[MM_Member_Data name=’firstName’],

U.S. markets traded lower for the third-straight session and a streak last reached back in April.

Tech and the small-caps led the way lower with the Nasdaq falling below its 50-day moving average for the first time since early July. The Russell 2000 continued its free fall towards its 200-day moving average and a technical setup last visited ahead of the 2016 November election.

Volatility is back in play as traders prepare for Friday and the decision to stay long or short ahead of the weekend.

Global Economy –European markets traded lower following mixed economic data out of the United Kingdom. The FTSE 100 index sank 1.4% while the DAX 30 tanked 1.2%. France’s CAC 40 index tumbled 0.6% and the Stoxx Europe 600 stumbled 1%. The Belgium20 index fell 0.6%.

U.K. price growth slid to 1% from 7% in June, marking the softest reading since early 2013. The low rate was attributed to lingering political uncertainty, recent tax changes and a limited number of homes for sale.

U.K. industrial production unexpectedly rose, by 0.5% in June versus expectations for a 0.2% dip. Factory production was flat in June compared with expectations for a modest decline.

U.K.’s trade deficit in goods in June widened to 12.7 billion euro, which was 1.7 billion euro more than expected and higher than the 11.3 billion euro deficit in May.

Asian markets also closed in negative territory with less damage despite the continued geopolitical rhetoric. Hong Kong’s Hang Seng Index dropped 1% while South Korea’s Kospi index and the Shanghai index both declined 0.4%. Japan’s Nikkei Stock Average and Australia’s S&P/ASX 200 slipped 0.1%.

The Reserve Bank of New Zealand kept rates on hold after CPI came in at 2% and in the middle of its 1% to 3% target band.

U.S. Economy-Initial jobless claims rose 3,000 to 244,000 in the first week of August, reversing a 5,000 drop in the prior week.

The Producer Price Index dipped 0.1% in July, missing expectations for a 0.1% increase. Core PPI also slid 0.1%, versus expectations for a 0.2% increase.

Market Sentiment –New York Fed, William Dudley, said inflation is not likely to reach the Federal Reserve’s 2% annual target this year even if monthly data begins to pick up as expected.

He said that it will take some time for the inflation rate to get to the 2% target, but also added the sluggishness is due to a number of one-offs, which won’t fall out of the year-over-year calculations for several more months. Dudley also predicted the tight labor market combined with a weakening dollar should begin to foster upward inflation pressure over the near-term.

James Bullard said there’s risk the FOMC could be too aggressive on rates and that the Fed doesn’t need to be preemptive on them due to weak inflation trends. He added rates can be left on hold for now as upcoming data is evaluated and that the drop in inflation has surprised policymakers.

He went on to say inflation misses have added been adding up and has undercut credibility. Bullard believes there is no recession on the horizon but added, you never know, as a hedge.

The iShares 20+ Year Treasury Bond ETF (TLT) made a major move above the $126 level after trading to a high of $126.44. Fresh resistance is at $126.50-$127.

A double-top breakout above the latter could lead to $128-$130. Rising support is at $126-$125.50.

 

Market Analysis-The Russell 2000 ETF (IWM) has been volatile after closing the start of the week below its 50-day moving average. Wednesday’s low tapped $138.28 but held the 100-day moving average.

It was the first breach below the 100-day moving average since late May. Today’s 1.8% elevator drop and low of $136.46 gets fresh support at $136-$135.50 and the 200-day moving average firmly in play. Resistance is at $137-$137.50.

 

The Consumer Staples Select Spider (XLP) is trapped between its 50/100-day moving averages following the bearish outside reversal day from nine sessions ago.

The high reached $55.87 before a swift backtest to $54.57 intraday. A mini trading range between $55-$55.50 has since developed with lower highs and lower lows over the past three sessions. Resistance is at $55.50-$55.75. Support is at $55.25-$55.

 

A closer look at the chart shows a symmetrical triangle has formed and usually indicates a major breakout, or breakdown, is pending. This pattern can quickly play out with explosive moves to the upside or downside.

The 50-day moving average is shows signs of a downtrend with a move below double-nickels ($55-$54.95) giving a possible early signal of a breakdown. Today’s low tapped $55.06.

 

 

 

All the best,
Roger Scott