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31Aug2015 Market Update: DOW Off 97 Points, Markets Pausing Previous Bullish Action, Oil Going Crazy Upwards

Written by Gary

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.

Traders Corner - Health of the Market

Index

Description

Current Value

Investors.com Members Sentiment:

% Bullish (the balance is Bearish)

58%

CNN's Fear & Greed Index

Above 50 = greed, below 50 = fear

15%

Investors Intelligence sets the breath

Above 50 bullish

27.4%

StockChart.com 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.

20.89

StockChart.com 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.

24.06%

StockChart.com NYSE Bullish Percent Index ($BPNYA)

Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash.

34.72%

StockChart.com 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.

32.20%

StockChart.com 10 Year Treasury Note Yield Index ($TNX)

ten year note index value

21.81

StockChart.com 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

75.37

StockChart.com NYSE Composite (Liquidity) Index ($NYA)

Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors

10,202

What Is Moving the Markets

Here are the headlines moving the markets.

Oil Rallies Into Bull Market Territory

Oil prices turned higher Monday on speculation that oil-producing nations might be willing to agree to output cuts to shrink the global glut of crude oil.

Wall St. pares some early losses as oil prices rally

(Reuters) - Wall Street pared some of their early losses in afternoon trading on Monday as energy stocks gained after oil prices rallied sharply.

Forget China - Oil Price Is Main Driver Of Market Turmoil

Via GEFIRA.org,

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 ...

Fed Appears to Hold Line on Rate Plan

Federal Reserve officials emerged from a week of head-spinning financial turbulence largely sticking to their plan to raise U.S. interest rates before the end of the year.

More Bad News From Tom DeMark: "We Should See The Market Drift Lower For The Next Month"

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 ...

This Is Oil's Biggest 3-Day Rally In 25 Years

Is Andy Hall calling in every favor possible, and painting the tape to save his career?

... Or just an epic short squeeze ramp to the 50DMA at $49.36?

Another look at the ridiculous move which stands out in the entire commodity complex (courtesy of nanex):

Credit markets do not appear to buying this as a long-term cashflow-sustaining move...

It appears no one is really buying this. Massive protection buying oil volatility markets suggest this is anything but sustainable...

Venture capital cash surfers may see waves recede in market turmoil

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.

China state media announce confessions in stock market investigations

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".

European Stocks Suffer Biggest Monthly Loss In 4 Years

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..

Charts: Bloomberg

The Oil Volatility Farce Continues: Oil Now Surging As OPEC Hints At "Fair Price" Talks

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.

Economics 102: WalMart Cuts Worker Hours After Hiking Minimum Wages

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."

But the story didn't stop there. Late last month

Is China Dumping German Paper Now? Bund Prices Are Collapsing

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?

Bunds crushed to one-month lows...

as 10Y yields spike to 6-week highs...

Charts: Bloomberg

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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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