because consumers have money to spend and their incomes have not declined in a way you would normally expect in a downturn.

Kaplan said the rebound continues, but with the resurgences of the coronavirus in a number of locations in the U.S. muting the rebound. Still, the economy should expand in the third and fourth quarters, he added, with overall GDP set to contract by 5% this year.

The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 5th-straight session with the intraday low reaching $163.16. Prior and upper support from early July at $163.50-$163 was breached but held. A close below the latter would signal additional weakness towards $162.50-$162.

Lowered resistance is at $164.50-$165 and the 50-day moving average.

The S&P 500 Volatility Index ($VIX) was down for the 2nd-straight session and for the 9th time in 10 after testing an afternoon low 21.45. Current and upper support at 21.50-21 was breached but held for the 2nd-straight session. A close below the 20 level would signal continued strength for the market with additional pullback potential towards 17.50-17 and levels from late February.

Resistance is at 23-23.50 followed by 24.50-25.

The Russell 2000 ETF (IWM) is in a mini 4-session trading range after tapping an intraday high of $158.53 before the negative close. Lower resistance from late February at $158.50-$159 was cleared but held. A move above the $160 level would be a more bullish signal of a breakout with additional upside towards $161.50-$162 with the early June peak at $153.39.

A golden cross has formed with the 50-day moving average crossing above the 200-day moving average. This is typically a bullish signal for higher highs.

The late day pullback to $156.65 held near-term and upper support at $157-$156.50. A close below the latter would suggest additional pullback potential towards $155.50-$155.

RSI has flatlined with key resistance at 70 holding. A close above this level and the early June peak would suggest additional strength towards 75 and the high from January and last December. Support is at 65-60.

The Technology Select Sector Spiders (XLK) extended its winning streak to 2-straight with the intraday high reaching $114.91. Current and lower resistance at $114.50-$115 was cleared but held. A close above the latter and last week’s all-time peak at $115.57 would signal additional momentum towards the $117-$117.50 area.

Near-term support is at $113.50-$113 followed by $111.50-$111.

RSI has leveled out with lower resistance at 65-70 holding. A close above the latter would indicate additional upside towards 75 and the early June peak. Support is at 60-55.