U.S. markets traded to the downside for the second-straight session with heavier losses and a backtest towards Tuesday’s monthly and 2018 lows. Some of these levels were breached into the closing bell and likely signals additional weakness and a steeper correction in the coming sessions.

The Dow dropped 4.2% after testing a low of 23,849 while closing below the 24,000 for the first time since late November. The index held its previous session low of 23,778 with risk to 23,500-23,000 on continued selling pressure.

The S&P 500 sank 3.8% after testing a fresh 2018 low of 2,580 to get November support levels in play.

The Nasdaq tanked 3.9% while tapping a 2018 low of 6,776 with early December support levels holding. The Russell 2000 gave back 2.9% after bottoming at 1,463 but was able to hold its 200-day moving average and Tuesday’s low of 1,461.

Financials swooned 4.4% while Technology and Consumer Discretionary tumbled 4.1% and 4%, respectively, to lead sector weakness.

There were no sectors that closed in positive territory.

Global Economy – European markets were weak across the board with Germany’s DAX 30 sinking 2.6% to pace the losses. France’s CAC 40 and Belgium20 were hit for 2% while the Stoxx Europe 600 declined 1.6%. UK’s FTSE 100 gave back 1.5%.

The German December trade balance shrank to a surplus of 18.2 billion euros, narrower than expectations of 21 billion euros. December exports unexpectedly rose 0.3% month-over-month, stronger than expectations for a decline of 1%.

December imports rose 1.4% month-over-month, stronger than expectations for a drop of 0.7%.

Asian markets were mostly higher aside from China’s Shanghai dropping1.4%. Japan’s Nikkei adding 1.1% while South Korea’s Kospi and Hong Kong’s Hang Seng were up 0.4%. Australia’s S&P/ASX 200 gaining 0.2% and

The China January trade balance was at a surplus of $20.34 billion, narrower than expectations of $54.65 billion. January exports rose 11.1% year-over-year, stronger than expectations of for a rise of 10.7%. January imports jumped 36.9%, stronger than expectations fr a pop of 10.6%.

Initial jobless claims dropped 9,000 to 221,000 in the first week of February. Expectations were for a print of 235,000.

Market Sentiment – Philadelphia Fed President Patrick Harker said he’s open to raising rates at the March meeting, though he hasn’t appreciably changed his economic and policy outlook in the wake of current market volatility.

He’s lightly pencilled in two rate hikes for 2018 and is open to three depending on inflation and financial conditions.

Harker went on to add he would prefer to see an inflation overshoot above 2% and views inflation dynamics as still unclear. He noted wage pressure on high and low skilled jobss, but not the middle given technology.

He said financial conditions are still accommodative and doesn’t view Powell as wanting to make dramatic changes to the current policy path

Minneapolis Fed Neel Kashkari questioned cooling down the economy before wages and inflation rise, since its too soon to know if tax cuts will boost wages and hiring. He also said it would be hard to fathom the idea that Bitcoin could ever compete with the dollar as a currency.

In other Fed news, nominee Goodfriend was approved by Senate Banking Committee in a roll-call vote with a slim 13-12 margin.

This clears the way for a full Senate vote, which is expected to be equally tight. And finally, Fed George will talk about the economy tonight.

The iShares 20+ Year Treasury Bond ETF (TLT) tumbled to a low of $117.85 with May 2017 support at $117.50-$117 now in play. The 50-day moving average remains in a downtrend and is on track to form a death-cross with the 200-day moving average.

Lowered resistance is at $119-$119.50.

Market Analysis – The Russell 2000 ETF (IWM) tested a low of $145.44 with near-term support at $144.50-$144 and the 200-day moving average holding into the closing bell.

A move below the latter and Tuesday’s low of $144.24 would be a bearish development. Resistance is at $146-$146.50 holding.

RSI is trying to hold August support near 30. Continued closes below this level would be a bearish development with risk to 20.

The Utilities Select Spider (XLU) is testing March support levels at $47.50-$47 with today’s low tapping $47.51. Tuesday’s low reached $47.37. There is risk to $46.50-$45 on a close below $47. Near-term resistance is at $48-$48.50.

RSI is back in oversold territory with support at 20 holding. Resistance is at 30 with continued closes above the latter signaling a possible near-term bottom is in.

The 50-day moving average has fallen below the 200-day moving average to form a death cross. This is typically a bearish signal for lower lows.

All the best,
Roger Scott