Courtesy of John Nyaradi.
China sells off on reports of weakening profits and U.S. indexes drift lower on poor durable goods report.
After hovering near significant resistance levels, U.S. stocks and ETFs drifted lower today on weakness in China, Europe and a durable goods report that missed expectations.
Today’s global correction started with the Shanghai Composite which shed 2.7% and spread to Europe where the major European indexes also lost ground with the Stoxx 50 dropping -1.1%, the FTSE 100 losing 1.03% and the Dax declining 1.13%.
In U.S. action, the correction continued as February Durable Goods came in at 2.2%, missing expectations of 3.0% but a big improvement over last month’s -3.6%. However, the weakness in this report, coupled with still declining home prices, points to further weakness across the U.S. economic spectrum.
Tomorrow we hear about Q4 GDP, and analysts now suggest that weakness in today’s report could translate into unexpected weakness in tomorrow’s GDP report which is due out at 8:30 a.m. Eastern time. Stay tuned.
Tomorrow also brings weekly job reports and Friday is a huge data day with lots of attention focused on March’s Chicago PMI due out at 9:45 a.m. Eastern.
China ETFs declined today with iShares FTSE China 25 Index (NYSEARCA:FXI) dropping 1.5% and Global X China Energy declining 2.7% The China 25 Index (NYSEARCA:FXI) is now below both its 50 and 200 day moving averages and down nearly 10% from early March highs.
On U.S. exchanges, the S&P 500 Index ETF (NYSEARCA:SPY) declined 0.5% to close at 1405 and so hang on to the first level of important support at the 1400 level. Further support resides at 1380 and then the 50 day moving average at 1359. Today’s action helped to unwind some of the overbought nature of the index, but with RSI still at 62, there is still some significant unwinding to go.
The Russell 2000 Index ETF (NYSEARCA:IWM) dropped 0.66% as small cap stocks led the way down, while technology as represented by the Nasdaq 100 (NYSEARCA:QQQ) declined 0.4% and remains at highly overbought levels of 76 on its RSI reading.
Bottom line: We have observed for some time that global fundamentals are weakening and technical indicators point to a correction as a likely possibility. While declines so far have been mild, further reversals from recent highs remains a high probability event.
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