Stocks Plunge as Trump Drops Another Tariff-Bomb

While last week we got used to wild swings in global stocks, today’s roller-coaster ride was the largest of all. The Dow covered 900 points in a few hours, the Nasdaq tumbled almost 6% top-to-bottom, and the S&P 500 also fell almost 4% following yet another “shocker” from Donald Trump. We expected another attempt from the President to reset the narrative before next week’s midterms, and the Chinese tariffs, together with the nex tax-cut proposal were the two main candidates.

Nasdaq 100 Futures, 4-Hour Chart Analysis

The threat of a tariff on all Chinese goods rocked trade-related stocks towards the end of the session, leading to a selling panic into the close with a sharp snapback rally in the last 15 minutes. Despite that, stocks mostly finished in the red, but a few sectors, like financials and consumer goods remained positive amid the rout.

Russell 2000 Index CFD, 4-Hour Chart Analysis

The Volatility Index (VIX) skyrocketed to almost 28, due to the heavy intraday action before moving back below 25 at the close. The reversal pushed the major indices to fresh multi-month low, with only the small-cap Russell 2000 avoiding a new correction low.

That and the earlier European relative strength still provides some hope for bulls that we might be in for a more durable rally after the hectic and bearish weeks in financial markets. According to futures markets, the main European benchmarks are holding up above their lows, but the Asian session will be crucial, given the renewed trade worries.

Facebook (FB), 4-Hour Chart Analysis

While today we had a relative lull regarding quarterly earnings, tomorrow Facebook (FB), Mastercard (MA), Pfizer (PFE), Coca-Cola (KO), Amgen (AMGN), and GE (GE) will all publish their reports totaling more than $2 trillion in market cap just in the US.

With Facebook already being deep in a bear market following privacy scandals and an exodus of young users, there is plenty of space for a snapback rally, even in the current nervous and bearish environment.

Dollar Closes Near Highs as Currencies Remain Stable

Dollar Index, 4-Hour Chart Analysis

Treasuries had a very volatile session, as first the risk-on shift and the higher-than-expected PCE index helped a rally in rates, but the late-session equity selloff sparked buying in Treasuries again. The Dollar, on the other hand, remained remarkably stable, even following the trade headlines, and the reserve currency finished the session near its highs, as measured by the Dollar index. The EUR/USD pair was virtually unchanged after a choppy session, while the very active USD/JPY pair closed near its highs.

WTI Crude Oil, 4-Hour Chart Analysis

Commodities were less volatile than equities too, but copper had a bearish session due to the weakness in China, and finished close to its lows, being pressured by the renewed trade tensions. Gold caught a bid near the end of the session as equities fell, but it continues to consolidate below its previous swing high, while crude oil is trading just above last week’s lows after a negative US session.

Oil is stuck in a steep short-term downtrend, and barring a sharp reversal in the risk-off trade further multi-month lows below $65 per barrel are likely ahead for the WTI contract.

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Author:
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.