U.S. markets continued their descent to lower lows on further escalation of the U.S./ China tariff war. Specifically, China asked state purchasers to cut imports of U.S. agricultural imports by half while the yuan surged to over a decade low versus the dollar.

The technical damage was severve as the 50/200-day major movings were breached by the major indexes and is signaling a retest towards late May lows.

Volatility spiked to its highest levels since the beginning of the year after closing above the 20 level for the first time since mid-May.

The Nasdaq was pulverized with a 3.5% loss after testing an intraday low of 7,662 while closing below the 8,000 level for the 1st time since late June.

Prior and upper support from mid-May at 7,650-7,600 held on the close back below the 50-day moving average and above the 7,700 level.

The Russell 2000 was rocked for 3% following the late day tumble to 1,472 and close below its 200-day moving average.

Prior and upper support from late May at 1,475-1,460 held with the May 31st and June 3rd lows at 1,461 and 1,460, respectively.

The S&P 500 also sank 3% after stumbling to a 2nd-half low of 2,822 and closing back below the 50-day moving average.

Mid-May and upper support at 2,850-2,825 was tripped and failed to hold with a close below the latter getting 2,800 and the 200-day moving average in play.

The Dow tanked 2.9% following the steady drop to 25,523 ahead of the closing bell while also failing to hold its 50-day moving average. Upper support at 25,750-25,500 was breached and failed to hold with a close below the latter and the 200-day moving average signaling additional weakness.

There was no sector strength.

Technology was the weakest sector after giving back 4.2% while Financials and Communication Services fell 3.3% and 3.2%. respectively.

Global Economy – European markets were battered as the threat of a no-deal, disorderly Brexit scenario in less than 3 months became more of a reality.

UK’s FTSE 100 dropped 2.5% and the Belgium20 declined 2.4%. The Stoxx 600 was off 2.3% and France’s CAC 40 was lower by 2.2%. Germany’s DAX 30 gave back 1.8%.

UK IHS Markit Purchasing Managers’ Index (PMI) for services rose to 51.4 in July from 50.2 in June, topping forecasts for no-change. The composite reading, which includes manufacturing and construction, rose to 50.3 in July from 49.7 in June.

Asian markets fell for the 3rd-straight session after China let its currency sink to an 11-year low versus the U.S. dollar, with President Trump calling the move a major violation and currency manipulation.

Hong Kong’s Hang Seng was hammered with a 2.9% loss with South Korea’s Kospi nailed for a 2.6% pullback. Australia’s S&P/ASX 200 was off 1.9% and Japan’s Nikkei was down 1.7%. China’s Shanghai declined 1.6%.

The Peoples Bank of China cited trade protectionism behind the decline in the yuan below the politically sensitive 7 level to the dollar, with the currency depreciation threatening to worsen trade relations between the U.S. and China.

PMI Services Index rose 1.5 points to 53 in July, topping forecasts of 52.2, and June’s 51.5 print. The employment index improved on the month, as did the new business index.

The composite index increased 1.1 points to 52.6 last month versus 51.5 in June. The new order index increased to 53.7 versus 52.5 previously.

ISM Non-Manufacturing Index fell another 1.4 points to 53.7 in July, disappointing expectations for a print of 55.5, and follows June’s drop of 1.8 points to 55.1.

The components were mixed with the business activity index falling 5.1 points to 53.1, also the lowest level since mid 2016. The employment index rose 1.2 points to 56.2 after falling 3 points to 55 previously.

New orders declined another 1.7 points to 54.1 after the 2.8 point drop to 55.8 in June. New export orders slid 2 points to 53.5 versus the June unchanged reading at 55.5.

Imports were up 3.5 points to 53.5 from the prior flat 50 print. Prices paid fell 2.4 points to 56.5 versus the 3.5 point gain to 58.9.

TD Ameritrade IMX Level data for July came in at 4.60.

Market Sentiment – Fed funds futures firmed following the flight to safety and heightened expectations for more Fed rate cuts ahead.

The September contract is priced for a second quarter-point easing at the next FOMC meeting in mid-September, after the first easing in nearly 11 years last Wednesday.

Meanwhile, the October implied is pricing in a 1.81% rate, with the January 2020 at 1.51%. Wall Street forecasts are for another cut by the Fed next month as recent data is starting go show more of a softening trend than they had anticipated and if it intensifies, there’s risk of further Fed action into year end.

The iShares 20+ Year Treasury Bond ETF (TLT) continued its parabolic run after rising for the 7-straight session while trading to another new all-time high of $138.89.

Blue-sky and lower resistance at $138.50-$139 was cleared and held with momentum towards $139.50-$140 on continued strength.

Near-term and rising support is at $138-$137.50. A close below $136.50-$136 would signal a possible near-term top.

Market Analysis – The Invesco QQQ Trust (QQQ) extended its losing streak to 6-straight session following the gap down to $179.20. Prior and upper support from mid-May at $180.50-$180 was breached but held.

A close below the latter would be a continuing bearish development with further risk towards $178-$177.50.

Current and lowered resistance is at $182-$182.50.

Continued closes back above $185 would be a more bullish signal near-term selling pressure has abated.

RSI remains in a nasty downtrend after failing to hold major support in the 30 area and the May lows.

The close below this level reopens risk towards 25-20 and October 2018 levels. Resistance is at 35-40.

The Industrials Select Sector Spider (XLI) fell for the 4th-straight session despite tapping an intraday low of $73.08. Mid-May and upper support at $73.50-$73 was triggered but held.

A close below the latter and the 200-day moving average reopens risk towards $72-$71.50 with the beginning of June low at $71.91.

Lowered resistance is at $74-$74.50.

Continued closes above $75 and prior resistance from early June would be a more bullish signal for a rebound towards $75.50-$76.25 and the 50-day moving average that still remains in a slight uptrend.

RSI was able to hold major and late May support at 30.

A close below this level would signal additional weakness towards 25-20 with the latter representing the late October and December 2018 low.

Resistance is at 35-40.

All the best,
Roger Scott.