Global stock markets liquidation accelerated to the downside yesterday with the S&P having one of its worst days since of the year. On the day the (ESU15:CME) closed at 2025.40, down 47.3 points, or -2.1%, the Dow futures (YMU15:CBT) closed at 16917.00, down 368 points, or -2.1%, to its lowest level since last October, and the Nasdaq futures (NQU15:CME) tumbled -2.8% to 4366.25, off 137.5 points. The Vix closed up 25.5%, oil rallied off a 6 year low, gold saw its largest 1 day rally in four months( +2.2%), and the 10-year Note bond yield closed at its lowest level since April (128’10.5), as investors worry about the possibility that the Federal Reserve will raise rates soon, and worries over the state of the global economy.
MOMENTUM SHIFT
Over the course of the last 3 to 4 years of the 6 year bull market run, the S&P was going up on an economy that was upticking, continued job growth and zero borrowing cost. Because of this, investors flocked to the US in a ‘nowhere to go but buy stocks’ mentality. During this time the S&P deflected almost everything in its path. Big investment firms and mutual funds poured money into US stocks because the zero borrowing cost has been the main driver of the unending chain of stock buybacks. Stock markets around the world were making new highs almost daily, but as global growth slowed, so did some of the world’s largest economies.
While it’s clear to see the US is slowing, the weakness is not all home grown, and is now being dragged down by China and Europe who seem to go from one economic crisis to the next. After Europe cleaned up the most recent Greek credit crisis, Puerto Rico has become a problem in the US. In Asia, where the Shanghai Composite went straight up for the last two years, has been falling dramatically over the last month and a half, and Hong Kong’s Hang Seng Index has fallen into a bear market, falling over 20% from their peaks set back in April. China has started a currency war and the continued slide in the commodity slide is now starting to hit the emerging market currencies. Clearly the big institutions that have been buying stock in the last 6 years are not moving, they are getting out. Does this mean the bull market is over, or is this just another bump in the road to higher prices? Right now warning lights are flashing, and while Asia and Europe are seeing many of their stock markets fall into bear market territory, most of the selling is long over due. Historically, late August into the middle of October are when US stocks have seen most of their corrections and crashes, so the timing of the global sell off could not come at a more volatile period.
Today is the Friday of the August options expiration, and the end of a week that showed positive statistics throughout. Last night the Asian markets closed sharply lower across the board and this morning 12 out of 12 markets in Europe are down 1% to 2%. On Globlex last night the ESU15 traded all the way down to 2108.75. We put out 2038 as our main support level yesterday and it held the first time down but failed late in the day pushing the futures down to 2025.50. In the past few months, I have questioned how many times the S&P could sell off and bounce before it kept going down, and we are seeing our answer right now. The next level we are watching now in the ESU15 is 1980.
In Asia, 10 out of 11 markets closed lower (Shanghai Comp. -4.27%), and in Europe 12 out 12 of markets are trading lower (DAX -1.67%). Today’s economic calendar has only one economic release, PMI Manufacturing Index FLASH, and earnings from DE, FL, HIBB, DSKY, GRO, and GMAN.
Our View: Its 8:45 CT, and over 500,000 ESU15 have traded, and there is still 45 minutes before the open. If you look at the S&P it is actually doing much better than its foreign counterparts. Yesterday I was right about buying silver and gold, and I was right about the ES trading down to 2038, but i was way off on my thinking there could be a 20 handle bounce. This morning, as bad as things look, I still think the S&P is overdue for a bounce. Our view is to buy the early weakness and sell rallies.
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In Asia 10 out of 11 markets closed lower: Shanghai Comp. -4.27%, Hang Seng -1.53%, Nikkei -2.98%
- In Europe 12 out of 12 markets are trading lower : CAC -1.44%, DAX -1.67%, FTSE -1.28%, MICEX +1.00%, at 6:00 am CT
- Fair Value: S&P -3 , NASDAQ -2, Dow -33.
- Total Volume: 2.6mil ESU and 10k SPU traded
- Economic calendar: PMI Manufacturing Index FLASH
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