The U.S. equity indices did see a modest lift going into the end of June, as we expected, but the rally was far from impressive. This week since these markets opened the month of July the results have been unimpressive.
Historically speaking, the first trading day of July and the day before the U.S. Independence Day holiday, which took place on Monday and Tuesday this week, have performed very well; but this year, there was choppy price action and the S&P 500 (ESU18) remains near the week’s open.
Now that the second half of the year has begun, there is continued concern over the markets. The vital midterm elections will eventually affect these markets, and meanwhile, the international tariff situation continues to make headlines this week as the ‘trade war” continues.
Yesterday, China announced a round of tariffs on the U.S., claiming that the U.S. “fired the first shots” of this trade war. As U.S. tariffs go into effect this Friday in China, there are also tariff situations to monitor with Mexico and Europe. It seems that we are all left waiting for the next shoe to drop in this political and economic chess match.
It’s no wonder that the U.S. equity markets are having a hard time gaining traction. The charts once again look like they are breaking down; however, as we have reiterated this past spring, the pattern we have been seeing is that when these markets look like the bottom is about to fall out and the range is extended to the downside, usually they instead reverse and go higher.
Following historically strong first-quarter earnings, hopes are high for Q2 earnings, which begin this month. Perhaps it’s best that strong earnings are not already baked into the price of the equity markets, leaving room to the upside. While we remain overall bullish, we must look at the broader picture for perspective.
The hourly chart above shows the ESU in a range for the past two weeks. We believe that whoever owns the range breakout will control the next 50 handles of price action. The Dow Jones futures continue to be the weakest; meanwhile, the Russell looks strongest lately. As we remain dip buyers, we want to look to buy the outperforming Russell index.
Overnight, Asian stock markets closed lower across the board. However, this morning, all European indices are moderately in the green. The economic calendar is busy in the U.S. featuring the PMI Services Index and ISM Non-Mfg Index numbers in the morning. While these are not expected to be market-moving, the afternoon features the FOMC minutes, which could lead to some short-term intraday volatility.
We are watching several areas for different levels of support and resistance. For minor support, we are watching 2711 to 2715, then 2705 to 2707 for stronger support and 2699 to 2701 for the strongest support. For resistance, we are watching 2727 to 2729 as minor, then 2741 as stronger followed by 2744 to 2747 as the strongest levels.
Today’s Economic Calendar:
- Weekly Bill Settlement
- MBA Mortgage Applications 7:00 AM ET
- Challenger Job-Cut Report 7:30 AM ET
- ADP Employment Report 8:15 AM ET
- Jobless Claims 8:30 AM ET
- Bloomberg Consumer Comfort Index 9:45 AM ET
- PMI Services Index 9:45 AM ET
- ISM Non-Mfg Index 10:00 AM ET
- EIA Petroleum Status Report 11:00 AM ET
- 3-Month Bill Announcement 11:00 AM ET
- 6-Month Bill Announcement 11:00 AM ET
- 3-Yr Note Announcement 11:00 AM ET
- 10-Yr Note Announcement 11:00 AM ET
- 30-Yr Bond Announcement 11:00 AM ET
- FOMC Minutes 2:00 PM ET
- Fed Balance Sheet 4:30 PM ET
- Money Supply 4:30 PM ET