The XJO yesterday regained some of the heavy sell-offs after testing the 6,400 key support level. So we are back trading in the edge of a pennant pattern waiting to see if we break up or down. If 6,400 breaks, we will reconfirm the downtrend with target around 6,200 and the 200 day MA, which is also the 10% correction level. If the market breaks 6,550 then things will be looking a bit more bullish. The futures today are suggesting a weak open so expect the market to remain inside these levels today.
US markets edge lower, Dow closed 120.93 points lower (-0.47%) and the S&P 500 was down 9.22 points (-0.32%). Most other major markets where higher.
The S&P 500 seems to be in no man’s land as investors await the next lead. Volumes are light as markets consolidate ahead of US Labor day (Monday) and the 1st of September tariff deadline. Technically the S&P500 has formed a channel pattern between 2,840 and 2,940. Until we see a break of either one of those levels, it is hard to have a view on the market. At this stage, it seems that the issues between China and the US will get worse before they get any better. Markets will be looking for any further hint of escalation and whether China will further retaliate against the US in the coming months. The 2 year and 10 year US bonds inverted further indicating a recession could be on its way. Otherwise all eyes on the FED on the 18th of September, most analysts are expecting another rate cut but the question is how much?
What we know on the Trade War-
- China introduced further tariffs on $75 billion worth of U.S. goods, including autos.
- Trump then retaliated raising existing tariffs on $250 billion worth of Chinese goods to 30% from 25% starting in October. He also raised tariffs from 10% to 15% on another $300 billion of Chinese goods. Some of those tariffs will start on Sept. 1 while others have been delayed until Dec. 15.
- China discredited Donald Trump’s comments that he received a phone call from China and that they are coming back to the negotiation table. China in the past has walked away from negotiations saying that they will not negotiate under the pressure of US tariffs.
- China is making moves to help them become less reliant on exports by stimulating their local economy.
XJO Implied Volatility fell 3.90% and closed at 15.345%. The US volatility was up 0.16% and closed at 19.35%.
Gold is rising strongly with economic concerns rising.
Iron Ore seems to have settled for the moment after having a strong pullback.
The Aussie dollar is consolidating around 67.50 US cents.
Markets seem to be a little lost at the moment, things are looking quite negative around trade at the moment, but markets are being fairly resilient considering the signals that are out there. The resilience is likely coming from central banks of the world that are doing what they can to help prop up markets. Bond yields continue to decline which will likely lead to central banks continuing to cut rates in the near term.