U.S. markets showed continued weakness on Monday after falling deeper into correction territory as Wall Street prepares for Wednesday’s Fed decision on interest rates.

The small-caps fell into bear market territory after falling 20% below its all-time high from August while Tech gave up its gains for the year.

The Dow fell 2.1% after trading to an intraday low of 23,456.

Major support from May at 23,500 was breached but held with risk to 23,250 and fresh 52-week lows on a close below this level.

The S&P 500 stumbled 2.1% following the pullback to 2,530 and fresh 52-week low.

Major support from April at 2,550 was breached and failed to hold with risk to 2,525-2,500 on continued weakness.

The Nasdaq gave back 2.3% after testing a late session low of 6,710.

April support at 6,800 failed to hold with downside risk towards 6,650-6,600 and February lows on additional selling pressure.

The Russell 2000 was also down 2.3% after falling to a fresh 52-week low of 1,372.

Fresh support at 1,370-1,365 held with a move below the latter getting 1,350-1,340 in play.

There was no sector strength for the 2nd-straight session.

Real Estate led sector weakness after sinking 3.7% while Utilities dropped 3.2%. Consumer Discretionary was lower by 2.5%

Global Economy – European markets closed lower over fears of a global growth slowdown.

The Belgium20 sank 1.6% while France’s CAC 40, UK’s FTSE 100, and the Stoxx 600 Europe fell 1.1%. Germany’s DAX 30 was down 0.9%

Eurozone November CPI was revised lower to 1.9% year-over-year from the originally reported 2% year-over-year. November core CPI was left unrevised at 1% year-over-year.

Asian markets settled mostly higher ahead of an upcoming interest rate decision by Japan as well as the policy meeting being held in China.

Australia’s S&P/ASX 200 jumped 1% and Japan’s Nikkei was up 0.6%. South Korea’s Kospi rose 0.3% and China’s Shanghai gained 0.2%. Hong Kong’s Hang Seng slipped 0.03%.

China November new home prices rose 0.98% month-over-month and 10.3% year-over-year. Home prices rose in 63 cities in November, down from 65 that rose in October.

Empire State Manufacturing Survey sank 12.4 points in December to 10.9 after rising 2.2 points to 23.3 in November. The employment component jumped to 26.1 from 14.1, though the workweek dipped to 8 from 9.2.

New orders slid to 14.5 from 20.4. Prices paid fell to 39.7 from 44.5, with prices received at 12.8 from 13.1. The 6-month general business conditions index declined 3 points to 30.6 from 33.6.

The future employment index improved further to 19.4 from 16.6, with new orders at 34.2 from 39.7, prices paid at 51.9 from 59.1, and prices received at 27.6 from 31.4.

The NAHB Housing Market Index fell 4 points to 56 in December, weaker than forecasts for a print of 61. The current single family index declined 6 points to 61 from 65 the prior month.

The future sales index slipped 4 points to 61 from 65. The index of prospective buyer traffic dipped 2 points to 43 from 45.

Market Sentiment – The FOMC is widely expected to increase the funds rate band another 25 basis points to 2.25%-2.5%, as policy inches toward the neutral rate, which the Committee generally estimates in the 2.5%-3% range.

The FOMC is seen trimming the dots to show a median of 2 tightenings in 2019, down from the 3 currently in place.

Additionally, the Fed’s statement is expected to remove the phrase “further gradual increases in the target range for the federal funds rate will be needed”, as policy goes off auto-pilot and becomes data dependent.

The Fed futures are basically priced for only about 1-1/2 tightenings next year, with possible risk for a continued selloff if the Fed isn’t as dovish as the market expects.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session following the run to $119.30. Fresh and lower resistance is at $119-$119.50 was cleared and held.

Continued closes above $119.50 would be a bullish development for a possible push past $120.

Rising support is at $118.50-$118.

Market Analysis – The Invesco QQQ Trust (QQQ) fell for the 2nd-straight session following the backtest to $156.17. Upper support from April at $156-$156.50 held with a move below the latter signaling additional weakness towards $155-$152.50.

Lowered resistance is at $157-$157.50.

The death cross that formed earlier this month with the 50-day moving average falling below the 200-day moving average was a bearish development.

This is typically a signal for lower lows.

RSI is in a downtrend with support at 35-30 and the latter representing November lows. Resistance is at 40-45.

The Materials Select Sector (XLB) was down for the 3rd-straight session after testing a low of $50.11.

Prior support at $50.25-$50 was split held. A close below the latter and the late October low at $50.09 would likely signal additional selling pressure.

Lowered resistance is at $50.75-$51 with more important hurdles at $53-$53.50 and the 50-day moving average.

RSI is in a downtrend with support at 30.

A close below this level would be a bearish signal for additional weakness with risk towards 25-20 and October lows. Resistance is at 35-40.

Entered another bull put spread.

Markets appear to be ready for minor upside.

I’m not looking for directional bias –

I don’t expect market to trend directionally over the next few sessions.

I am expecting range bound trading action with steady trading range in the next few sessions.

Roger Scott