Stocks struggled at the open today as tensions between the US and China ratcheted up over increasing unrest in Hong Kong. Selling tumbled further midday however, after Reuters reported that a ‘phase 1’ trade deal might not happen before the end of the year and the Dow was down more than 250-points. The release of the October FOMC Meeting minutes in the afternoon settled the market and the major averages were able to cut the losses in half by the close. Bonds rallied, sending yields lower, and defensive sectors Utilities (XLU), Consumer Staples (XLP) and REITs (XLRE) outperformed. An oversold bounce in crude oil prices, despite another bigger than expected buildup in inventory, helped lift Energy (XLE) more than +1.0%. Shares of retailers Target (TGT) and Lowe’s (LOW) traded higher after beating earnings and raising forecasts, while Urban Outfitter’s (URBN) dropped -15.23% after missing earnings and revenues. Weakness in semiconductor’s with exposure to China weighed on Technology (XLK), with Materials (XLB), Industrials (XLI) and Communication Services (XLC) also trading red. Dow component Home Depot (HD) was the worst performer in the blue chip index for a second day, while multinationals 3M (MMM), Pfizer (PFE), Dow Inc (DOW) and Caterpillar (CAT) also closed lower. The DJIA lost 112.93 points (-0.40%) and finished at 27821.09, while the S&P 500 slipped 11.72 points (-0.38%) to 3108.46. The NASDAQ gave back 43.93 points (-0.51%) and closed at 8526.73. The DJ Transportation Index dropped -1.41% and is down -3.5% since making a new 52-week high on 11/07/19.

Breadth was negative with declining issues beating advancing issues 4:3 on the NYSE and 5:3 on the NASDAQ. Volume was heavy and declining volume was 58% on the NYSE and 54% of the NASDAQ. VIX eased 0.08 point (-0.62%) showing traders weren’t worried that the selloff would continue and finished at 12.78. Crude oil prices jumped 1.70 (+3.08%) and the December contract closed at $56.91 a barrel. Gold lost 1.50 (-0.10%) and closed at $1472.80 an ounce.

The algorithms sold stocks on the negative trade headlines today and the major averages were down sharply in a matter of minutes. Investors came in and bought the dip however, and kept the losses manageable. The deteriorating breadth numbers are still signaling that there may be more downside but expect traders to buy the dips. The low for the S&P 500 today was 3091.41. Support is at 3080-3085 and a break below that will induce additional selling. On the flip side, if the Russell 2000 can trade above 1605-1610 it would trigger another spurt higher.

Earnings releases to watch for on Thursday include: American Softare (AMSWA), BJ’s Wholesale Club (BJ), Cato Corp (CATO), Gap Inc (GPS), Macy’s (M), Nordstron Inc (JWN), Pure Storage (PSTG), Ross Stores (ROST), Splunk Inc (SPLK) and Williams-Sonoma (WSM).

By David L. Blake, CMT