U.S. markets showed weakness for much of Monday’s action as U.S. tariffs on $200 billion in Chinese goods have officially started.
China has reportedly canceled trade talks that had been planned for the coming days while Beijing has also retaliated with levies on $60 billion in U.S. goods.
The trade friction was a drag on the major indexes and caused a pullback to support levels that held with some getting stretched.
Volatility held a key level of resistance with a slight rebound in Tech helping offset the rise.
The Dow dropped 0.7% to snap a 4-session win streak after testing a low of 26,548.
Upper support at 26,600-26,400 failed to hold with a move below the latter being a continued bearish signal.
The S&P 500 slipped 0.4% following the intraday backtest to 2,912. Support at 2,900 held with a close below this level being a warning sign for additional weakness.
The Russell 2000 also declined 0.4% after trading to a low of 1,697. Support at 1,700 and the 50-day moving average was stretched but held into the closing bell.
The Nasdaq added 0.1% despite tapping a morning low of 7,912.
Prior support at 7,900 and the 50-day moving average held before the rebound just shy of the 8,000 level.
Energy showed the most sector strength after jumping 1.5%.
Technology rose 0.5% while Healthcare added 2% to round out the winners.
Real Estate and Industrials were the weakest sectors after tanking 2% and 1.7%, respectively. Consumer Staples and Materials sank 1.5% and 1.4%.
Global Economy – European markets closed lower across the board following comments from the ECB on interest rates and mixed economic news.
The Belgium20 dropped 0.7% while Germany’s DAX 30 and the Stoxx 600 Europe stumbled 0.6%. UK’s FTSE 100 fell 0.4% and France’s CAC 40 was down 0.3%.
European Central Bank President Mario Draghi on Monday said he expected a rise in eurozone consumer prices and said European inflation would likely hover around 1.7% every year until 2020 and 1.8% excluding food and energy in 2020.
He said the stable profile conceals a slowing contribution from the non-core components of the general index, and a relatively vigorous pick-up in underlying inflation.
Draghi reiterated that ECB interest rates would remain at their current levels at least through the summer of 2019.
ECB Governing Council member Nowotny said the ECB is still enforcing a crisis mode monetary policy when Europe is currently in a very good economic situation and that policy normalization should come a bit quicker than currently planned.
The German September IFO business climate fell 0.2 to 103.7, topping expectations of 103.2.
UK September CBI trends total orders fell 8 to -1, weaker than forecasts for a drop of 3 to 4.
Asian markets were lower in limited trading with Japan’s Nikkei, South Korea’s Kospi and China’s Shanghai closed for holidays.
Hong Kong’s Hang Seng sank 1.6% and Australia’s S&P/ASX 200 skipped 0.1%.
Chicago Fed National Activity Index was unchanged at 0.18 in August, below estimates of 0.20. The 3-month average improved to 0.24, however, from 0.02. The index is made up of 85 indicators, of which 48 made positive contributions, while 37 were negative.
Dallas Fed Manufacturing Survey for September checked in at 28.1, missing forecasts of 31.2. The employment component fell 11.2 to 17.7 from 28.9, with wages and benefits dipping to 33 from 33.4.
New orders declined to 14.7 from 23.9. Prices paid slipped to 44.4 from 45.3 while prices received fell to 13.6 from 15.3.
The 6-month general business index improved to 38 from 34.7, with employment at 39.4 from 42.2, new orders at 44.9 from 47.4, prices paid at 43 from 43.5, prices received at 28 from 32, and capital expenditures at 37.8 from 39.9.
In a special question on tariff impacts, for the near term 45% said no impact, while 35% said negative and 15% said don’t know.
For the longer term outlook (2019-2020), 26% perceived no impact, while 37% said negative, with 32% at don’t know.
Market Sentiment – The iShares 20+ Year Treasury Bond ETF (TLT) fell for a 2nd-straight session after trading to a low of $116.72.
Near-term support at $116.75-$116.50 held with a close below $116.25 being a bearish development. Resistance remains at $117-$117.25.
Market Analysis – The Russell 3000 Index ($RUA) had its 4-session win streak snapped following the pullback to 1,726.
Near-term and fresh support at 1,725-1,720 held.
A move below 1,715-1,710 would signal additional weakness with risk towards 1,700 and the 50-day moving average.
Resistance is at 1,735-1,740 with the latter representing last Friday’s all-time high. A close above 1,740 could lead to a run towards 1,750-1,760.
RSI is in a slight downtrend with support at 60.
A close below this level opens up risk to 55-50. Resistance is at 65-70 with a move above the latter signaling additional momentum.
The Health Care Select Sector Spider (XLV) was up for the 4th time in 5 sessions after tapping an all-time high of $94.65. Fresh resistance at $94.50-$95 held.
We mentioned at the beginning of the month continued closes above $93 would represent a possible double-top breakout with blue-sky territory towards $95.
A longer-term run towards $97.50-$100 would be in play on continued closes above the $95 level.
Current support is at $94-$93.50. A close below the latter would signal additional weakness and a possible short-term top.
RSI remains slightly overbought with resistance at 80 and August/ January peaks.
Support is at 70 with a move below 65 signaling additional weakness and a near-term top.
All the best,
Roger Scott