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  • DJIA, shed 1.3%, wiping out their gains for the third quarter.
  • The S&P 500 index lost 1.2% at 2,940.
  • the Nasdaq Composite Index dropped 1.1% to 7,908.

Wall Street stocks were ending in a sea of red and gave up early gains on Tuesday following the surprise reading in US manufacturing activity which fanned the fears of an economic slowdown. Subsequently, the Dow Jones Industrial Average, DJIA, shed 1.3%, wiping out their gains for the third quarter. The S&P 500 index lost 1.2% at 2,940, while the Nasdaq Composite Index dropped 1.1% to 7,908.

Bad bot not that bad

September’s reading of 47.8 for the index was the lowest since June 2009, with all major sub-indices (production, new orders and employment) in contraction territory, i.e. below 50. “The last time the ISM manufacturing sank that low, outside of a recession, was in 2003. While we acknowledge the ongoing trade war is wreaking havoc and weighing significantly on factories worldwide, we advise caution in interpreting September’s U.S. ISM manufacturing index,” analysts at  NBF Economics and Strategy explained, adding, however,  “we’re still well above the 42.9 mark which even the ISM says “generally indicates an expansion of the overall economy”. So, while manufacturing woes are not good news, they do not preclude continued expansion of the U.S. economy.

DJIA levels

The DJIA was finding support on the 21-day moving average but test trend-line resistance around 27000 was too much and the bears have taken the index down to test the 50-DMA now. A break there opens risk of a 50% mean reversion of the August to recent swing highs at 26379 which guards territory down to the low 26000s that meets a 61.8% retracement.