GLOBAL STOCK MARKET MELT DOWN

The US stock markets tumbled to their worst losses in four years last week. As we have said many times lately, there are good times and bad times for the stock market, and right now it’s a terrible time. Six and a half years into the US bull market, the S&P 500 futures have been stuck trading in a narrow range, from up +3.5% to down -3.5%, making little progress on either side. Last week the S&P broke out of that pattern having its worst weekly decline since 2011 as the global markets continue to melt down and, China allows its currency to depreciate. Friday’s close topped off a week of heavy selling with $2.8 billion to $3.3 billion in stock sold on the close, and the S&P futures (ESU15:CME) down 54 points, with 4.16 million emini S&P futures contracts traded in the day.

Last Monday, the Dow Jones Industrials were trading above 17400 when the Chinese Central Bank set the yuan at 6.3969 per US dollar, causing a 25 handle drop and closing just below ESU15 2100.00. On Tuesday, copper fell below $5,000 a metric ton for the first time since 2006, and Wednesday gold traded up to $1,128.10 per ounce. On Thursday the ESU15:CME sank 53 handles from its high to its low as Twitter dropped below its IPO price, and on Friday crude oil fell below $40.00 a barrel as the S&P dropped nearly 58 points from its daily high to its low. The CBOE’s Volatility Index (VIX) doubled in price last week.

S&P 500 FUTURES TAKE A BEATING

The S&P took a beating last week. You can see as the volume picked up so did the level of MOC selling. One of the things we have constantly written about is how the MOC buying switched to selling on the last trading days of the March or the last trading day of the first quarter.

THE UGLY FACTS:

• Apple Inc (AAPL) is down 20% from its high and has now entered bear market levels.

• London (FTSE) and Frankfurt (DAX) recorded their largest two-week percentage sell-offs since 2011, pushing both benchmarks well into correction territory. Last week the DAX dropped from the 1650 area all the way down to 960 area.

• The France (CAC) , Spain (IBEX?) , Belgium (????  ) and the Netherlands (?????) have all  fell  into correction territory

• The VIX more than doubled in price last week for its largest weekly increase on record.

• Of the 502 U.S. stocks in the S&P 500 index, 492 fell, leaving 328 in correction territory. Of those losers, 147 have fallen into bear-market territory.

• The Dow Jones Industrial Average closed down for its fourth day in a row on Friday, down over 10.% from it May record high closing down 531 points or -3.1% to 16459, its first 10% correction since the S&P downgraded its rating of US sovereign debt.

• On Friday the S&P fell 3.2%, down 5.8% for the week and off 7.5% from its high and still 2.5% off a 10% correction.

• The Dow Jones Transportation Index is down 14.93% from its December high of 9217.

In Asia, 11 out of 11 markets closed lower (Shanghai Comp. -8.49%), and in Europe 12 out 12 of markets are trading lower (DAX -2.56%). The week’s economic calendar picks up and the number of companies reporting Q2 earnings slows. This week there are a total of 18 economic releases. 10 T-bill or T-bond auctions or announcements, 1 Federal Reserve Bank president speaking and the Jackson Hole Symposium. Today’s economic calendar includes the Chicago Fed National Activity Index, Atlanta Federal Reserve Bank President Dennis Lockhart speech on public pension forum, in Berkley, California, and earnings from PINC, TOUR, MOBI, QUNR, and KANG.

WHAT KIND OF MEAT DO THE BEARS EAT?

Our View: Well, this decline has been a long time coming. Am I surprised? How could I be, knowing all the negative seasonalities and the warnings the PitBull gave about the weakness that occurs starting in the last week of July to the 3rd week of August. The ESU15 was weak in the beginning of last week, but accelerated to the downside on Thursday and Friday, and got destroyed last night falling from 1972.50 all the day down to 1922.50, a 50 handle drop. There was a lot of talk about Friday looking like the ‘87 Crash and today being Black Monday. What scares me about this is how fast the ESU is dropping and it’s only down 7.5% from its high. There could be a lot more room on the downside, but I think the ES is nearing a level it could bounce from. Our view is to be very careful. It’s all fun and games when you’re making a little money but when the ES moves like this, it takes big chunks away. Our view is, there is going to be another pop, and then a drop.

And always remember to use stops when trading futures and options…

In Asia 11 out of 11 markets closed sharply lower: Shanghai Comp. -8.49%, Hang Seng -5.17%, Nikkei -4.61%
• In Europe out of 12 markets are trading sharply lower : CAC -2.81%, DAX -2.56%, FTSE -2.74%, MICEX +1.00%, at 6:00 am CT
• Fair Value: S&P -3.26 , NASDAQ -2.34 , Dow -29.69
• Total Volume: 4.16mil ESU and 18k SPU traded
• Economic calendar: Chicago Fed National Activity Index and Atlanta Federal Reserve Bank President Dennis Lockhart speaks.

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