U.S. markets were weak for a 2nd-straight session with the beginning of the week lows and recent support levels holding.

The selling pressure picked up steam after Treasury Secretary Mnuchin indicated he will not now be attending the Saudi investment conference.

Larry Kudlow's comments on trade and China's uncooperativeness also weighed on sentiment while Secretary of State Mike Pompeo's comments indicated that it may take a couple more days to get to the bottom of the Khashoggi affair.

Volatility spiked with key levels of resistance back in play.

The Nasdaq was down for the 9th time in 10 sessions after plummeting 2.1% and tapping a low of 7,452.

The close below 7,500 and the 200-day moving average keeps risk open to 7,400-7,350.

The Russell 2000 stumbled 1.8% following the backtest to 1,555. Recent support at 1,550-1,540 held with a close below the latter being a continuing bearish signal.

The S&P 500 sagged 1.4% after testing an intraday low of 2,755.

Support at 2,865-2,850 and the 200-day moving average held with a move below the latter being a very bearish development.

The Dow dripped 1.3% following backtest to 25,236.

Upper and near-term support at 25,200-25,000 held with a close below the latter signaling lower lows.

Utilities and Consumer Staples were the only sectors to show strength after gaining 0.2% and 0.03%.

Technology and Consumer Discretionary led sector laggards after tumbling 2% and 1.9%, Communication Services tanked 1.8% while Financials and Industrials sank 1.7%.

Global Economy - European markets were weak across the board as negotiations over Britain's departure from the EU remain at an impasse.

Leaders at the Brussels summit were left frustrated as Britain failed to offer any new proposals over the Irish border issue.

Both sides agreed to keep negotiating, although it was decided insufficient progress had been made to call a special summit next month.

Germany's DAX 30 tumbled 1.1% while France's CAC 40 and the Belgium20 were down 0.6%. The Stoxx 600 Europe declined 0.5% and UK's FTSE 100 gave back 0.4%

ECB Governing Council member Rehn said if the economy develops roughly in line with the current outlook, the first ECB rate increases will take place in Q4 of 2019.

UK September retail sales ex-auto fuel fell 0.8%, worse than forecasts for a decline of 0.4%.

September retail sales including auto fuel also declined 0.8%, weaker than expectations of for a drop of 0.4%.

Asian markets were mostly lower as the yuan dropped to a nearly 2-year low against the dollar after the U.S. Treasury stopped short of declaring China a currency manipulator.

China's Shanghai sank 2.9% while South Korea's Kospi was off 0.9%.

Japan's Nikkei was lower by 0.8% and Hong Kong's Hang Seng slipped nearly 8 points, or 0.03%. Australia's S&P/ASX 200 climbed 0.1%.

The Japan September trade balance was in surplus by 139.6 billion yen, topping expectations of a deficit of 45.1 billion yen deficit. September exports fell 1.2% year-over-year, well below forecasts of 2.1%.

September imports rose 7%, missing forecasts of 13.7%.

Jobless Claims were at 210,000 for the week ending October 13th, missing forecasts of 215,000. The 4-week moving average rose to 211,750 from 209,750.

Continuing Claims dropped 13,000 to 1,640,000 in the October 6th week.

The Philadelphia Fed Business Outlook Survey for October checked in at 22.2, topping estimates of 20. The employment component rose to 19.5 from 17.6, with the workweek improving to 20.8 from 14.6. New orders fell to 19.3 from 21.4.

Prices Paid slipped to 38.2 from 39.6, while Prices Received jumped to 24.1 from 19.6. The 6-month general business index declined to 33.8 from 36.3.

The future employment index slipped to 30.2 from 31.7, but New Orders jumped to 43.4 from 34.7, with Prices Paid at 54.1 from 49.6, Prices Received at 51.1 from 44.2, and Capital Expenditures at 25.2 from 26.7.

September Leading Indicators were up 0.5% to 111.8 for the month, matching forecasts.

Eight of the ten components posted positive contributions, led by consumer expectations (0.14%), the interest rate spread (0.12%), and the leading credit index (0.11%).

Building permits slipped 0.02% and the average workweek dipped 0.07% and were the only two negative components.

Market Sentiment - St. Louis Fed James Bullard said monetary policy is about right currently for the economy, but weak inflation and other factors mean the Fed doesn't need to raise rates further.

He said that maintaining the current level of the policy rate would be an appropriate policy.

Bullard went on to say that stronger regulation put in place by Dodd-Frank fills the gap after downplaying the use of interest rates to guard against financial stability problems.

He also suggested that analysts cannot infer any more that low employment will cause inflation.

Fed Reserve Randal Quarles said the FOMC's gradualist policy stance is appropriate and that the recent Fed minutes showed all on the Committee agreed with that posture.

He noted an optimistic outlook for the economy, but added that its potential capacity is unknown and largely unobservable.

He went on to say that uncertainty can complicate policymaking in even what appears to be a very healthy economy, providing a further argument for gradualism.

Quarles believes the Fed is as close to reaching its dual mandate as it has been in a long time. He said while inflation is an important indicator, the Fed must monitor other indicators for signs of tightness. Quarles also sees some potential for labor force participation to rise.

The iShares 20+ Year Treasury Bond ETF (TLT) remained mired in a tight range for the 5th-straight session although there now appears to be risk to the downside.

Lower support at $114.25-$113.75 was breached following the opening backtest to $113.55.

We mentioned a close below $113.50 would be a bearish development for lower lows.

The rebound to $114.39 failed lower resistance at $114.50-$115.

Market Analysis - The Russell 3000 Index ($RUA) fell for the first time in 4 sessions with Thursday's low tapping 1,625.

Shaky support at 1,640 and the 200-day moving average failed to hold and now represent near-term resistance.

There is risk to 1,620-1,600 and the monthly lows on a close below 1,630.

The 50-day moving average has been rolling over and remains in a slight downtrend.

Lowered resistance is at 1,640-1,650 with continued closes back above 1,660 being a more bullish development.

RSI is back in a downtrend with support at 30.

A move below this level would be bearish signal for lower lows. Resistance at 35-40 with a close above the latter signaling additional strength.

The Spiders S&P Homebuilders ETF (XHB) has been in a nasty downtrend since late September with Thursday's bottom reaching $33.97 and a fresh 52-week low.

Multi-year and upper support at $34-$33.50 held with risk to $33-$32 on continued weakness.

Near-term and lowered resistance is at $34.75-$35.

XHB is down nearly 30% from its 52-week peak north of $47 with 50-day and 200-day moving averages remaining in a downtrend.

RSI is in a downtrend with support at 15-10 back in focus and representing oversold levels.

Resistance is at 25-30 with continued closes above the latter signaling a possible short-term bottom.

All the best,
Roger Scott.