Selloff in US stocks intensify today after China announced to start retaliation on US tariffs on June 1. At the time of writing, DOW is down more than -600 pts or -2.4%, moving further way from 55 day EMA. As noted before, the whole rise from 21712.53 has completed at 26695.96, on bearish divergence condition in daily MACD, ahead of 26951.81 high. The -2.34% decline is S&P 500 and -3.17% decline in NASDAQ put both indices well below 55 day EMA too. Such development affirms our bearish view in US stocks.
Back on DOW, fall from26696.96 is on track to 38.2% retracement of 21712.53 to 26695.96 at 24792.28. Sustained break there will affirm the case that this decline is the third leg of the corrective pattern from 26951.81. DOW should then target 61.8% retracement of 23616.20 and below. This will remain the base case for now as long as 55 day EMA holds.
10-year yield is also in free fall today and breaks 2.4 handle to as low as 2.393 so far. The development is in line with our view that larger decline from 3.248 is resuming through 2.356 low. More importantly, 3-month yield is currently at 2.417. That is, 3-month to 10-year yield curve inversion is back. Given current developments, such inversion would likely persist. That smells big trouble for the US economy ahead.
In the currency markets, commodity currencies are the weakest ones. Yen and Swiss Franc the strongest. No surprise at all.
