U.S. markets were punished on Wednesday following lackluster corporate earnings and weaker-than-expected economic growth.

The losses pulled the Dow and S&P 500 into negative territory for 2018.

Tech is now officially in correction territory after closing more than 10% down from its record high in late August.

Volatility surged 27% while closing above a key level of resistance and is signaling additional market weakness.

The Nasdaq plummeted 4.4% while tapping a fresh monthly low of 7,099.

Upper support from early May at 7,100-7,000 held with a close below the latter being a continued bearish signal.

The Russell 2000 tanked 3.8% following the the late session backtest to 1,468 and session low.

The close below early April support at 1,500-1,490 was a ongoing bearish signal with continued risk to 1,450-1,425 and February lows.

The S&P 500 fell for the 13th time in 15 sessions after sinking 3.1% and trading to a low of 2,651 ahead of the closing bell.

Fresh and upper support from early May at 2,650-2,625 held with a move below the latter being a continued bearish development.

The Dow declined 2.4% after bottoming at a late day low of 24,533. Upper support from late June at 24,500-24,250 held with risk to 24,000 on a move below the latter.

Utilities and Real Estate showed the most sector strength after soaring 2.4% and 1.2%.

Consumer Staples added 0.4% to round out the winners.

Communication Services led sector weakness after stumbling 4.8%.

Technology and Materials dropped 4.5% and 4%, respectively.

Global Economy - European markets closed mostly ahead of a key meeting as the European Central Bank will meet Thursday.

Expectations are the ECB will reaffirm a plan to wind down quantitative easing in December and reiterate a no rate rise until next summer.

Germany's DAX 30 dropped 0.7%. France's CAC 40 and the Belgium20 gave back 0.3%. The Stoxx 600 Europe dipped 0.2% while UK's FTSE 100 climbed 0.1%.

Eurozone October Markit manufacturing PMI slipped 1.1 to 52.1, missing forecasts of 53. The October Markit composite PMI fell dipped 1.4 to 52.7, weaker than expectations of 53.9.

The German October Markit/BME manufacturing PMI fell 1.4 to 52.3, missing estimates of 53.4.

Asian markets were mixed following a turbulent session where the major indexes seesawed between gains and losses.

Japan's Nikkei added 0.4% and China's Shanghai gained 0.3%.

South Korea's Kospi and Hong Kong's Hang Seng were down 0.4% while Australia's S&P/ASX 200 was lower by 0.2%.

Japan October Nikkei manufacturing PMI rose 0.6 to a 6-month high of 53.1.

MBA Mortgage Applications rose 4.9%, in addition to a 2% gain in the purchase index and a 9.7% surge in the refinancing index for the week ending October 19th.

The average 30-year fixed mortgage rate rose 1 basis point to 5.11%, the highest level since February 2011.

FHFA House Price Index rose 0.3% to 266, matching forecasts. Seven of the nine regions posted gains, led by the Pacific while the Middle Atlantic region declined.

The 12-month changes were all positive.

PMI Composite Flash edged up 0.3 points to 55.9, topping estimates of 55.5. The employment component improved to 55.2 from 53.6, and is the highest since December 2017.

The services PMI climbed 1.2 points to 54.7 versus forecasts of 54.1. The employment component slid to 53.2 from 55.5. The flash composite index subsequently increased 0.9 points to 54.8 from 53.9.

The employment index declined to 53.5 from 55.2.

New Home Sales came in at 553,000, well below forecasts of 625,000, and the slowest pace of sales since December 2016. The months' supply of homes rose to 7.1 from 6.5, and the number of homes for sale increased to 327,000 from 318,000.

Regionally, sales plunged in the Northeast, falling 40.6%, with a 12% drop in the West, and a 1.5% slide in the South. Some of the weakness could have resulted from Hurricane Florence.

Only the Midwest posted a gain, rising 6.9%. The median sales price edged up 0.3% to $320,000 after falling 3.2% to $319,200 previously, but the sales price is 3.5% year-over-year lower after posting a 1.6% August gain.

The Fed's Beige Book reiterated economic growth remained modest to moderate, even though analysts are coming off of a 4.2% pace in Q2 and are looking for better than 3% in Q3.

The highlight of the overall outlook was on balance, manufacturers reported moderate output growth.

However, several Districts indicated that firms faced rising materials and shipping costs, uncertainties over the trade environment, and/or difficulties finding qualified workers.

Additionally, tight labor markets were reported throughout the country, with labor shortages broadly noted and were linked to wage increases and/or constrained growth.

Consumer spending increased modestly while wage growth was modest, but non-wage strategies were being implemented to attract workers.

The Fed said prices were rising at a modest to moderate pace in all Districts but there were worries about impending cost increases resulting form tariffs.

Market Sentiment - Cleveland Fed Loretta Mester said the economy is strong and sees no signs of a pending recession.

She added inflation readings are pretty good with some upside and downside risks while a prolonged market downturn and buildup of risks would affect the U.S. economic data.

Mester isn't adjusting her policy stance based on the recent market pullback.

She says the Fed is getting closer to a neutral policy stance and the Fed is now more sensitive to the data.

The iShares 20+ Year Treasury Bond ETF (TLT) held positive territory throughout the session while trading to a high of $114.82.

Lower resistance at $114.50-$115 held into the close with a move above the latter being a more bullish signal. Support is trying to move up to $114-$113.50.

Market Analysis - The PowerShares QQQ (QQQ) traded mostly in the red throughout Wednesday's action while bottoming at $165.04.

May support at $165-$164.50 held with a move below the latter opening up risk to $162.50-$160.

Near-term and lowered resistance at $166.50-$167.

The 50-day moving average has been rolling over since the start of the month and remains in a downtrend.

RSI failed support at 30 with risk to 25-20 and recent lows on continued weakness. Resistance is at 35-40.

Communication Services (XLC) fell for a 5th-straight session after tapping a low of $44.32.

The index has only been trading since mid-June with fresh support at $44-$43.50 and undefined risk towards $42-$40 on continued selling pressure.

The 50-day moving average is on track to fall below the 200-day moving average and would form a death cross if the pattern plays out.

This is typically a bearish technical setup for lower lows.

Near-term resistance is at $44.50-$45.

RSI failed support at 30 and is signaling additional weakness towards 25-20 and recent oversold levels.

Resistance is at 35-40.

All the best,
Roger Scott.