U.S. markets settled lower on Thursday following a choppy session over the uncertainty of a proposed stimulus package by Senate Majority Leader Mitch McConnell, R-Ky. The bill was rejected late in the session after falling 8 votes shy of the 60 needed to pass procedural phase. The major indexes hit session lows shortly after the news to give the bears their 4th win over the past 5 sessions.
The Nasdaq fell 2% with the 2nd half low tapping 10,875. Current and upper support at 10,900-10,800 was breached but held on the close back below the 50-day moving average. A move below the latter and the weekly low at 10,837 would indicate additional weakness towards 10,700-10,600.
The S&P 500 was lower by 1.8% after matching Tuesday’s low of 3,329 ahead of the closing bell. Prior and upper support at 3,350-3,325 was tripped and failed to hold. A close below the latter and the 50-day moving average would signal a further pullback potential towards 3,300-3,275.
The Dow dropped 1.5% with the late day and monthly low reaching 27,447. Fresh and upper support at 27,500-27,250 was tripped but held. A close below the latter and the 50-day moving average would suggest additional downside risk towards 27,000-26,750.
The Russell 2000 declined 1.2% following the close on the session low of 1,507. Near-term and upper support at 1,515-1,500 failed to hold. A close below the latter and the monthly low at 1,499 would reopen a further backtest towards 1,490-1,475.
Energy was the weakest sector after losing 3.7% while Technology and Utilities were off 2.3% and 1.7%, respectively. There was no sector strength.
European markets closed lower despite the European Central Bank holding interest rates steady and saying it expected the eurozone to suffer a smaller recession than it had feared.
The Stoxx 600 was off 0.6% and France’s CAC 40 gave back 0.4%. The Belgium20, Germany’s DAX 30, and UK’s FTSE 100 slipped 0.2%.
The ECB revised up its growth forecast slightly for 2020. Gross domestic product is seen now dropping by 8% this year, from a June estimate of -8.7%. For 2021, the ECB expects GDP to grow by 5% and by 3.2% in 2022.
Asian markets were mixed after Chinese regulators moved to curb speculation on the tech-heavy ChiNext board.
China’s Shanghai and Hong Kong’s Hang Seng were down 0.6%.
South Korea’s Kospi and Japan’s Nikkei rose 0.9% while Australia’s S&P/ASX 200 added 0.5%.
Initial Jobless Claims were steady at 884,000, but above forecasts of 830,000, following the -127,000 drop to 884,000 in the previous week. The 4-week moving average fell to 970,750 versus 992,500. Continuing claims were 93,000 firmer at 13,385,000 after plunging -1,200,000 to 13,292,000 previously.
Producer Price Index rose 0.3% in August, versus forecasts for a rise of 0.1%, with the core rate increasing 0.4%. These follow respective July gains of 0.6% and 0.5%. The 12-month headline rate edged up to -0.2% year-over-year from -0.4%, while the ex-food and energy component doubled to a 0.6% year-over-year pace from 0.3%. Goods prices edged up 0.1% versus the prior 0.8% jump, as food prices fell -04%% after dropping -0.5% in July. Energy prices dipped -0.1% following the 5.3% rise previously. Services prices were up 0.5%, as they were in June.
Wholesale Trade fell -0.3% in July, while sales climbed 4.6%. The advance indicators report showed a -0.1% slip in July inventories. The strength in sales and the weakness in inventories knocked the inventory-sales ratio down to 1.32, just shy of the pre-pandemic 1.31 in February. It was at 1.38 in June and is down from the historic high of 1.63 in April.
The iShares 20+ Year Treasury Bond ETF (TLT) settled higher despite tapping an intraday low reaching $161.95. Prior and upper support at $162-$161.50 was breached but held. A move below the latter would signal further weakness towards $161-$160.50 with the late August low at $160.64.
Lower resistance at $164-$164.50 was recovered on the rebound to $164.35 with more important hurdles at $165.50-$166 and the 50-day moving average.
The S&P 500 Volatility Index ($VIX) closed higher for the 2nd time in 3 sessions despite testing a morning low of 27.59. Current and upper support at 28.50-28 was breached but held for the 2nd-straight session.
The bounce to 30.56 afterwards cleared but held resistance at 30-30.50. A move above the latter reopens upside risk towards 31.50-32.
The Spider Small-Cap 600 ETF (SLY) showed weakness for the 4th time in 5 sessions after settling on the session low of $61.68. Near-term and upper support at $62-$61.50 was breached and failed to hold. A close below the latter would be a renewed bearish development with additional pullback potential towards $61-$60.50 and the 200-day moving average.
Lowered resistance is at $62.25-$62.75 and the 50-day moving average.
RSI is in a slight downtrend with key support at 40 holding. A move below this level would signal weakness towards 35-30 and levels from early April/ late March. Resistance is at 45-50.
The Dow Jones Transportation Average ($TRAN) remains in a 4-session trading range following the afternoon backtest to 11,139. Current and upper support at 11,200-11,100 was breached and failed to hold. A close below the 11,000 level and bottom of the current trading range would suggest additional weakness towards the 10,900-10,800 area.
Resistance is at 11,300-11,400. A close above the 11,500 level would indicate a possible breakout with upside potential towards 11,600-11,700 and levels from September 2018.
RSI is curling lower with key support at 60 holding. A close below this level would signal additional weakness towards 55-50 with the latter sticking since early July. Resistance is at 65-70.