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10Sep2015 Market Update: Markets Sea-Saw With Moderate Gains Ahead Of The Fed's Reserves Meeting Next Week

Written by Gary

U.S. stocks opened lower but clawed back the losses and then drifted between small gains and losses this morning as investors grapple with mixed economic data and await next week's Federal Reserve meeting. Oil prices pared some of their gains today after the U.S. Energy Information Administration reported an increase of 2.6 million barrels in crude supplies for the week ended Sept. 4.

Here is the current market situation from CNN Money

North and South American markets are mixed. The S&P 500 is higher by 0.45%, while the Bovespa is leading the IPC lower. They are down 1.06% and 0.65% respectively.

Traders Corner - Health of the Market

Index Description Current Value Members Sentiment: % Bullish (the balance is Bearish) 60%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 14%
Investors Intelligence sets the breath Above 50 bullish 29.9% Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. +4.80 NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages. 21.12% NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 36.53% S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 36.60% 10 Year Treasury Note Yield Index ($TNX) ten year note index value 22.20 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 74.92 NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 10,009

What Is Moving the Markets

Here are the headlines moving the markets.

OPEC Sees Weak Oil Prices Through 2015

Persian Gulf members of the Organization of the Petroleum Exporting Countries had expected prices to rebound to $70 to $80 a barrel this year but now see $40 to $50.

Wall Street flat amid growth concerns ahead of Fed meet

(Reuters) - U.S. stocks were little changed at the open on Thursday amid fears of slowing global growth ahead of the U.S. Federal Reserve's interest rate meeting next week.

GE expected to decide on new location for headquarters in fourth quarter: CNBC

(Reuters) - General Electric Co is expected to decide on a new location for its headquarters in the fourth quarter of this year, Chief Executive Jeff Immelt told CNBC.

French court confirms Monsanto guilty of chemical poisoning

LYON/PARIS, France (Reuters) - A French court upheld on Thursday a 2012 ruling in which Monsanto was found guilty of chemical poisoning of a French farmer, who says he suffered neurological problems after inhaling the U.S. biotech company's Lasso weedkiller.

El Nino: An Inconsistent Geopolitical Agent


The defining characteristic of El Nino is sustained above-average temperatures in the middle of the Pacific Ocean. Traditionally, Peruvian fishermen recognized the phenomenon when the catch would decline as weak trade winds led to warmer waters around the west coast of South America, decreasing the nutrients in the water and thus the number of fish it could support. Now, a much more regimented system takes measurements of ocean temperatures throughout the Pacific. The Oceanic Nino Index looks at temperature anomalies in the region known as Nino 3.4 - between 5 degrees north and 5 degrees south latitude and between 120 degrees and 170 degrees west longitude. El Nino is declared if the average sea surface temperatures there are at least 0.5 degrees Celsius (0.9 degrees Fahrenheit) higher than normal for five consecutive overlapping three-month periods.

This Is Exactly What The Early Phases Of A Market Meltdown Look Like

Submitted by Michael Snyder via The Economic Collapse blog,

There is so much confusion out there. On the days when the Dow goes down by several hundred points, lots of people pat me on the back and tell me that I "nailed" my call for the second half of this year. But on the days when the Dow goes up by several hundred points, I get lots of people contacting me and telling me that they are confused because they thought the stock market was supposed to go down. Well, the truth is that if there is going to be a full-blown market meltdown, we would expect for there to be wildly dramatic swings in the market both up and down.

A perfect example of this is what we experienced during the financial crisis of 2008. 9 of the 20 largest single day declines in stock market history happened that year, but 9 of the 20 largest single day increases in stock market history also happened that year. If we are moving into another great financial crisis, there should be massive ups and massive downs, and that is precisely what we are witnessing right now.

On Tuesday, the Dow surged several hundred points. There was much celebrating in the mainstream media over this, but what they failed to realize was that this was another big red flag. And we saw this volatility carry over into We ...

U.S. jobless claims drop; imported inflation remains weak

WASHINGTON (Reuters) - The U.S. labor market appeared to gain momentum in early September as fewer Americans filed for weekly unemployment benefits, but weak inflation pressures may complicate the Federal Reserve's decision whether to raise interest rates.

Brazil Downgrade Slams Real; Central Bank Intervenes

Brazil's central bank intervened to support the real, helping the currency regain some ground after it plunged in the wake of S&P's downgrade of the country's credit rating to junk status.

Brazil markets sink as S&P cuts sovereign to junk

SAO PAULO (Reuters) - Brazil's financial markets fell on Thursday after Standard & Poor's cut the country's sovereign rating to junk late Wednesday, though assets began to pare losses in late morning trading as the downgrade had been largely priced in.

July 2015 Wholesale Sales Remain In Contraction

Written by Steven Hansen

The headlines say wholesale sales slowed year-over-year with inventory levels remaining at levels associated with recessions (although inventories contracted month-over-month). The best way to look at this series may be the unadjusted data three month rolling averages which marginally decelerated keeping the long term downtrend in play. This report is not excellent.

Record Gap Between US Inventories And Sales Screams Recession

The Wholesale Inventories-to-Sales ratio has now been stuck deep in recession territory since January as the malinvestment boom-driven deflation-beckoning dream of "if we build it they will come" inventory surges smashes into the ugly reality of peak-debt-based lack of consumption worldwide. Inventories dropped 0.1% in July (notably lower than the 0.3% rise expected and the biggest drop since May 2013), but worse still Wholesale Sales tumbled 0.3% (missing expectations of a 0.1% rise). So inventories dropped (bad for Q3 GDP) and sales dropped more (even worse) leaving July's 1.30x inventories-to-sales ratio remains a flashing red beacon of over-capacity and looming production cuts (especially in Automakers).

Recession looms...

The absolute dollar size of the gap between Inventories and Sales has never been bigger and is the biggest flashing red light that an economic recession is now inevitable as part of the massive destocking, likely at deflationary dumping prices, that has to take place.

Led by Automakers over-building:

Apple upgrade program seen driving demand for new iPhones

(Reuters) - Apple Inc has just made buying a new iPhone every year more affordable - a move that analysts said will drive demand from now on, starting with the new iPhone 6S and 6S Plus.

Fiat Chrysler to recall 1.06 million trucks over steering glitch

(Reuters) - FCA US LLC, a unit of Fiat Chrysler Automobiles NV, is recalling about 1.06 million of its Ram trucks in the United States to fix a steering wheel defect that may cause an air-bag to deploy inadvertently.

"Junked" Brazil Is Falling Apart At The Seams; Cancels Bond Auction

Exactly one month ago, in the aftermath of the Chinese devaluation announcement, we made a simple prediction.

Biggest immediate loser from China's devaluation: Brazil

â€" zerohedge (@zerohedge) August 11, 2015

Today, following the overdue, long anticipated, and yet "shocking" downgrade of Brazil by the S&P to junk, this prediction is coming true.

First, here is the currency, which is plunging to a fresh YTD low of just below 3.91, and which has a long way to go at least according to SocGen which now sees the USDBRL rising to 4.4 over the next 8 weeks: a whopping 15% devaluation over the next 2 months!

In other words, it could get worse fast, and as Bloomberg notes the next step could be a circuit breaker: "Continued selloff in DIs would risk triggering circuit break, which kicks in when rates rise/fall 80bps vs prior day's official BM&F fixing intraday. Trading of BM&F's USD/BRL 1st future will be halted if price hits 4060.33, equivalent to a 6% move vs yday's official closing at 3830.57; while spot BRL would continue to trade, liquidity likely to be very poor given dominant role of futures trading."

* * *

Next, the Braziling ETF, the EWZ, is already pricing said devaluation in and was about 5% down as of this moment.

The Bovespa futures are looking very ungreen this morning.

Three Reasons the Fed Cannot Let Rates Normalize

Analysts and commentators remain hung up on whether or not the Fed will raise rates next week.

Certain Fed officials have been stating that the Fed should commence tightening. However, with China's bubble collapsing, dragging down the Emerging Markets, there are plenty of excuses for the Fed to postpone yet again.

Ultimately, I remain convinced that whenever the Fed does hike rates, it will largely be a symbolic rate hike, say to 0.35% or 0.5%. That will be it for some time.

I say this because the Fed cannot afford raising rates anywhere near historical norms (4%). There are three reasons for this:

1) The $9 trillion US Dollar carry trade

2) The $156 trillion in interest-rate based derivatives sitting on the big banks' balance sheets.

3) The weak US economy cannot handle rate normalization

Regarding #1, there are over $9 trillion in borrowed US Dollars floating around the financial system invested in various assets. When you borrow in US Dollars you are effectively shorting US Dollars. So if the US Dollar strengthens, you very quickly blow up (carry trades only work when the currency you are borrowing in remains weak or stable).

The US Dollar has rallied over 20% in ...

Welcome to the Bubble No One Is Talking About - The Income Bubble - And It's About to Pop

The US, and the tech hubs in particular, are experiencing a bubble whose proportions have never been seen before. No one is discussing this bubble, and I'm sure after it pops (likely momentarily) you're likely to hear that no could have seen it coming...

In recent years household income in California has witnessed a sharp increase....

In 2012 the household income increased at 6.8% annually, with this growth continuing in 2013 at a rate of 0.9%

House Prices Index in San Francisco (2000 = 100) and Household Income (in US$) in California

SF Income Bubble

This sharp increase seems to be driven by the rising valuations in tech companies in the area.

Why The Keynesian Chorus Is Cackling Like Chicken Little

Submitted by David Stockman via Contra Corner blog,

This is getting way too stupid. The Keynesian Chorus has launched a full blast trilling campaign, emitting an increasingly shrill cackle of warnings against a Fed rate hike. Yes, 80 months of pumping free money into the canyons of Wall Street is not enough.


Well, this is hard to type with a straight face, but according to the cackling gaggle of Keynesian Chicken Littles, the Fed has already tightened too much!

Paul Kasriel, the former chief economist at Northern Trust who now writes "The Econtrarian" blog, argues that "in recent months Fed monetary policy has become downright restrictive."

Would that Kasriel could be dismissed as merely a Wall Street shill, but its seems that he's taking his cues directly from John Maynard Keynes' very vicar on earth. That would be Larry Summers, who yesterday blogged an identical bit of tommyrot:

I believe the case against a rate increase has become somewhat more compelling even than it looked two weeks ago.....First, markets have already done the work of tightening. The U.S. stock market is worth $700 billion less than it was 2 weeks ago and credit spreads have widened noticeably. Financial conditions as measured by Goldman Sachs or the Chicago Fed index have tightened in the last 2 weeks by the impact equivalent of more than a 25 BP tightening. So even i ...

Gold Bullion Allowed As Collateral in China

China's Shanghai Gold Exchange said it will allow physical gold to be used as collateral on futures contracts from September 29, according to a statement posted on its website this morning as reported by Reuters.

Physical gold will be permitted to be used for up to 80 percent of margin value, according to the statement.

Reuters then corrected the story and the second refiled story was changed and given a different focus:

The Shanghai Gold Exchange said on Thursday it will allow A-shares, exchange-traded funds and treasuries to be used as collateral for gold trading.

The Shanghai Gold Exchange said on Thursday it will allow A-shares, exchange-traded funds and treasuries to be used as collateral for gold trading. The move comes as Beijing unleashes a slew of measures to stave off a collapse in its stock market and restricts trading in stock index futures.

With counterparty and sovereign risk remaining high although unappreciated, gold is no longer being seen simply as a commodity â€" particularly in China, India and Asia. Rather, it is increasingly viewed by more astute market participants as an important asset and a currency with no counterparty risk.

Gradually, we are seeing the re-monetization of physical gold as it is being reincorporated into the modern financial and monetary system. Keynes's â€'barbaric relic' is becoming less barbaric by the day.

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