Jitters. Markets had a volatile session yesterday as last week’s drivers persisted. The Chinese central banks cutting rates this weekend, rising Italian bond yields, and last week’s surge in interest rates caused the markets to spend much of the session in the red yesterday and a late session rally managed to make a bad session look… not so bad. The S&P 500 closed off its session lows bouncing off of its 2864 support level, which will continue to be strong support, just above a Fibonacci retracement line at 2849 (see chart 4 in my attached daily chartbook). The VIX index surged early in the session rising into the trouble zone above the magic 18 though it managed to close around 16. The VIX closed at its highest level since early July indicating that there may be more volatility in the sessions ahead. The Dow Jones Industrial Average muscled out a small positive close yesterday in a late session push making it the only index to close in the green. The index closed right on a natural resistance line at 26500 and is in the middle of a wide range with very little in the way of support or resistance implying that large moves in either direction can occur (see chart 6 in my attached daily chartbook). The Russell 2000 continues to struggle and it bounced off of its 200 day simple moving average early in the session to close slightly down on the session.
The Russell has always been a good indicator of the general health of risk assets and its recent weak trading may be an early warning signal to pay close attention. The NASDAQ 100 continued its slide yesterday trading below its 7336 Fibonacci support line during the session but ultimately managed to close slightly above it. The technology sector, which is the mainstay of the index, was a big factor in the NASDAQ’s off day. With small caps, tech, and growth underperforming the large industrials of the Dow, this almost seems like the reverse of the scenario that kept equities buoyant for much of the year, making it clear that investors are looking for safety in larger, more established companies. Once again, you can see this shift in sentiment quite clearly on chart 16 in my attached daily chartbook with the Growth vs Defensive indicator, which has clearly been trending toward defensive since earlier in the summer. The bond market was closed yesterday for Columbus day but resumed their fall in overnight trading and 10 year yields will start the session at around 3.25%, which is a recent high water mark and the highest yield since 2011. A continuation of the move will certainly prove to be a factor in equities in the short run as investors digest the impacts of the higher rates.
Today we have no economic or corporate releases scheduled leaving just the news cycle to ponder. The news cycle will continue to examine the renewed struggle between Italy and the EU, Elon Musk’s fitness, global trade, and Interest Rates. WHILE YOU SLEPT, the IMF came out with a forecast that cut its global growth estimates citing rising trade tensions, which will certainly put some weight on trading in today’s session. However, it will surely be the interest rate discussion that will dominate trade today as bond traders return to their desks and prepare themselves for the bond auctions and inflation numbers that start tomorrow. The espresso count will be high today and jitters will surely spill over into the session ahead.