The XJO tried to pull back yesterday but was fairly flat by the close. Technically the XJO is forming a channel between 6,604 and 6,400. With the Futures down today, we will likely hold the 6,604 resistance again. If we break 6,604 the market will be looking bullish with targets around 6,750. Otherwise, if we break 6,400 we will reconfirm the downtrend with targets around 6,200 and the 200 day MA which is also the 10% correction level. Our short term indicators are starting to look a bit overbought.
US markets reopened lower after the long weekend, The Dow closed 285.26 points lower (-1.08%) and the S&P 500 was down 20.19 points (-0.69%). Most European markets closed lower, whilst the Asian markets closed mixed.
The S&P 500 closed lower after a whippy session, the index was down as much as 35 points, but late buying saw them only close 20 points lower. Technically the S&P500 has formed a channel pattern between 2,840 and 2,940. It seems we could be seeing them fail again at the 2,940 resistance, although the bearish signal last night was not convincing. Markets have softened off overnight on the uncertainty of trade and whether US and china can get back to the negotiating table. Also overnight we saw US Manufacturing PMI much weaker than expected, coming in at 49.1 which is in contraction territory. It seems that the slow down in world trade is also starting to hit the US, as it has in the recent Chinese numbers.
- The US September tariffs started last weekend on $110 billion of Chinese exports.
- Chinese retaliatory tariffs also kicked in. China introduced further tariffs on $75 billion worth of U.S. goods, including autos.
- The Chinese Yuan continues to depreciate against the USD.
- Both sides have confirmed that they prefer to negotiate rather than continue to escalate things further, despite last weekends confusion over calls from Chinese negotiators.
- Existing tariffs on $250 billion worth of Chinese goods to 30% from 25% starting will start in October.
- Delayed on Chinese goods will start on Dec. 15.
- China is making moves to help them become less reliant on exports by stimulating their local economy.
- Markets are hoping that they will get back to the negotiation table this month but hasn’t announced a date that they will.
XJO Implied Volatility fell 1.60% and closed at 14.133%. The US volatility was up 3.46% and closed at 19.66%.
Crude was down overnight and is consolidating between $60US and $50US a barrel.
Gold is rising strongly with economic concerns rising.
Iron Ore jumped earlier in the week but already seems to have lost momentum, it is still looking likely to start to recover from a strong pullback over the last few months.
The Aussie dollar is consolidating around 67.50 US cents.
If the US and China don’t show some signs of negotiating soon, we could see the market become volatile again. Otherwise, the only other thing that could save markets is the FED in a few weeks, who are expected to cut US rates. It will be the commentary that the market will also be looking at as they want them to go into a rate-cutting cycle. Otherwise, commodities were a little bit weak in general this week which is expected as trade tensions continue to rise and the outlook for growth in the world economy remains weak.