U.S. markets were down for the 3rd-straight session with the selling pressure leading to a fresh round of lower lows. Economic news was light but better-than-expected and wasn’t a factor in a weak attempt to bounce off the morning lows. Oil closed at its lowest level in 3 months while volatility stayed rather calm considering the downside action but remains at elevated levels.
The Nasdaq plummeted 4.1% with the intraday low reaching 10,837. Current and upper support at 10,900-10,800 was breached and failed to hold on the close back below the 50-day moving average. A move below 10,800 would indicate additional weakness towards the 10,700-10,600 area.
The S&P 500 sank 2.8% after testing a 2nd half low of 3,329. Mid-August and upper support from at 3,350-3,325 failed to hold. A close below the latter would suggest a further pullback towards 3,300-3,275 and the 50-day moving average.
The Dow was down 2.3% with the late day low hitting 27,464 shortly after the opening bell. Prior and upper support from mid-August at 27,500-27,250 was breached but held by less than a point. A move below the latter and the 50-day moving average would signal a retest towards 27,000-26,750.
The Russell 2000 lost 2% with the morning low reaching 1,499. New and upper support at 1,515-1,500 was tripped and failed to hold on the close below the 50-day moving average. A drop below the latter would reopen downside risk towards 1,490-1,475.
Technology and Energy were the weakest sectors after tanking 4.5% and 3.6%, respectively. There was no sector strength.
Global Economy
European markets were lower following news that UK Prime Minister Boris Johnson will give a speech where he will defend the government’s decision and introduce legislation that will unilaterally undo parts of the EU Withdrawal Agreement.
The Belgium20 dropped 1.7% and France’s CAC 40 fell 1.6%. The Stoxx 600 was down 1.2% and Germany’s DAX 30 gave back 1.1%. UK’s FTSE 100 slipped 0.1%.
Asian markets closed higher across the board despite comments from President Trump vowing to scale back ties with China and disappointing economic news out of Australia and Japan.
Australia’s S&P/ASX 200 rose 1.1% and Japan’s Nikkei added 0.8%. South Korea’s Kospi and China’s Shanghai were higher by 0.7% while Hong Kong’s Hang Seng edged up 0.1%.
Australia business conditions slipped 6 points to -6 from 0 in July. The survey’s measure of business confidence did rise but stayed in negative territory after rising to -8 from -14 in July.
Japan household spending fell 7.6% in July versus expectations for a 3.7% decline.
U.S. Economy
NFIB Small Business Optimism Index bounced back 1.4% to 100.2 in August, versus forecasts for a print of 98.9, and follows July’s -1.8% drop to 98.8. Gains were broadbased, with 7 of the 10 components improving. Plans to hire continued to rally, with the percentage of firms planning such rising to 21% from 18%, and a 4th-straight increase. Also improving were expectations for job creation, higher selling prices, and plans to build inventories. However, the percentage of firms expecting a better economy declined and companies seeing increased capital spending was unchanged.
Consumer Credit rose $12.3 billion in July, versus forecast for a rise of $13.4 billion, and follows the $11.4 billion rebound in June. For Q2, credit dropped -$69 billion after a $15 billion increase in Q1. On the month, nonrevolving credit paced the increase, rising $12.5 billion in July after the $13.2 billion gain in June. Revolving credit remained very weak, falling for a 5th-straight month after declining another -$300 million following the -$1.8 billion slide in June.
Market Sentiment
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 5th time in 6 sessions with the morning high reaching $165.26. Current and lower resistance at $165-$165.50 was breached but held with more important recovery levels at $166-$166.50 and the 50-day moving average.
Near-term support is at $163-$162.50. A close below the latter would suggest additional weakness towards $161-$160.50 with the late August low at $160.64.
Volatility Index
The S&P 500 Volatility Index ($VIX) closed higher for the 3rd time in 4 sessions with the morning peak reaching 35.93. Current and lower resistance at 35.50-36 was breached but held. A close above 38-38.50 would signal further upside risk towards 40-45 with the June 15th high at 44.44.
Support remains at 30.50-30 with Tuesday’s low tapping 30.52.
Market Analysis
The Russell 2000 ETF (IWM) extended its losing streak to 3-straight sessions after tagging an afternoon low of $149 while failing to hold its 50-day moving average. Prior and upper support from late July at $149.50-$149 was tripped but held. A close below the latter would suggest additional pullback potential towards $145.50-$145 and the 200-day moving average.
Lowered resistance at $152-$152.50 followed by $154.50-$155.
RSI remains in a downtrend with key support at 40 holding. A close this level would suggest additional weakness towards 35-30 with the former holding since early April. Resistance is at 45-50.
Sector
The Spider Gold Shares (GLD) fell for the 3rd time in 4 sessions after testing an intraday low of $179.02. Prior and upper support at $179.50-$179 was breached but held. A close below the latter and the 50-day moving average would be an ongoing bearish signal with additional pullback potential towards $177.50-$176.
Resistance is at $182-$182.50. A close above the $185 level would be a more bullish signal near-term selling pressure has abated.
RSI is hovering around 50 with continued closes below this level keeping downside risk towards 45-40 and levels from early June in play. Resistance is at 55-60.
