Looking at the daily index charts, one could quickly think the relief rally looks underway but look deeper, and you will see another challenging day of price action.  The bears have gained some confidence, much more willing to fight for dominance than we have seen recently.  With a light day of earnings and economic data to provide inspiration and markets around the world experiencing selling pressure, the bulls have a challenging task ahead to defend price support heading into the weekend.  Plan your risk carefully!

With more Chinese regulatory scrutiny in tech and now real estate, Asian markets sold off strongly led by Hong Kong, with the HSI dipping into bear territory.  European markets currently see red across the board, and the weekend nears. Finally, with a light day of earnings and economic data, U.S. futures point to a bearish open that may test the bull’s willingness to defend yesterday’s low in the Dow.  Expect volatility as the bulls and bears fight for dominance.

Economic Calendar

Earnings Calendar

We have a light day on the earnings calendar to round out the trading week with only 7-verified reports.  Notable reports include BKE, DE, and FL.

News & Technicals’

Another challenging day of price action with buying in big tech, health care, and defensive stocks proving some safe-haven spots for traders.  However, the divide between winners and losers continues to grow as more and more stocks fall below their 200-day averages.  The VIX pulled back from its intraday high but ended the day above a 20 handle, suggesting more price volatility in the days ahead.  Although the DIA, SPY, and QQQ  experienced a bit of a relief rally, the 4-week new high/new low ratio surprisingly remained in a short-term oversold condition.  China passed new tech regulations and looked to expand its crackdown to real estate.  As a result, Hong Kong markets fall into bear territory to close out the week.

Yesterday’s rally was nice, but it was not nearly enough to recover broken support levels. Moreover, with the premarket action threatening a bearish open, the risk of severe technical damage is growing.  Should the bears find the energy to push prices below yesterday’s lows, we could experience a very rough day of a pile on selling into the weekend.  With a very light day of earnings and economic data, the bulls will have to work hard to find enough inspiration to encourage buy the dip traders to take the weekend risk.  That’s a big ask, with Asian markets closing decidedly bearish and European markets seeing red across the board in the worst week of trading since February.  As the bulls and bears battle for dominance, expect the price action to remain challenging with the VIX elevated.

Trade Wisely,

Doug