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21Aug2015 Market Update: Oils Descend To New Lows, Global Markets Deep In Bear Country As The Long Awaited Correction Begins

Written by Gary

The 'melt-up correction' in today's session hasn't happened as suggested earlier, but a continued decline today almost assures a 'bounce' to balance out a very oversold market on Monday. The U.S. dollar and oil continue to seek out new lows placing enormous downward pressures on global markets.

The DOW is off triple digits again today as the $VIX has climbed over 20 for the first time since November, 2014 and matching December 2012, very bearish trend if it continues.

Here is the current market situation from CNN Money

North and South American markets are sharply lower today with shares in U.S. off the most. The S&P 500 is down 1.92% while Mexico's IPC is off 1.78% and Brazil's Bovespa is lower by 1.23%.

The long awaited 'correction' has started in earnest, now various pundits will discuss how far will the markets go down and is this the 'bottom' without having a clue to what they are talking about? I freely admit up-front that I am making SWAG's. (Which are much better than most pundits.)

World stocks are heading for their worst week of the year after data showed global manufacturing contractions and lower crude prices hurting the bottom-line of many multinational companies.

When oil prices started to fall a year ago, some analysts thought, incorrectly, the drop would be small and short-lived. Instead, the price of crude has plunged by almost 60% from its 2014 peak as I suggested it would months ago.

Traders Corner - Health of the Market

Index Description Current Value Members Sentiment: % Bullish (the balance is Bearish) 46%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 6%
Investors Intelligence sets the breath Above 50 bullish 40.4% Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold.

-44.93 NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages.

32.97% NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash.

42.69% S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction.

46.00% 10 Year Treasury Note Yield Index ($TNX) ten year note index value 20.50 Consumer Discretionary ETF (XLY) As long as the consumer discretionary holds above [66.88], all things being equal, it is a good sign for stocks and the U.S. economy 75.27 NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors


What Is Moving the Markets

Here are the headlines moving the markets.

Oil sinks to $40, logs longest weekly losing streak in 29 years

NEW YORK (Reuters) - U.S. oil prices dived again on Friday, threatening to dip below $40 a barrel for the first time since the financial crisis and notching their longest weekly losing streak since 1986, as a drop in Chinese manufacturing rattled global markets.

VIX Sept 50 Calls In Play: Someone Is Bidding Market Collapse Insurance

It's amazing to think that just earlier this week VIX traded at 13: as of this moment it is up nearly 100% since Tuesday (and all those 'sure thing' shorters of VXX are about to get some very unpleasant margin calls).

But what would be far scarier is if whoever is suddenly offering a nickel for the VIX Sept 50 calls actually knows something.

Because if he "does", that would suggest a market move 'Straight out of Lehman.'

Alternatively, those who are confident there is no risk of a plunge in the next few weeks should just hit the bid until the buyer pulls it: after all, what can possibly go wrong with collecting nickels, literally, in front of a central bank steamroller (one made, appropriately, by CAT) that is rapidly losing credibility.

Disappointing business surveys intensify world growth fears

LONDON (Reuters) - Signs China's economic slowdown is deepening and weak growth in Europe and the U.S. reported on Friday further damaged the outlook for the global economy, sending stocks and commodity prices reeling.

Stocks pounded for a fourth day as China reels

(Reuters) - The rout in U.S. stocks continued for the fourth straight day on Friday, with all three major indices down more than 1 percent, as fears of a China-led global slowdown were heightened after grim data overnight.

Plunge Protection Teams Of The World, Unite!

Submitted by Charles Hugh-SMith of OfTwoMinds blog,

The herd must be turned away from selling by any means available, and at this point, that means coordinated buying by all the world's Plunge Protection Teams.

Central bankers are watching Marx's dictum all that is solid melts into air play out in global stock markets with a terror informed by the scalding memories of 2008's global financial meltdown.

Once the trap-door opens, there is no bottom without prompt action by the world's Plunge Protection Teams--the plausible-deniability action heroes of the hyper-speculative status quo who leap into action when global stock markets threaten to melt down.

After half a decade of ceaseless saves, we all know the mechanics of Plunge Protection.

Since the majority of trading is now done by software programs (trading bots, algorithms, etc.), the first step is to create positive momentum so the bots will detect an "up day" and buy, buy, buy.

The easiest way to generate positive momo is to buy a truck load of S&P 500 futures in a time of low volume, where the impact will be the greatest. usually this is pre-market open.

If this fails, the next step is to send a central bank Talking Head out to discuss more quantitative easing. Announcing the central banks' readiness to do more of what has goosed markets higher for six years will generally spark a buying frenzy, as those who have bet against central banks over the past six years have had their heads handed to them on a platter.

If this fails, grandiose but purposely vague claims of "doing whatever it takes" are issued. there is no need to actually have a plan, or to lay out a plan in public; the open-end ...

Blood On The Streets Of Europe - Stocks Crash By Most In 4 Years, Bond Risk Surges

Carnage - everywhere. A surging EUR - as CNH carry traders unwind en masse - has led to an unwind across most risky assets in Europe. This week saw EuroStoxx 600 - the broad index - crash almost 6%, its biggest drop since September 2011. Perhaps most stunningly, Germany's DAX was the biggest loser - collapsing 7.4% on the week. European bonds are are also seeing risk increase dramatically with Portugal and Italy worst (aside from Greece's blowout). Europe's VIX topped 30 this week, as US VIX surges.

Worst weeek for European stocks in 4 years..

Led by a complete collapse in DAX...

And European bond risks - despite Draghi's promises - are blowing wider...

Europe's VIX hit 30 this week...

S&P 500 Breaks Below 2,000, Crashes Into Red Year-Over-Year

The S&P 500 index has broken below the crucial psychological 2,000 level for the first time since late January. This is the biggest collapse in stocks since June 2013 (bigger than October's plunge - which was only rescued by Bullard's threat of QE4). What is perhaps most worrisome for the trend-followers - the S&P is now down year-over-year for the first time since May 2012... which once again brought The Fed out with moar QE.

The S&P 500 has broken below the crucial 2,000 level...

And The S&P 500 is now down YoY for the first time since May 2012...

Paging Laszlo Birinyi...

Charts: Bloomberg

Russell Napier Lays Out The Trigger For The Next Emerging Market Crisis

Submitted by Finanz und Wirtschaft

Russell Napier, independent strategist and founder of the research platform ERIC, expects a series of defaults in emerging markets following the depreciation. In this environment, the Fed would not increase rates and might even launch another round of quantitative easing.

Mr. Napier, you have been arguing for quite some time that China needs to devalue its currency. Did you expect such a step this year?

It is very hard to guess the timing of such a political decision. However, the probability of this happening increased pretty much this year because Chinese currency reserves were declining and domestic interest rates were not coming down, despite the liquidity measures by the central bank. We have seen Chinas reserves falling before, in 2012. But back then, Beijing managed to turn it around by pushing up capital imports. The last straw was the collapse of the stock market. The Chinese authorities realized that the chances of pulling in more capital were limited and that therefore, the decline of the reserves would likely continue if they did not adjust the exchange rate.

You do not believe that the devaluation was motivated by the aim to make the RMB an accepted reserve currency, as officially stated?

The main motivation behind the move was to create easier monetary conditions. You cannot combine an exchange rate target, an external deficit and easy money at the same time. We know that China wants easy money. Given it has an external deficit which it could not turn around this time, it had to move the exchange rate. China devalued the RMB simply to bring interest rates down.

But interest rates went up after the move?

Domestic interest rates are not coming down. Until they do and credi ...

07 August 2015: ECRI's WLI Growth Index Returns to the Dark Side - Economic Slowing Forecast.

ECRI's WLI Growth Index which forecasts economic growth six months forward - just slipped back into negative territory. This index had spent 28 weeks in negative territory then 15 weeks in positive territory - and now returned to negative territory. ECRI released their coincident and lagging indicators for July this week.

Is The Oil Crash A Result Of Excess Supply Or Plunging Demand: The Unpleasant Answer In One Chart

One of the most vocal discussions in the past year has been whether the collapse, subsequent rebound, and recent relapse in the price of oil is due to surging supply as Saudi Arabia pumps out month after month of record production to bankrupt as many shale companies before its reserves are depleted, or tumbling demand as a result of a global economic slowdown. Naturally, the bulls have been pounding the table on the former, because if it is the later it suggests the global economy is in far worse shape than anyone but those long the 10Year have imagined.

Courtesy of the following chart by BofA, we have the answer: while for the most part of 2015, the move in the price of oil was a combination of both supply and demand, the most recent plunge has been entirely a function of what now appears to be a global economic recession, one which will get far worse if the Fed indeed hikes rates as it has repeatedly threatened as it begins to undo 7 years of ultra easy monetary policy.

Here is BofA:

Retreating global equities, bond yields and DM breakevens confirm that EM has company. Much as in late 2014, global markets are going through a significant global growth scare. To illustrate this, we update our oil price decomposition exercise, breaking down changes in crude prices into supply and demand drivers (The disinflation red-herring).

Chart 6 shows that, in early July, the drop in oil prices seems to have reflected primarily abundant supply (related, for example, to the Iran deal). Over the past month, however, falling oil prices have all but reflected weak demand.

Deere shares fall 8 percent following weak third-quarter results

(Reuters) - Deere & Co reported that third-quarter profit tumbled 40 percent on weak demand for agricultural equipment and a stronger dollar, and gave a bleaker forecast for fourth-quarter equipment sales, sending shares sliding more than 8 percent.

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