U.S. markets showed strength on Tuesday’s open but quickly reversed course following disappointing manufacturing data that showed the U.S./ China trade war hurt exports.
The news followed disappointing economic news overseas and is only fanning long-standing fears of slowing global growth.
Although U.S.-China trade talks are expected to resume next week, expectations are low for a near-term breakthroughs.
Meanwhile, volatility closed back above key resistance levels and is once again signal a cautious tone for the overall market.
The Russell 2000 was down for the 9th time in 11 sessions after tanking 2% while tapping a late day low of 1,491.
Prior and upper support from late August at 1,500-1,485 was breached and failed to hold on the close back below the 200-day moving average. There is risk towards 1,465-1,450 on a move below 1,485.
The S&P 500 sank 1.2% after tapping a 2nd half low of 2,938.
Key support at 2,950 and the 50-day moving average was breached and failed to hold with downside potential towards 2,925-2,900 on continued weakness.
The Nasdaq fell for the 3rd time in 4 sessions after giving back 1.1% and testing an intraday low of 7,906. Near-term and upper support at 7,900-7,850 held on the 4th-straight close below the 50-day moving average.
There is risk towards 7,750-7,700 and the 200-day moving average if 7,850 fails to hold.
The Dow dropped 0.x% after trading to a 1st half high of 27, 046 but failing to hold key resistance at the 27,000 level for the 7th-straight session.
Prior and major support from late July and early September at 26,600 was breached and failed to hold on the tumble to 26,562 afterwards. There is risk towards 26,400-26,200 on a close below 25,550 and the 50-day moving average.
Industrials and Materials lead sector weakness after plummeting 2.4% while Energy sank 2.3%. There was no sector strength.
Global Economy – European markets settled lower across the board following news PM Boris Johnson is prepared to deliver a very good offer to the EU and disappointing economic news out of Germany.
France’s CAC 40 tumbled 1.4% while the Stoxx 600, the Belgium20 and Germany’s DAX 30 tanked 1.3%. UK’s FTSE 100 lost 0.7%.
Eurozone September Final Manufacturing PMI checked in at 45.7 versus forecasts of 45.6, and representing the lowest level since 2012.
Germany’s IHS Markit’s Purchasing Managers’ Index fell to 41.7 from 43.5 in August, the lowest reading since June 2009.
Asian markets settled higher in limited action as Hong Kong’s Hang Seng and China’s Shanghai were closed for a holiday.
Australia’s S&P/ASX 200 jumped 0.8% and Japan’s Nikkei added 0.6%. South Korea’s Kospi gained 0.5%.
The Reserve Bank of Australia (RBA) on Tuesday slashed its cash rate by a quarter point to a new record low of 0.75%, a decision that was largely expected.
Japan’s tankan survey showed for big manufacturers’ sentiment came in at 5 for September, worsening 2 points from three months earlier but beating forecasts for a reading of 2. It marked the third straight quarter of decline and hit the lowest reading since June 2013.
PMI Manufacturing Index rose to 51.1 in the final read for September, topping forecasts of 51, and the 50.3 print in August. The employment component improved to 50.9 versus the prior 50.1 and was the 2nd-straight month of expansion.
ISM Manufacturing Index dropped another 1.3 points to 47.8 in September, weaker than expectations for a print of 50, after falling 2.1 to 49.1 in August.
This was the worst reading since June 2009. The employment component slipped to 46.3 from 47.4 and is the lowest since January 2016.
New orders were little changed at 47.3 from 47.2.
New export orders declined to 41 from 43.3. Imports increased to 48.1 from 46. Prices paid rose to 49.7 from 46. The only component not in contraction was supplier deliveries which dipped to 51.1 from 51.4.
Construction Spending inched up 0.1% in August, missing forecasts for a rise of 0.3%, and follows an unchanged reading in July. Residential spending increased 0.9% following the 0.6% July bounce.
Nonresidential spending dipped another -0.4% versus -0.3%, and is a fifth consecutive negative print. Private spending was flat versus -0.5% and is the first non-negative print since March.
Public spending was up 0.4% from 1.4%.
U.S. chain store sales surged 5.6% last week, after falling 1.8% in the prior week, and the biggest weekly gain since the 6.7% surge in the 1st week of February 2012.
The 12-month pace also climbed to a 3.2% year-over-year pace, doubling the 1.4% previously. There was strength in consumer staples, especially in drugs, along with traditional grocery and discounters.
Redbook Store Sales up 5.8% for the year in the week ending September 28th.
Market Sentiment – Chicago Fed Charles Evans said he believes the funds rate is at an appropriate level in his comments from Frankfurt.
He still sees the U.S. economy on track for a solid 2.25% growth pace this year thanks to consumer spending which is making up for slumping business investment.
Evans said inflation is also moving slowly back toward 2% and should achieve the Fed’s goal by 2021.
He added that fundamentals remain solid and that most of the worries about growth are with respect to potential risks that might be costly, but also may never be realized.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th-straight session after testing an intraday high of $143.91. Lower resistance at $143.50-$144 was cleared but held.
Continued closes above the latter would be a bullish signal for additional strength towards $145.50-$146.
Support is at $141.50-$141. A close below the latter and the 50-day moving average would be a slightly bearish development with risk towards $140-$139.50.
Market Analysis – The Russell 2000 ETF (IWM) closed in the red for the 3rd time in 4 sessions despite surging to a morning high of $153.35. Lower resistance from early September at $153.50-$154 was cleared but held.
Prior and upper support from late August at $148.50-$148 was breached and failed to hold on the backtest to $148.05.
A close below the latter would be an ongoing bearish development with near-term risk towards $147-$146.50.
RSI remains in a downtrend after failing support at 40.
There is risk towards 35-30 on continued weakness with the former representing August lows and the latter representing the late May low. Resistance is at 45-50.
The Dow Jones Transportation Average ($TRAN) settled lower despite testing an opening high of 10,484. Near-term and major resistance at 10,500 was challenged for the 4th time in 6 sessions but held.
The tumble to 10,082 afterwards and close below the 50/200-day moving averages was a bearish development. Fresh and upper support from late August at 10,100-10,000 was breached but held.
A close below the latter would signal additional weakness towards 9,900-9,800.
RSI is in a downtrend with support at 40.
A close below this level would signal additional weakness towards 35-30 with the latter representing the August low.
Resistance is at 45-50.
All the best,