Bears Stay Aggressive While Volatility Remains Elevated

U.S. markets showed some strength on Friday’s open following solid economic news but turned south midday following reports the White House is in the preliminary stages of weighing a block on all U.S. investments in China. The goal of the potential block is to protect American investors with the Trump administration considering delisting Chinese companies from American stock exchanges and putting a limit on U.S. government pension funds’ exposure to the Chinese market.

While this scenario is highly unlikely, the fresh weekly lows and breach of the major moving averages sets up risk towards beginning of the month support levels. Volatility held a key level of resistance for the 4th-straight session after testing a 3-week peak but is also signaling near-term and possible lower lows for the overall market.

The Nasdaq was down for the 5th time in 6 sessions after dropping 1.1% and testing an intraday low of 7,890. Prior and upper support from the start of the month at 7,900-7,850 was breached but held on the 2nd-straight close below the 50-day moving average.

The Russell 2000 fell for the 8th time in 9 sessions after sinking 0.8% while tapping a late day low of 1,515. Fresh and upper support at 1,515-1,500 and the 200-day moving average held but the close below the 50-day moving average was an ongoing bearish signal.

The S&P 500 stumbled 0.5% after tapping a low of 2,945 ahead of the closing bell. Key support at 2,975 failed to hold with a close below 2,950 and the 50-day moving average being a fresh sell signal.

The Dow declined 0.3% after trading to a 1st half high of 27, 012 but failing to hold key resistance at the 27,000 level for the 5th-straight session. Upper support at 26,800 was challenged but also held for the 5th-straight session on the backtest to 26,715 with a close below 26,600 and the 50-day moving average signaling additional weakness.

For the week, the Russell 2000 plummeted 2.7% and the Nasdaq sank 2.2%. The S&P 500 gave back 1% and the Dow was lower by 0.4%.

Financials were the only sector that showed strength after adding 0.4%. Technology and Communication Services were the leading sector laggards after tumbling -1.3% and -1.1%, respectively.

The best performing sectors for the week and the only ones to settle higher were Utilities (1.3%) and Consumer Staples (0.5%). Sector weakness was paced by Energy (-3.5%), Communication Services (-2.6%) and Healthcare (-2.3%).

ANALYST UPGRADES/DOWNGRADES

Applied Genetic (AGTC) upgraded to Outperform from Market Perform at BMO Capital
Match Group (MTCH) upgraded to Outperform from In Line at Evercore ISI
Texas Instruments (TXNWealth Strength IndexAAPL is Extremely Up and trending Up) upgraded to Buy from Neutral at BofA/Merrill with

Box (BOX) downgraded to Underweight from Neutral at JPMorgan
Carnival (CCL) downgraded to Sell from Hold at Berenberg and to Neutral from Buy at UBS
eBay (EBAYWealth Strength IndexAAPL is Extremely Up and trending Up) and Booking Holdings (BKNGWealth Strength IndexAAPL is Extremely Up and trending Up) downgraded to Market Perform from Outperform at Wells Fargo

MONDAY’S EARNINGS ANNOUNCEMENTS  
Before the open: Cal-Maine Foods (CALM), Thor Industries (THO)
After the close: None

UPCOMING ECONOMIC NEWS
Monday’s economic reports (EST): 
Chicago Fed National Activity Index – 8:30am
Dallas Fed Manufacturing Survey – 10:30am

METALS / OIL

Gold closed at $1506.40 an ounce, down $8.80
Silver settled at $17.65 an ounce,