U.S. averages slowly melting up from a dismal opening but still remain in the red while WTI oil is skyrocketing upwards moving into the 48's - will it last? Many warning signs of a continued downward market remains. $VIX still high, Market action subdued and buyers are getting hard to find.
Here is the current market situation from CNN Money
North and South American markets are mixed. The IPC is higher by 0.18%, while the Bovespa is leading the S&P 500 lower. They are down 1.44% and 0.58% respectively.
$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.
Commentators are linking the current market turmoil to problems in China. Our team sees the oil price as the main driver behind the market route. Low oil prices are positive for consumers and it will lower production costs for numerous industries. However it will also lower the investments in energy such as sustainable energy and oil producers will see their high profits turn into losses. Low oil prices have devastating effects on the financial sector that is involved in lending to the oil industry and in the trade of oil related derivatives. World oil production is about 90 million barrels a day, representing a cash flow of about nine billion dollars a day which comes down to three trillion dollars a year. With the oil price 40 to 50% lower, this flow is also cut by 40 to 50%. This amounts to 10% US GDP. Compare it with the 0.5% growth we are now missing in China, we prefer to keep our eyes on the oil price. These extreme moves can not be without consequence.
Many oil producers receive a fixed price for their oil as they covered their production with price insurance in the form of derivatives. With the current oil price, we just guess insurance providers paid out about 35 dollars a barrel to compensate the losses of the producers. Only for the US shale production this amounts roughly to 120 Million dollars a day. Somehow the financial sector has to cover these losses.
The US Energy Information Administration (EIA) stated in 2014 that most shale producers revenue has covered 75% of the production costs including initial investments, back then the oil price was about $95 ...
While most technicians, especially under central planning when the best laid charts can collapse overnight when Yellen sneezes or the BOJ decides to monetize more than 100% of its gross annual treasury issuance, have the same track record as a windsock some are most respected than other, thereby creating a self-fulfilling prophecy based on their forecasts. Chief among them is Tom DeMark, whose "math based" pattern analysis has been used by such hedge funds as SAC during its golden years (supposedly to solidify the "sure thing" that expert networks had previously leaked). DeMark bristles at being called a technician: "We identify areas of trend exhaustion, whereas technicians are trend followers. So it's not really the same." Whatever he is, it has worked well in the past more often than not.
Earlier today, DeMark appeared on Bloomberg TV and had some more bad news for both Chinese stocks (in case the plunge from up 60% on the year to down 10% is not bad enough) whose drop DeMark did predict accurately, but also for BTFDers of the S&P500.
This is what he told Bloomberg TV's Tom Schatzker earlier today on what to expect in the Shanghai Composite:
What we see in China is a continued slow and slowing decline in the market. And June 12th, when the market was at 5177, we predicted a decline that would take us down to 3198. We had projected downside. And it was pretty much in track with the decline in 1929... We thought it could develop into something similar to 1929, but it was a longshot and we got a lot of publicity. And people didn't pay any attention to the follow-up, which is that the market had to meet certain preconditions, and the market reversed upside. There are ...
SAN FRANCISCO (Reuters) - The waves of cash surfed relentlessly by some of Silicon Valley's largest venture-backed businesses are showing signs of receding amid concern the companies may already be worth more than their likely valuations once they finally go public.
SHANGHAI (Reuters) - Chinese state media announced a slew of confessions on Monday following investigations into dramatic stock market fluctuations, including from a reporter who said he had spread false information that had caused "panic and disorder".
If not for the squeeze at the end of last week, this would have been European stocks' worst week since Lehman. However, with the 'save' Stoxx 600 (Europe's S&P 500) dropped almost 9% - its biggest drop since the peak of the EU crisis in 2011...
Worst month since 2011...
Saved from even worse collapse by last week's rescue..
The equity market momo-igniters tried USDJPY - and failed. Then they tried XIV - and failed. So what next? WTI crude of course which has just exploded back to Friday's highs, with Brent Crude also breaking back above $50.
It appears the catalyst this time may be a stray OPEC headline:
OPEC READY TO TALK TO OTHER PRODUCERS TO ACHIEVE `FAIR PRICES'
And then one asks: what OPEC? Didn't Saudi Arabia destroy the cartel last November.
For now, however, welcome to the Penny-Oil market:
Friday high stops have been run - now run to the lows to test those stops?
Finally, let's not forget that today is month end for the person many expect will be oil's second casualty in one year - Andy Hall, who late in 2014 blew up once already, and should oil have continued its gravitational descent, would have been in line for a second hedge fund closure in under 12 months. So is it just month end window dressing by all those underwater commodity managers? Why, of course.
This year, some American executives who heeded loud calls for across-the-board wage hikes for America's lowest-paid workers received a complimentary refresher course in undergad economics courtesy of the free market.
Take Dan Price for instance, the 31-year old CEO of Seattle-based Gravity Payments Systems who found out the hard way that setting the pay floor at $70K comes with all manner of unintended consequences.
And then there's Wal-Mart.
Earlier this year, the retail behemoth became one of several corporate heavyweights to raise wages for its meagerly compensated workers, around 500,000 of which are now set to receive at least $9/hour and $10/hour by Q1 2016. The move will cost somewhere around $1 billion this year.
Now one thing that should have been abundantly clear from the start is that if ever there were an employer that could ill-afford a $1 billion across-the-board pay raise without immediately making up the difference by either firing some employees, cutting hours, or squeezing the supply chain it's Wal-Mart. After all, they're the "low price leader", and you don't hold on to that title by passing labor costs on to customers.
Predictably, the company moved to extract more "value" from its suppliers and when that didn't prove sufficient, the folks in Bentonville brought in the "plumbers."
German bonds are under significant pressure again this morning - despite equity weakness and US Treasury strength. This raises the rather interesting question of whether - after decimating Treasuries last week, is China turning to its Bund holdings and liquidating them to raise cash?
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