Stocks Remain Pressured as Worries on Chinese Economy Grow

So far this month, volume on the up days has been considerably lighter than the down days. Now that’s not all that uncommon (given the emotional connection to losses vs. gains). It’s why this saying exists: “Take the escalator up and the elevator down.” 

Down moves can create a wave of sell-stops, triggering market-sell orders. Especially when we decline in (effectively) 9 out of 10 days to start a new month. 

Coming into Tuesday’s session under pressure (the S&P futures are down about 27 handles or 0.60% as of 7:00 a.m. ET) and today’s trade may be key in the short term. 

Do bulls muster up some strength and reverse the early losses, regaining some of yesterday’s late-day traction? Or do they give up more ground to the sellers as the bears take control at short-term trend resistance and flirt with a break of the recent lows?

The retail sales data came in pretty solid this morning, while retail earnings this week — with TGT, WMT, HD, etc. on deck — should give us a decent idea about the current state of the US consumer. 

That said, the news out China has been pretty negative.

China’s Country Garden (a property developer) is under duress as trading in its bonds was halted earlier this week. With almost $200 billion in liabilities, this is a noteworthy development.

Foxconn recently reported earnings, however “the world’s largest contract electronics maker downgraded its outlook for full-year revenue to a slight decline from a previous guidance of flat as it joins other companies grappling with a weak global economy and a sluggish recovery in China.”

The country’s import/export data was disappointing, as was its retail sales data and industrial production results.

One last thing: The dollar (DXY) rise and rally to YTD highs in yields (TNX) is an added headwind to the S&P. We need these obstacles to subside if we’re going to have a sustainable rally, IMO.

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Technical Edge 

• NYSE Breadth: 41% Upside Volume

• Advance/Decline: 40% Advance

• VIX: ~$16

SPY

For now, it still looks and feels like a standard correction, although that late-day rip into the 10-day ema and subsequent pre-market pullback has to be frustrating for the longs. 

Prepping for an open near the $445.50 area and active bulls will want to see this area hold. If it doesn’t, it could give us a run down to $443 to $444 area, which has been support. 

SPY Daily

• Upside Levels: $447.75 to $448, $451 to $451.50, $453

• Downside Levels: $445.50, $443 to $444

SPX

SPX Daily

• Upside Levels: 4490-4500, 4527.50, 4540-45, 4567

• Downside Levels: 4435-44 (wide range), 4400, 4385-88

S&P 500 — ES Futures

During Globex, we have a “look above” yesterday’s late-day high and a tag of the 10-day ema, only to be rejected and down over 30 handles. So now we have to see if the 4460-70 area can act as support…again.

ES Daily

• Upside Levels: 4493-4503, 4512-15, 4540-42, 4550-60

• Downside levels: ~4465, 4450-55, 4425

But — and there is always a but — the weekly chart shows a rather mild, digestive type pullback rather than a harrowing collapse. Things can change of course, but a weekly close like this may bode well for the bulls, especially if we can go weekly-up  next week. 

ES Weekly chart

Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!