Stocks Threaten Breakdown Amid Geopolitical Tension

U.S. equities finished near the unchanged line on Tuesday after recovering from deeper intraday losses.

Geopolitical tensions were in focus, with attention on North Korea and Syria. President Trump tweeted that Pyongyang was “looking for trouble” and that the United States would “solve the problem” if China didn’t help. Concerning Syria, the G7 countries failed to agree on new economic sanctions on Damascus following the recent chemical weapons attack.

The Dow Jones Industrial Average dropped a fraction, the S&P 500 lost 0.1%, the Nasdaq Composite gave back 0.2% and the Russell 2000 gained 0.7%. Treasury bonds rallied, the dollar was on the defensive, gold added 1.6% and oil gained 0.6% for its sixth consecutive rise. Energy benefited from reports that Saudi Arabia wants to extend last year’s production freeze agreement for another six months when OPEC meets again on May 25.

Yield-sensitive REITs led the way with a 0.4% gain while technology stocks were the laggards, down 0.4%. Trading was light, with NYSE volume at 88% of the 30-day average.

Grocer Supervalu Inc. (NYSE:SVU) gained 5.5% after announcing the acquisition of United Grocers for $375 million. Homebuilder Toll Brothers (NYSE:TOL) gained 3.5% on an upgrade from analysts at RBC Capital citing a recent meeting with management, solid housing demand, and good valuation.

On the downside, wearables maker Fitbit Inc (NYSE:FIT) fell 3.3% after Yahoo said its new smartwatch release would be delayed due to production issues. And United Continental Holdings Inc (NYSE:UAL) fell 1.1% as it continues to lose altitude following a well-publicized incident in which a passenger was violently removed from his seat to solve an overbooking problem.

Aside from the global headlines, there continues to be rising acknowledgement in the media that any tax reform efforts will be long in coming as the Trump White House battles not only Democrats but conservative Republicans in Congress. The pricing in of pro-growth legislation — from healthcare reform to tax cuts and infrastructure spending — fueled the stock market’s surge to new highs following the election.

As hopes dim for these efforts happening this year, the Dow is vulnerable to a breakdown below its 50-day moving average. In preparation, I’ve recommended positions like the ProShares Ultra Treasury Bond ETF (NYSEARCA:UBT), which gained 2.1% for Edge subscribers today.

Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.

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