As we mentioned in a series of tweets earlier this morning, our Trend Analyzer one week ago looked a bit different than it does now. Last week, before the FOMC rate decision and the escalation of tariff tensions sent markets into a tailspin, almost all of the major US indices were overbought and had distanced themselves above their 50-DMAs.  Now, in the Trend Analyzer, the reverse is true as every major index ETF has crashed through their respective 50-days, leaving ten of the fourteen oversold. Leading the way to the downside, the Micro-Cap (IWC) ETF is about as oversold as it gets as it has fallen over 3 standard deviations below the 50-DMA.  With the most recent move lower, IWC is now showing a downtrend as well; the only one to show this. The four that are not oversold are just barely neutral and it would take only a little more downside for them to join the others.  Ironically, one of these is the Nasdaq 100 (QQQ).  While not by any significant degree, QQQ is just above oversold levels even after a 7.14% decline over the past week; the most of any major index ETF.  The Nasdaq 100 has fallen more sharply than its peers as all of the others have seen declines of somewhere between 4.75% and just over 6% in that same time frame.

The past week’s steep declines have done some damage to the chart setups of these same ETFs. Across all of these ETFs, recent shorter-term uptrends have all been broken in addition to the 50-DMAs providing little to no support after yesterday’s steep gap lower at the open. For small caps like the Core S&P Small-Cap ETF (IJR) or the Micro-Cap (IWC), the 200-DMA did not provide any support either.  But for mid-caps like the Core S&P Mid-Cap (IJH), buying during the day brought the ETFs off of the day’s lows and back near the 200-DMA. With equities seeing strong pre-market trading today, mid-caps could see a bounce off of this support at the open. Large caps, on the other hand, are more or less in no man’s land between the 50-DMA, 200-DMA, and prior highs and lows. While the past few days’ declines have been steep, we must also note that every major index ETF (except for IWC) is still above the lows from late May/early June. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

As equities sell-off sharply, cyclical and trade-sensitive businesses, in particular, have fallen on hard times as investors rotate into defensives.  While still down today, sectors like Utilities, Consumer Staples, and Real Estate have held up slightly better. In commodities, this same dynamic has played out. Copper, which is a bellwether for global manufacturing activity, has fallen sharply in response to trade tensions and concerns over global growth. Meanwhile, gold’s safety status has led it to rally.  In Monday’s session, gold has been one of the few assets to rally, rising 1.84% from Friday’s close.  Looking at the ratio between the two commodities over the past few years shows just how much gold has been outperforming.  While it has been rising slowly over the past year, the ratio has really ripped higher in the past week.  In fact, over the past week, the relative strength of gold versus copper has seen its largest short-term move since February 2016.

Similarly, the Japanese Yen which is commonly viewed as a safe haven currency has been surging versus the dollar.  Over the past several years, USDJPY has been in consolidation.  After bottoming this time of year in 2016, the cross made a series of higher lows and lower highs.  Earlier this year, USDJPY failed to take out the downtrend line, continuing to move below the uptrend line.  Now, over the past few sessions, the Yen has further appreciated as global trade tensions mount. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Just like its manufacturing counterpart last week, the July release of the ISM Non-Manufacturing survey came in shy of consensus expectations.  While economists were expecting the headline reading to increase slightly from 55.1 to 55.5, the actual reading came in at 53.7.  That’s a level that is still consistent with steady growth, but it is also the weakest reading since August 2016.  Similarly, on a combined basis and accounting for each sector’s share in the economy, the combined Composite PMI for July came in at 53.4, which was the lowest reading since August 2016.

The table below breaks down the July ISM Services report by each of its sub-components and shows their m/m and y/y changes.  Breadth in this month’s report was biased to the downside.  Compared to June and last year, just three components showed increases.

One of the biggest decliners on both a m/m and y/y basis was Business Activity.  After hitting its highest level since August 2005 back in March, the index is now at its lowest level since August 2016. Overall, the July ISM Services report wasn’t a disaster, but it certainly wasn’t a picture of strength either.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.