Continued lack of progress on a trade deal with China caused the indices to gap down to start Tuesday. This isn't surprising and probably would have been shrugged off to some extent, but the August ISM Manufacturing number came in at 49.1 versus a consensus of 51.3. Anything below 50 is deemed to be a contraction and that produced a quick spike to the downside.
Talk about a recession has been building and the ISM numbers help to confirm a slowing economy. That is at least partly due to the trade issue, although it is not going to be remedied quickly or easily.
The main question now is whether this is going to drive the Fed to cut rates more quickly. President Trump has been very critical of Jerome Powell and the Fed about its reluctance to cut rates and the ISM report certainly adds some weight to his criticism.
Technically, the indices are still in the middle of a trading range. While the action Tuesday looks poor it hasn't changed the big picture at all. There is still substantial underlying support as well as significant overhead resistance.
The bearish arguments right now are loud and clear and it is causing negative price action. However, it hasn't yet pushed the indices below key support. The bears have the upper hand, but they are worried that they will be caught leaning too far to the downside when something positive hits.
I covered some index shorts Tuesday morning and will be looking for re-entry at some point. There continues to be little opportunity as far as individual stock-picking. Upside momentum is nonexistent and there is no rush to do any major bottom-fishing.