Monthly Lows in Focus on Yield Inversion Risk

U.S. markets reversed course on Wednesday after giving back the prior session gains as another sharp drop in yields sent investors back to the sidelines. Specifically, the 2-year and 10-year spread inverted for the first time since 2007 with inversions traditionally seen as indicators of impending recessions.

Although it can be debated if the U.S. is indeed headed for a near-term recession, or not, it is clear fears of a global slowdown are real. The headline news had a negative impact on the major indexes. Either way, with prior support levels back in play, it is important to note the market experienced this scenario a few months ago and bounced back after the 10-year yield fell below the 3-month yield.

The Russell 2000 dropped 2.9% after tapping a late day low of 1,465. Prior and upper support at 1,460-1,450 held with the late May and early June lows at 1,461 and 1,460, respectively.

The Nasdaq plummeted 3% following the midday back-test to 7,762 and close back below the 7,800 level. Current and upper support at 7,750-7,700 held with the monthly low at 7,662.

The S&P 500 sank 2.9% after trading to an intraday low of 2,841. The close below the 2,850 level reopens risk towards upper support at 2,825-2,800 and the 200-day moving average with last week’s low at 2,822.

The Dow stumbled 3.1% following the back-test to 25,521 while closing back below the 26,000 level. Upper support at 25,600-25,400 and the 200-day moving average was breached and failed to hold with the August low at 25,440.

There was no sector strength. Energy led sector laggards after sinking 3.9% while Financials and Communication Services skidded 3.7% and 3.6%, respectively.


Ferrari (RACE) upgraded to Buy from Neutral at Goldman Sachs
Horizon Pharma (HZNP) upgraded to Outperform from Market Perform at BMO Capital
Sanofi (SNY) upgraded to Buy from Neutral at UBS

Advance Auto Parts (AAP) downgraded to Neutral from Buy at Guggenheim
Equity Commonwealth (EQC) downgraded to Market Perform at JMP Securities
Myriad Genetics (MYGN) downgraded to Neutral from Overweight at Piper Jaffray

Before the open: ​​​Alibaba (BABA), Briggs & Stratton (BGG), Canadian Solar (CSIQ), Eagle Point Credit (ECC), iHeartMedia (IHRT), JC Penney (JCP), Pointer Telocation (PNTR), Tapestry (TPR), Walmart (WMT)

After the close: ​​Applied Materials (AMAT), Globant (GLOB), Nvidia (NVDA), PagSeguro Digital (PAGS), Sundance Energy Australia (SNDE), Voxeljet (VJET), ZTO Express (ZTO)

Thursday’s economic reports (EST): 
Jobless Claims - 8:30am
Philadelphia Fed Business Outlook Survey - 8:30am
Retail Sales - 8:30am
Industrial Production - 9:15am
Business Inventories -10:00am
Housing Market Index - 10:00am

Gold closed at $1,527.80 an ounce, up $13.70
Silver settled at $17.28 an ounce, up $0.29
Copper finished at $2.59 a pound, down $0.04
Crude Oil was at $55.05 a barrel, down $2.02
Bitcoin Investment Trust (GBTC) ended at $12.28, down $1.24

I hope this helps you prepare for the trading day. Make it a great one!

   Todd Mitchell

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