My observations below should be viewed as general advice
and may not be right for you.
US Indices opened unchanged overnight before falling
quite sharply into the red after the August ISM data missed expectations. The
ISM Index showed US manufacturing shrank for a third month in a row and was
reported at 49.6 versus consensus of 50. However, once again that trusty 1395
level held firm and stocks staged a slow climb higher erasing most of the
losses. As such the S&P500 slipped 0.1% whilst the Nasdaq gained 0.3%.
Interestingly, this US manufacturing slowdown comes on the back of PMI readings
coming in below expectations in China, Germany, France, and Italy of late.
From a technical standpoint, the low end of the recent
range was tested and held once again overnight at 1395. This level continues to
be a marker going forth. I thought that the inability to breakdown recently was
indicative of a potential move higher but clearly price action is still
lethargic. The technical backdrop continues to deteriorate, but only confirmed
breaks now below 1395 would confirm a possible pullback and deeper correction.
In Asia, we continue to see real technical damage and
confirmed topping patterns. Last week I highlighted the topping pattern in the
Hang Seng and this continues to play out with heavy selling today. The ASX200
hit the top end of the range at 4400 recently and is now selling quite sharply.
China continues to make new lows. AUD has sold off all the way into 1.02. How
long can offshore markets ignore this for?
S&P500
Daily:
Double Top pattern is still in play but no real follow
through to the downside. A close below 1395 would confirm this pattern
Emini
S&P500 60mins:
Price tested the low end of the range at 1395 again
overnight and held. This level continues to be met with strong buying but how
long can this last for? The more obvious a level becomes and the more times it
gets tested, the more prone it becomes to a breakdown. Breakout traders now need
to see strong breaks above 1410 for a target into the previous highs at 1425.
Hang
Seng Daily:
An update from the chart I showed last week
S&P500
Emini Key Levels:
Support Levels: 1400/1395, 1370
Resistance Levels: 1415/1420
Europe
An unexpected drop in U.S. manufacturing activity drove
European stock markets deeper into negative territory on Tuesday, with drug
makers and resource firms feeling the most pressure. Markets opened on a weak note after Moody's cut the outlook on the European
Union's credit rating to negative. Indeed, the credit-rating firm said it
needed to adjust its outlook on the EU due to "the likelihood that the
large Aaa-rated member states would likely not prioritize their commitment to
backstop the EU debt obligations over servicing their own debt
obligations."
In Germany, Deutsche Bank AG fell 2.3%, weighing on the
DAX 30 index, which slid 1.2% to 6,932.58. France's CAC 40 index dropped 1.6%
to 3,399.04, marking the worst daily performance in a month. Heavyweight oil
group Total SA lost 1.6%. The U.K.'s FTSE 100 index posted the biggest drop in
more than a month and lost 1.5% to 5,672.01. BP PLC slipped 1.6% and miner Rio
Tinto PLC gave up 2.6%
The Key upcoming event will be the ECB meeting on the 6th
September. The market will be hoping for an interest rate cut of 25bps but more
importantly firm measures to ensure permanent, low yields in Italy and Spain,
and a solution so that these countries can reconstruct their economies. A lack
of clarification or firm commitment would be a real warning sign to investors.
From a technical standpoint, I have shown significant resistance zones in both the DAX and Eurostoxx Daily charts of late. This has provided strong initial resistance but there needs to be more follow through to the downside to confirm a more meaningful turn. As I have continued to stress, 2400 remains the key level in the Eurostoxx. Only breaks of this would confirm a potential deeper correction lower. This same zone is 6900 in the DAX.
