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21Aug2015 Market Close: DOW Down 531 Points, $NDX Off 4.28 %, Oil Falls Below $40, What Else Could Possibly Go Wrong?

Written by Gary

A late-day selloff amid growing concern about the world economy sends the Dow 531 points, the SP500 down 3.19% and rounding off the three major indexes that have lost ALL of their 2015 gains was NASDAQ off 171 points or down 3.52%. The $NDX was off an incredible 4.28%
The second-straight session where Wall Street was hammered as global-growth concerns continued to disappoint investor sentiment

Fresh evidence that China's economy is slowing spooked investors into another session session of steep losses that pummeling stocks and commodities.

Todays S&P 500 Chart

U.S. oil prices traded below $40 a barrel (39.88) for the first time since the 2009 financial crisis, ending two percent lower on signs of U.S. oversupply and weak Chinese manufacturing.

One analyst noted, 'Is the US equity market done falling? Unless The Fed unleashes QE4, nope'!

In the short term, Reuters noted, 'the large number of stocks in a downtrend may actually help produce a bounce, especially as some sentiment indicators such as equity put/call ratio ...' The guessing begains.

The Market in Perspective

Here are the headlines moving the markets.

Oil ends down more than 2 percent as U.S. drilling points to glut

NEW YORK (Reuters) - U.S. oil prices traded below $40 a barrel for the first time since the 2009 financial crisis, ending 2 percent lower on Friday on signs of U.S. oversupply and weak Chinese manufacturing and notching the longest weekly losing streak in almost three decades.

Wall Street plunges on global economic worries

(Reuters) - The S&P 500 suffered its biggest daily percentage drop in nearly four years on Friday as fears of a China-led global slowdown continued to rattle investors.

Expensive Shake Shack short bets may have paid off

SAN FRANCISCO (Reuters) - Investors short-selling Shake Shack Inc may have made money over the past week, even after paying exorbitant interest rates to borrow the stock.

Why The Market Is Crashing Into The Close: JPM Explains

Curious why someone just pulled a trapdoor from under the market? JPM's Marko Kolanovic, head of quant strategies explains.

Impact of option hedging on the S&P 500 into the close

S&P 500 put option gamma exceeded call option gamma by more than $50bn prior to the option expiry this morning. This was the highest S&P 500 put gamma imbalance ever. The impact of this imbalance was evident in the intraday market momentum developed from 3:30PM to the close yesterday. The Figure below left show yesterday's intraday price action for the S&P 500. We note that the market selloff accelerated into the close, with a 60bp fall in the last 30 minutes. Consistent with theory on the impact of gamma hedging (see our report Impact of Derivatives Hedging), this temporary market impact reversed near the market open today (57bps recovery in the first 30 minutes, right Figure).

Despite the fact that S&P 500 options expired this morning, put gamma is still higher than call gamma by ~$38bn, which is a large imbalance (on account of other S&P 500 option maturities and SPY options expiring at the close). This can lead to further selling pressure into the close today.

Given that the market is already down ~2%, we expect the market selloff to accelerate after 3:30PM into the close with peak hedging pressure ~3:45PM. The magnitude of the negative price impact could be ~30-60bps in the absence of any other fundamental buying or selling pressure into the close.

Good luck.

The Stock Market Is In Trouble: How Bad Can It Get?

Submitted by Pater Tenebrarum via Acting-Man.com,

A Look at the Broader Market's Internals

We have previously discussed the stock market's deteriorating internals, and in light of recent market weakness want to take a brief look at the broader market in the form if the NYSE Index (NYA). First it has to be noted that a majority of the stocks in the NYA are already in bearish trends. The chart below shows the NYA and the percentage of stocks above their 200 day and 50 day moving averages, which is 39.16% and 33.77% respectively.

When more than 60% of stocks in the broader market trade below their 200 dma with the SPX not too far off an all time high, it is clear that cap-weighted indexes are helped up by an ever smaller number of big cap stocks. This typically happens near important trend changes, but it is not always certain that the market will decline significantly when such a divergence occurs.

Beer-Stier

Is he about to make his entrance?

Cartoon via wallstreetsurvivor.com

One possibility is also that the market merely corrects, and resume its rally once a sufficient number of stocks becomes oversold. That said, the broader market hasn't made any headway in more than half a year, with the volatility of major indexes and averages declining to multi-decade lows. It is certainly tempting to classify this period as one of distribution, especially given recent weakness.

In the short term, the large number of stocks in a downtrend may actually help produce a bounce, especially as some sentiment indicators such as equity put/call ratio ...

Tesla engineer joins Apple's growing team of automated car experts

DETROIT/SAN FRANCISCO (Reuters) - Consumer electronics company Apple Inc has hired a senior engineer from electric car maker Tesla Motors Inc , according to a LinkedIn posting, as part of Apple's effort to build a team of experts in automated driving.

In a Twist, Europe May Find Itself Relying on Success of Alexis Tsipras of Greece

The unpredictable prime minister, Alexis Tsipras, who has called for a new election, may represent the best hope for guiding Greece to stability.

"No Brainer" AAPL Enters Bear Market

Following the biggest 4-day decline in AAPL stock since Jan 2014, the "no brainer" once-darling of the investing world has just officially entered a bear market, down 20% from its April record highs.

The break below $107.63 brings AAPL into a bear market...

For the biggest 4-day drop since Jan 2014...

When does Carl Icahn's discipline kick in? Or is he on the iBuyback line right now with Tim Cook?

Charts: Bloomberg

Not There Yet

Is the US equity market done falling? Unless The Fed unleashes QE4, nope!

For 6 years, only one thing has mattered...

And it still does!! That's why, in the end, it's not over yet...

The S&P is still over 100 points rich to the Fed balance sheet.

We're gonna need a bigger balance sheet!!

Charts: Bloomberg

Saudis Could Face An Open Revolt At Next OPEC Meeting

Submitted by Dalan McEndree via OilPrice.com,

OPEC next gathers December 4 in Vienna, just over a year since Saudi Oil Minister Ali Al-Naimi announced at the previous OPEC winter meeting the Saudi decision to let the oil market determine oil prices rather than to continue Saudi Arabia's role of guarantor of $100+/bbl oil.

Despite the intense financial and economic pain this decision has inflicted on Saudi Arabia, its fellow OPEC members, and other oil producers, the Saudis have given no indication they plan to alter course. In fact, Saudis have downplayed the impact of lower prices on their country, asserting that the kingdom has the financial wherewithal to withstand lower oil prices.

Presumably swayed by Saudi equanimity, financial markets do not see the Saudis abandoning their current policy before, during, or after the upcoming OPEC meeting. CME Brent oil futures project continuity: as of August 18, 2015, CME Brent futures projected the price remaining below $60/bbl until June 2017. A CNBC poll of oil traders, analysts, and major fund investors, aired on CNBC August 17, showed 95 percent believing the Saudis will not alter course.

Are the futures market, CNBC's oil traders, analysts, and major fund investors, and others, being lulled into an unjustified consensus?

The damage the Saudi decision has inflicted on Saudi Arabia itself provides reasons for the Saudis to change course.

Saudi Policy: OPEC-centric or Self-Serving?

Stresses within OPEC should add to the pressure on the Saudis to rethink t ...

U.S. Oil Prices Drop Below $40 for First Time Since 2009

The rise in rigs, which is emerging now after a second quarter lull in prices, is adding to concerns American shale production is proving slow to respond to falling prices, prolonging a global glut.

Boeing on track to meet 737 MAX production targets: spokesman

(Reuters) - Boeing Co remains on track to meet production targets it has set for its 737 MAX jetliner, a company spokesman said on Friday following a report on industry concerns that slow output at supplier GKN PLC could cause delays.

HFTs Get Blamed For China's Market Crash

On Thursday afternoon we warned:

dear HFTs, get ready to be the scapegoats

â€" zerohedge (@zerohedge) August 20, 2015

That could obviously apply in a number of jurisdictions, not the least of which are US equity markets which suddenly seemed to have lost their way amid Fed confusion, EM turmoil, and an FX bombshell out of China.

Indeed we've long said that the vacuum tube crowd will be trotted out as the culprit if and when central planners finally lose all control both of markets and the narrative, and nowhere are authorities losing control of both more quickly than in China, where keeping the equity dream alive via a CNY1 trillion plunge protection scheme is becoming more and more difficult by the day. To wit, from overnight:

Perhaps the biggest surprise about the overnight Chinese stock rout is which followed the lowest manufacturing PMI since March 2009, is that it happened despite repeat sellside pleas for a PBOC RRR cut as soon as this weekend: usually that alone would have been sufficient to push the market back into the green, and it almost worked when in the afternoon session stocks rebounded after dropping as much as 4.7% below the "hard" floor of 3500, but then a second bout of selling just before the close took Chinese stocks right back to the lows with the Shanghai Composite closing at 3,507, down 4.3% on the day, having wiped out the entire 18% rebound from July 8 when the PBOC first threatened both sellers and shorters with arrest.

Which is probably why threats of harm had to be repeated: around closing time, the Chinese SEC said it was investigating major stakeholders of listed companies ...

No Bullard Bailout Today: Unscheduled Fed President Comments Leave BTFDers Bent Over

The last time Bullard made unscheduled comments during a market crash, was last October when he hinted at QE4 and the market went vertical. Moments ago the St. Louis Fed president once again was quoted by Bloomberg, this time speaking on SiriusXM of all places, although much to the chagrin of Pavlov's BTFDers, he had absolutely no soothing words for what is a week the permabulls would love to forget.


ST. LOUIS FED'S BULLARD SPEAKS ON SIRIUSXM BUSINESS RADIO

BULLARD SAYS MORE SANGUINE THAN MARKET ON GLOBAL OUTLOOK, CHINA

BULLARD: FED WILL ASSESS ECONOMIC PROGRESS AT SEPT. FOMC

BULLARD: LOT OF GOOD THINGS HAVE HAPPENED IN U.S. LABOR MARKET

BULLARD: WE'RE IN VERY GOOD SHAPE WITH RESPECT TO LABOR MARKET

BULLARD SAYS HE SEES U.S. JOBLESS RATE DECLINING FURTHER

The funniest line by far:

BULLARD SAYS FED DOESN'T REACT DIRECTLY TO EQUITY MARKETS

Yeah, we are still laughing at that one... But worst of all for the 17 year old hedge fund managers:

FED'S BULLARD SAYS U.S. GROWTH OUTLOOK IS "RELATIVELY GOOD"

Which is horrible news for those begging for QE4 yesterday.

Oh well - if the Fed won't prevent a 10% correction, check back when we are approacing an S&P bear market.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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