Note: Our nightly “S&P 500 Outlook, Forecast, and Trading plan for Thursday, 08/16” will be posted around 8:30am EDT, Thursday.
THE GIST (“THE WHAT”)
Plunging oil prices, coupled with a sharp decline in metal prices dragged the S&P 500 index sharply lower at the open. Disappointing earnings from Macy’s Inc. and Chinese tech-giant Tencent Holdings further fueled the investor pessimism. In a major technical damage, the index was unable to hold on to its 20 DMA (after successfully testing it in the past 3 sessions), breaching the key 2810 support level and barely staying less than 3 points above the psychologically important 2800 level.
Falling sharply at the open, the index registered the day’s low at 2802.49 in the early hours. Trading mostly lower and bouncing on the critically important 2810 support level, the index rebounded in the last hour of the session, closing off session lows at 2818.37 (Closing less than 2 points below the bearish territory indicated by our models and just 0.37 points above the lower bound of the trading range suggested by our intraday aggressive models to trade off of. Click here to read the full report), down a sharp 21.59 points and losing 0.76% over the previous session’s close. Trading volume was sharply higher indicating a presence of institutional investors in today’s sell-off.
THE DETAILS (The “How & Why”):
Energy sector led the day’s declines, falling sharply by 3.51% as oil prices registered a 2-month low following the EIA (Energy Information Administration) report indicating a sharp increase in U.S. crude oil stockpiles. Strengthening dollar further weighed down on the oil futures. Marathon Oil Corp. and Anadarko Petroleum Corp. were the worst performers in the sector, losing 7.09% and 6.93% respectively.
Materials stocks were the next big drag on the index, falling 1.55%. Copper prices fell more than 2%, entering into a bearish territory and dragging down mining stocks. Commodity prices were also down across the board on concerns of falling demand as trade and geopolitical tensions continue to stroke currency crisis in the emerging markets.
Macy’s Inc. erased its last session gains on pre-earnings release optimism, dragging the broader Consumer Discretionary sector lower by 1.22%. The retail-giant was the worst performer in today’s session, falling sharply by 15.95% despite beating profit estimates and raising its future guidance.
Tencent Holdings Ltd reported a surprise decline in its profits. Disappointing earnings released by this Chinese tech-giant weighed down on the broader Technology sector as investors look for cues of growing trouble within the industry. The sector ended the session lower by 1.07%.
The index attempted to pare losses in the afternoon session following news that Qatar has pledged a $15 billion direct investment in Turkey. The Turkish Lira extended its rebound for the second straight day on optimism of freshly infused liquidity into the struggling economy. Retaliating against the U.S. sanctions, the Turkish President Recep Tayyip Erodogan raised tariff on several American products further lifting the country’s currency higher.
Financials, Industrials, and Health Care sectors were the other decliners in today’s session, down 0.68%, 0.48% and 0.16% respectively. Treasury yields fell across the board as geopolitical and trade tensions weigh down on investor sentiment.
On the other hand, offsetting some of the day’s losses were gains in Real Estate stocks that were modestly up by 0.84%, benefitting from falling yields. Other interest sensitive sectors including Telecommunications, Utilities and Consumer Staples also gained 0.69%, 0.76% and 0.44% respectively in today’s risk-off trading mood.