U.S. futures off modestly this morning on the back of global weakness… emerging markets continue to struggle and the Shanghai Comp Index has given back all of yesterday’s gains… the USD is only modestly stronger and we expect the 10-year (TNX) to drop a bit today as the Treasury markets firm up against equity market declines.

We continue to look for elevated volatility in the September-October timeframe, as momentum has slowed noticeably during our latest run-up to new secular highs. Typically, when divergences like this appear (between price and momentum), a corrective cycle is not far off. We still view any correction ahead as occurring within a broader reflationary expansion cycle- so the disruption so prove temporary.

For initial trading support on the S&P 500, we are raising the level to the 2850-2870 range; thereafter, the key line in the sand remains at 2800 (red circles below):

SPX in 2018

With renewed weakness overseas, the oversold rally we saw on the VEU (all-world equities, ex-the U.S.) appears to be over- and we must wait to get confirmation of stabilization / basing effort in sessions ahead- support remains at $50:

VEU: recent oversold rally could not break through initial resistance…

Continue to watch the 10-year- that topping pattern we’ve been watching remains on the daily charts, with a key level still at 2.80%:

TNX: 2.902%-  2.80% remains key support on this topping pattern-

If global equity market weakness does (finally) spread to the U.S., we would likely see a rotation into TSYs which would trigger a break below 2.80% on the chart above- sending 10-year yields closer to the 2.25-2.50% range for secondary support.

Bottom Line:
We continue to grow more cautious on a short-term basis- we believe the loss of momentum during the most recent drive to new highs is a notable development and may point to a bigger correction in the weeks ahead. We are watching the 2850-2870 range for initial trading support on the S&P 500- however, the more important level remains near 2800 in our opinion. Investors should consider taking some profits, or raising stops on profitable positions.