U.S. markets showed continued weakness to start September as the next round of tariffs on China looms and turbulence in the overseas markets continue to worry Wall Street.

Tech and social media stocks underperformed after another inquisition by Congress over foreign influence in politics ahead of mid-term elections.

Near-term support levels were stretched, while holding for the most part, with the blue-chips showing some strength. Volatility remains slightly elevated but held key resistance for a 2nd-straight session.

The Nasdaq plummeted 1.2% after testing an intraday low of 7,962.

Lower support at 8,050-8,000 failed to hold by a nickel with a close below 7,950 likely leading to additional selling pressure.

The Russell 2000 gave back 0.3% following the intraday pullback to of 1,713.

Near-term support at 1,720-1,700 was split but held with a close below the latter being a very bearish signal.

The S&P 500 was also off 0.3% after making a backtest to 2,876. Lower support at 2,880-2,875 held with risk to 2,850 if breached.

The Dow snapped a 3-session slide after rising 0.1% while trading to an intraday high of 26,011.

Lower resistance at 26,000-26,200 held with a close above the latter signaling a possible near-term bottom and being a more bullish development.

Utilities and Consumer Staples rallied 1.4% and 1.2%, respectively, to pace sector leaders. Materials and Industrials were higher by 0.7%.

Consumer Services and Technology were down 1.3% to lead sector weakness. Consumer Discretionary slid 1.1%.

Global Economy – European markets were weak on currency concerns as money could lead to higher corporate borrowing costs in slumping economies while slowing economic growth.

France’s CAC 40 fell 1.5% while Germany’s DAX 30 gave back 1.4%.

The Stoxx 600 Europe was lower by 1.1% while the UK’s FTSE 100 gave back 1%. The Belgium20 was hit for a 0.9% loss.

Eurozone July retail sales slipped 0.2%, missing forecasts for a dip of 0.1%.

The Eurozone August Markit composite PMI was revised higher by 0.1 to 54.5 from 54.4.

The German August Markit services PMI was revised lower to 55 from 55.2.

The UK August Markit/CIPS services PMI was up 0.8 to 54.3, topping estimates of 53.9.

Asian markets were down due to possible escalation of U.S./China trade tensions with the U.S. set to go ahead with tariffs on another $200 billion of Chinese goods.

Hong Kong’s Hang Seng tumbled 2.6% and China’s Shanghai sank 1.7%.

South Korea’s Kospi and Australia’s S&P/ASX 200 dropped 1% while Japan’s Nikkei declined 0.5%.

The China August Caixin services PMI fell 1.3 to 51.5, weaker than expectations of 52.6.

MBA Mortgage Applications were down 0.1%, with a 0.6% gain in the purchase index, and a 1.4% decline in the refinancing index for the week ending August 31st.

The average 30-year fixed mortgage rate rose 2 basis points to 4.80%.

U.S. weekly chain store sales rose 0.8% in the week ending September 1st, after declining 0.5% the prior week. The annual pace of sales accelerated to a 3.3% year-over-year rate, versus 3.1% previously.

July International Trade in Goods was at a deficit of -$50.1 billion, versus expectations of -$50.2 billion. Exports declined 1% after sliding 0.7% previously, while imports rose 0.9% versus June’s 0.7% gain.

The “real” trade balance fell to -$82.5 billion from -$79.3 billion as the deficit with China widened to -$36.8 billion from -$33.5 billion previously, while the balance with Canada also widened to -$3.1 billion from -$2 billion.

Redbook Store Sales were up 6.5% for the year in the week ending September 1st.

Market Sentiment – St Louis Fed James Bullard reiterated the Fed should hold off further rate hikes and place more weight on financial market signals in guiding policy, such as the flattening yield curve.

He noted that inflation expectations suggest monetary policy is already neutral or even somewhat restrictive.

Bullard went on to say he sees elevated risk of a policy error if the Fed continues to raise short-term rates, with ample cushion already for the Fed to deal with the next economic downturn.

He believes the balance sheet is shrinking faster as a percentage of GDP, while saying it may be timely for policy-makers to revisit the issue of balance sheet size.

He also downplayed the level of the Fed funds rate, given market factors while viewing the recent bilateral U.S.-Mexico deal as a positive development.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 3-straight sessions with the morning low reaching $119.55.

Lower support at $119.75-$119.50 held on the close back below the 200-day moving average.

There is continued risk to $119 if $119.50 fails and a level that represented early August resistance. Current and lowered resistance is at $119.75-$120.25.

Market Analysis – The Russell 2000 ETF (IWM) was down for the 3rd time in 4 sessions after testing a low of $170.36. Near-term support at $170.50-$170 was split.

A close below the likely would signal a short-term top with risk to $168 and the 50-day moving average.

Lowered resistance is at $172-$172.50. We have talked about a possible run towards $174.50-$175 and the late August peak reached $173.39.

The levels would be back in focus if $172.50 is cleared and held.

RSI is downtrend with support at 60. A move below this level could lead to a continued backtest towards 55-50. Resistance is at 65.

The Technology Select Sector Spiders (XLK) traded in negative territory throughout the session with the low tapping $73.99. Fresh support at $74-$73.50 held.

A close below the latter would likely lead to a continued backtest towards $73-$72.50 and the 50-day moving average.

Resistance is at $74.50-$75. A move back above $75.25 would signal renewed strength and a more bullish signal.

RSI has been in a nasty downtrend with support at 55-50.

A move below the latter would signal additional weakness towards 45-40 and late July lows. Resistance is at 60.

Existing Position Update

Exited DAL

Should have waited to exit AMZN but hindsight is 20/20

Initiated AMZN with a bit of time…since the latest volatility tells me quite time is approaching.

TSLA broke weekly neckline – telling me more downside ahead. I was just thinking the other day – if stock breaks lower 280’s it can actually go down to the 180’s.

I’m looking at NKE but premium is low – the stock has been doing exceptionally well last few months.

I will update you tomorrow as usual – trading action becoming more interesting than ever.

Roger Scott