Flash Analysis: Dow Sheds 500 Points as China Reacts to Trump’s Tariffs

As US markets opened after the long weekend, the major indices all fell by more than 2% in the first two hours of trading, with a jump in volatility, while risk assets were hit hard across the board. The move was likely triggered by China’s set of new trade tariffs that were announced over the weekend, as trade war fears returned in earnest following last week’s relief, while the worse than expected ISM manufacturing PMI also added to the bearish pressures.

S&P 500 Futures, 4-Hour Chart Analysis

Tech stocks tumbled together with Amazon, as Donald Trump criticized the online giant again pushing it more than 5% lower, while Tesla continued its decline too, as the Nasdaq lost the most in early trading.

Amazon, (AMZN), 4-Hour Chart Analysis

Important technical levels got violated by the Nasdaq, the Dow, and the S&P 500, as the US benchmarks are getting very close to their February lows, which the majority their global peers already breached. The correction that started at the beginning of February could enter its next stage with the break-down following the counter-trend rallies last week.

Volatility Index (VIX), 4-Hour Chart Analysis

With the major European markets still closed today, liquidity is lower than usual and that could lead to hectic trading throughout the session, especially if the indices reach the February lows. For now, the S&P 500 is still 2% above the panic low, while the relatively weak Dow is even closer, with the Nasdaq still holding on to a larger part of the bounce despite last week’s heavy selling in tech issues.

Should stocks spike to new lows traders should be aware of a possible capitulation, as large number of stop loss orders could be triggered, and catching the “falling knife” is dangerous in such a technical setup, so bulls should wait until at least a short-term bottom before entering long positions.

Forex Markets and Commodities Confirm the Risk-Off Turn

Gold, 4-Hour Chart Analysis

The Yen, the Dollar, and gold are up amid the heavy selling in stocks, while risk-on currencies and crude oil are lower as safe haven flows clearly dominate trading. Treasuries are surprisingly stable, as last week’s yield curve collapse paused, and yields are little changed compared to Thursday’s closing levels.

The rest of the session will likely remain volatile, and as the holiday ends in Europe too, tomorrow could bring another round of fireworks.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.