U.S. markets opened slightly lower to start the week with selling pressure lasting throughout the session. Concerns over the U.S./ China trade tiff dominated headlines after U.S.
Vice President Pence said that the U.S. wasn’t in a rush to end the trade war and would not change course until China changes its ways.
The wasn’t much rebound into the close as the major indexes avoided lower lows.
However, volatility closed back above a key level of resistance and is suggesting a possible retest of the October lows.
The Nasdaq tanked 3% after tapping a low of 7,011. Near-term and upper support at 7,000-6,900 held with the October low at 6,922 and the April low at 6,805.
The Russell 2000 tumbled 2% following the backtest to 1,492. Support at 1,500-1,490 was split on the close below the former with a move below the latter likely getting 1,480-1,460 in the mix.
The S&P 500 sank 1.7% after testing a midday low of 2,681. Upper support at 2,700-2,675 was breached and failed to hold with a move below 2,650 being a continued bearish development.
The Dow dropped 1.6% following the intraday pullback to 24,900.
Prior support at 25,000-24,800 was split but held with the close back below the 200-day moving average being a slightly bearish development.
Utilities and Real Estate were the only sectors that finished higher after rising 0.4% and 0.3%, respectively.
Technology was the weakest sector after sinking 3.8%. Communication Services and Consumer Discretionary tanked 3% and 2.4%.
Global Economy – European markets ended lower as Brexit concerns show no signs of alleviating.
Over the weekend, Prime Minister Theresa May said that a change in the country’s leadership would only delay the proceedings, after a number of politicians expressed concern over the current state of affairs, including the proposed agreement.
Germany’s DAX 30 declined 0.9% while France’s CAC 40 and the Belgium20 were down 0.8%. The Stoxx 600 Europe gave back 0.7% and UK’s FTSE 100 fell 0.2%.
In its monthly report, the Bundesbank said the German economy is expected to see fairly strong growth again in the final quarter of 2018.
Eurozone September construction output rose 2%.
Asian markets settled mostly higher despite the U.S. and China leaving a pan-Pacific summit over the weekend without reaching a consensus on trade issues.
China’s Shanghai rallied 0.9% while Hong Kong’s Hang Seng and Japan’s Nikkei rose 0.7%. South Korea’s Kospi climbed 0.2%. Australia’s S&P/ASX 200 fell 0.6%.
The Japan October trade balance was in deficit by 449.3 billion yen, wider than forecasts for a deficit of 70 billion yen.
October exports rose 8.2% year-over-year, weaker than expectations of 8.9%. October imports rose 19.9% year-over-year, stronger than estimates of 14.1%.
The NAHB Housing Market Index unexpectedly fell 8 points to 60 after rising 1 point to 68 in October and this month’s expectations. The current single family sales index fell to 67 from 74.
The future sales index dropped to 65 from 75.
E-Commerce Retail Sales were at $130.9 billion for the third-quarter, up 3.1% from 2Q, and represented a 9.1% market share, overall.
Total retail sales for the 3Q reached $1,340.2 billion, a 0.9% increase from 2Q.
Market Sentiment – New York Fed John Williams said the economy is doing very well and unemployment is low.
He said the U.S. is creating lots of jobs as employers are hiring less-skilled workers amid broad labor scarcity.
On the flip side, Williams said the exodus of Puerto Ricans since the hurricanes has undercut economic growth prospects for the next couple of years.
He expects the Fed to keep raising rates along a gradual path despite rising concerns about slowing global growth, as the Fed wants to keep the economy strong and stable, and that they are not on a pre-set policy course.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 3rd time in 4 sessions after trading to a high of $115.02.
Fresh and lower resistance at $114.75-$115.25 and the 50-day moving average was cleared and held with continued closes above the latter signaling additional strength.
Rising support is at $114.25-$113.75. A move below $113.50 would signal a near-term top.
Market Analysis – The Invesco QQQ Trust (QQQ) was down for a 6th time in 8 sessions after testing a session low $161.54.
Near-term and upper support at $162-$160 was breached and failed to hold with a move below the latter being a continued bearish signal. The October low is at $160.09 and the late April low reached $156.47.
Lowered resistance is at $163.50-$164.
RSI is in a downtrend with support at 35-30.
A move below the latter would signal additional weakness with risk to 25-20 and October lows. Resistance is at 40-45.
The Utilities Select Spider (XLU) was up for the 2nd-straight session after making a run to $55.17. Near-term and lower resistance at $55-$55.50 was cleared and held.
Continued closes above the latter would signal a return of momentum with upside potential towards $57-$57.25 and fresh all-time highs.
Support is at $54.25-$53.75 with a close below the latter and the 50-day moving average signaling additional weakness.
RSI is in a slight uptrend with resistance at 60-65.
A close above the latter would signal additional strength towards a run at 70 and the mid-August peak. Support is at 55-50.
All the best,
Roger.