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03Sep2015 Market Update: U.S. Averages Slipping, Oil Falling Again, U.S. Dollar Showing Strength, Markets May Close Mixed

Written by Gary

U.S. markets remain barely in the green as the afternoon session starts in earnest. Europe closes sharply higher on boosted QE hopes as the ECB said it was ready to give the eurozone a bigger dose of stimulus if inflation did not increase, buoying investors.

WTI oil is once again falling and the markets are following suit as the 'morning' has turned into an 'afternoon dip'. Only an experienced trader can enjoy sessions like this as the 'normal' indicators are either neutral or mixed.

Here is the current market situation from CNN Money

North and South American markets are mixed today. The IPC is up 1.16% while the S&P 500 gains 0.34%. The Bovespa is off 0.13%.

Traders Corner - Health of the Market

Index Description Current Value Members Sentiment: % Bullish (the balance is Bearish) 59%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 11%
Investors Intelligence sets the breath Above 50 bullish 27.6% Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. +9.48 NYSE % of stocks above 200 DMA Index ($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.

20.52% NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 34.67% S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 30.40% 10 Year Treasury Note Yield Index ($TNX) ten year note index value 21.67 Consumer Discretionary ETF (XLY) As long as the consumer discretionary holds above [66.88], all things being equal, it is a good sign for stocks and the U.S. economy 75.04 NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 10,085

What Is Moving the Markets

Here are the headlines moving the markets.

B&G to buy General Mills' Green Giant frozen foods business

(Reuters) - Snack food company B&G Foods Inc said it would buy General Mills Inc's Green Giant frozen foods and Le Sueur canned vegetables brands for about $765 million to expand its distribution network and enter the frozen foods market.

Los Angeles drops mortgage discrimination case against JPMorgan

NEW YORK (Reuters) - Los Angeles has dropped a lawsuit accusing JPMorgan Chase, the largest U.S. bank, of discriminatory mortgage lending, ending the first of the city's four lawsuits accusing major banks of driving up foreclosures among minority borrowers.

Oil up again on Wall Street; volatility after U.S. stockpile hike

NEW YORK (Reuters) - Crude futures rose for a second straight session on Thursday on the strength of equity markets as a respite in bad news out of China and the potential for more European monetary easing added to risk taking in oil.

Wall St. Rises as Turbulence Eases

The European Central Bank said it was ready to give the eurozone a bigger dose of stimulus if inflation did not increase, buoying investors.

Incomes and Outcomes: This Was to Be the Year of Bigger Wage Gains. It's Not.

Shadow workers, people who are sort of but not really in the labor force, may be holding wage growth back.

Ford opens $275 million engine plant in Russia

MOSCOW (Reuters) - U.S. carmaker Ford's Russian venture, Ford Sollers, opened a $275 million engine plant on Thursday, which will help make its Russian-produced vehicles less dependent on imported components and currency fluctuations.

ECB flags beefed up QE as growth, inflation outlook fades

FRANKFURT (Reuters) - The European Central Bank cut its growth and inflation forecasts on Thursday, warning of possible further trouble from China and paving the way for an expansion of its already massive 1 trillion-euro plus asset-buying program.

This Is Not A Retest - It's A Live Bear!

Submitted by David Stockman via Contra Corner blog,

By the lights of bubblevision, Tuesday's plunge was just a bull market "retest" of last week's lows, which posted at 1867 on the S&P 500. As is evident below, the test was passed with 80 points to spare at today's close.

So according to the talking bull heads - CNBC had three of them on the screen at once about 2pm—-its time to start nibbling on all the bargains. Soon you may even want to just back up the truck.

You can supposedly see it right here in the charts. The market hit the October 15 Bullard Rip low last week, and has gone careening upwards where it is now allegedly forming a new bottom around 1950. Remember, its a process. Be patient.

^SPX Chart

^SPX data by YCharts

Not on your life! The world is heading into an unprecedented monetary deflation - with output and trade falling nearly everywhere. That implosion is already rumbling through Canada, Mexico, Brazil, Australia, South Korea, Malaysia, Indonesia, Russia, Japan, the Persian Gulf oil state ...

Wall St. adds to gains amid strong U.S. data, ECB comments

(Reuters) - Wall Street extended its gains on Thursday as data pointed to a strengthening U.S. economy and European Central Bank chief Mario Draghi hinted at additional stimulus measures.

Shrinking U.S. Trade Gap Shows Economy's Underlying Strength

The U.S. trade deficit fell in July to its lowest level in five months as exports rose broadly, signaling underlying strength in the economy amid concerns about a global growth slowdown.

Shrinking U.S. trade gap shows economy's underlying strength

WASHINGTON (Reuters) - The U.S. trade deficit fell in July to its lowest level in five months as exports rose broadly, signaling underlying strength in the economy amid concerns about a global growth slowdown.

This Is What The Historic "Risk Parity" Blow Up Looked Like

One of the buzz words used to explain the violent, sharp and unexpected market moves over the past two weeks, is "risk parity" popularized by Bridgewater's Pure Alpha fund (which also happens to be the largest in the world, excluding AAPL, the ECB and the Fed) and rather the dramatic shifts in asset allocation among these investment strategies, which have wreaked havoc with all those "risk managers" (who are happy to manage the proceeds of their "2 and 20", if not so much the actual risk) YTD P&L. Why just today Omega' Leon Cooperman blamed"risk-parity for the "the magnitude and velocity of the decline in equity markets last month", or in other words, it was someone else's fault all his YTD gains were wiped out in one week.

But what happened?

We provided an extended explanation of the recent volatility as seen through the prism of risk parity funds last Thursday when we wrote "JPM Head Quant Warns Second Market Crash May Be Imminent." It was.

However, for a much simpler, and quicker explanation, here is BofA with the one-chart summary of what happened in theoretical, if not quite practical (for those we will need Bridgewater's latest P&L) terms:

Over the past week, an increased amount of attention has been focused on the recent performance of risk parity funds and the potential impact of their deleveraging amidst the spike in global equity volatility. Risk parity is a cross-asset portfolio allocation model that assigns weights inversely proportional to volatility and typically prescribes being overweigh ...

As Fed ponders interest rate rise timing, markets overshadow U.S. jobs report

NEW YORK (Reuters) - In calmer times the U.S. employment report due to be published on Friday would be the Federal Reserve's best and last economic signal before it decides whether to raise interest rates later this month for the first time in nearly a decade.

ECB Ready to Expand Stimulus Programs

European Central Bank President Mario Draghi indicated that the bank stands ready to expand its stimulus programs if slowdowns in large developing economies and turbulence in financial markets hinder its ability to boost inflation to a target of just under 2%.

Will The Fed Have To Save Emerging Markets With QE4?

Submitted by Chartles Hugh-Smith of OfTwoMinds blog,

The risk-off tide is rising, and sand castles of QE will only hold the tide back for a brief period of apparent calm.

A funny thing happened on the way to permanently expanding global markets: unintended consequences. Borrowing cheap, abundant U.S. dollars seemed like a good idea when the dollar was declining, and few voiced any concern when $9 trillion was borrowed in USD-denominated debt around the world in the years since 2009.

Few saw the possibility of the USD rising, or that if it did appreciate against other currencies, that the blowback would destabilize the global economy.

It turns out a strengthening USD has triggered capital flight as other currencies devalue. Anyone propping up their currency to stem the flood tide faces another unintended consequence--a faltering export sector: China: Doomed If You Do, Doomed If You Don't (September 1, 2015).

Meanwhile, the Imperial economy is suffering its own spate of unintended consequences, notably rising yields, a.k.a. quantitative tightening. As emerging markets and nations attempting to defend their currency pegs to the USD sell U.S. Treasury bonds (which have been held as foreign exchange reserves), the yields on the Treasuries rise as a matter of supply and demand.

As supply increases, sellers must offer higher yields to entice buyers to soak up the inventory.

This increase in yields reverses the primary effect of quantitative easing, i.e. declining yields/interest rates in the U.S.

This dynamic undermines both the emerging markets and the U.S. Emerging markets are not reall ...

VW's finance chief set to become new chairman

BERLIN (Reuters) - Volkswagen's finance chief Hans Dieter Poetsch is set to become its next chairman, putting Europe's biggest carmaker on course for calmer waters after rival factions including ousted patriarch Ferdinand Piech united to back him.

Saudi Arabia Just Cut Crude Selling Prices To The US, Europe And Asia

WTI Crude oil prices are in total panic buying mode this morning as the algos are fully in charge once again. WTI is up 5% this morning in a straight line since US equity markets opened (and USO went vertical). What is most ironic is that Saudi Aramco just slashed prices for crude oil to everyone around the world.

Totally human...

Here's why Oil ramped... as equity momo algos switch to crude to spark the buying...

But Saudi just slashed prices...

As Bloomberg reports,

Saudi Arabia, the world's largest crude exporter, cut pricing for all October oil sales to the U.S. and Northwest Europe and reduced the premium on its main Light grade to Asia by 30 cents a barrel.

State-owned Saudi Arabian Oil Co. cut its official selling price for October sales to Asia of Arab Light crude to 10 cents a barrel more than the regional benchmark, the company said ...

E.C.B. Cuts Growth Forecast, Saying It's Ready to Expand Stimulus if Needed

The central bank's president, Mario Draghi, cited "lower external demand'' from emerging markets as a factor in the eurozone's slowdown.

Suddenly The Bank Of Japan Has An Unexpected Problem On Its Hands

Back in October of 2014, when we explained what the BOJ's "shocking" QE expansion really meant, we showed a chart that showed the key aspect of Japan's shock and awe monetization: Kuroda is now monetizing 100% of gross bond issuance.

We cited Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, who said that at the scale of its current debt monetization, the BOJ could end up owning half of the JGB market by as early as in 2018. He added that "The BOJ is basically declaring that Japan will need to fix its long-term problems by 2018, or risk becoming a failed nation."

We are almost one year after this forecast (and a little over two years left before 2018), and not only is Japan's economy not improving, but it just posted a negative GDP print for the second quarter, suggesting unless there is a remarkable comeback, Japan may suffer its fifth recession since 2007.

All of this was, or should have been, widely known.

But something that wasn't known, and that has "suddenly" become a very big problem for Kuroda, is precisely what we warned last year would happen sooner or later, and which is a major headache for both the Fed and the ECB: a lack of monetizable supply.

Yesterday, in a story detailing the holdings of Japan's second largest pension fund, "New Whale Seen Moving Tokyo Markets", Bloomberg reported that with Japan's massive $1.2 tr ...

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