Written by Gary
Interesting session today as the $SPX once again crosses the 200 DMA. Oil is partly to blame as crude inventories showed an unexpected build, a surprise increase in U.S. stockpiles, of +2.6M barrels adding to a massive glut of crude around the globe.
Averages fell from the expected low opening to where the DOW was off 200 points and the FOMC report this afternoon is expected to aggravate investors. Expect a massive rise of the averages only to fall again before today’s closing bell. Traders love these days.
Here is the current market situation from CNN Money | |
 | North and South American markets are broadly lower today with shares in Brazil off the most. The Bovespa is down 2.29% while Mexico’s IPC is off 1.02% and U.S.’s S&P 500 is lower by 0.95%. |
The Fed is thought to raise its benchmark interest rate as soon as its next meeting in September, but some officials are remain unconvinced. The report will be published at 2 p.m. ET today, is likely to describe the extent of those concerns.
The minutes are released with a three-week lag, so they don’t capture precisely how the landscape has changed since July. China’s currency devaluation and a continued slide in oil prices seem to weigh against raising rates, while solid hiring last month supports the case for moving.
Traders Corner – Health of the Market
| Index | Description | Current Value |
| Investors.com Members Sentiment: | % Bullish (the balance is Bearish) | 55% |
| CNN’s Fear & Greed Index | Above 50 = greed, below 50 = fear | 10% |
| Investors Intelligence sets the breath | Above 50 bullish | 42.4% |
| StockChart.com Overbought / Oversold Index ($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. | +9.71 |
| StockChart.com NYSE % of stocks above 200 DMA Index ($NYA200R) | $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% – 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages. | 41.12% |
| StockChart.com NYSE Bullish Percent Index ($BPNYA) | Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. | 48.23% |
| StockChart.com S&P 500 Bullish Percent Index ($BPSPX) | In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. | 53.20% |
| StockChart.com 10 Year Treasury Note Yield Index ($TNX) | ten year note index value | 21.61 |
| 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 | 78.75 |
| StockChart.com NYSE Composite (Liquidity) Index ($NYA) | Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors | 10,639 |
What Is Moving the Markets
| Here are the headlines moving the markets. | |
| U.S. Stocks Follow Global Markets LowerU.S. stocks dropped as continued sharp swings in Chinese markets weighed on markets around the globe. |
| Distressed American Workers Expose The Fallacy Of Improving Unemployment NumbersSubmitted by Tony Sagami via MauldinEconomics.com, “Over the past five years, our businesses have created more than 11 million new jobs. Our economy is growing and creating jobs at the fastest pace since 1999.” Sure, the headline jobs numbers suggest that Obama is right and that the job situation is improving:
The Labor Department reported that initial claims for unemployment insurance fell to their lowest level in 42 years. The Institute of Supply Management’s index of non-manufacturing employment (“Would you like some fries with that, sir?”) hit the highest level in 10 years.
The Labor Department reported that the US economy created 223,000 new jobs—the 57th month in a row of net job creation—and a drop in the unemployment rate to 5.3%, the lowest level since April 2008. Sounds good… right? However, despite those feel-good headlines, the average American is far, far from solid financial footing. Here’s what I mean: Job Growth but No Wage Growth. Job seekers may find it easier to find a job, but good luck trying to find a job that pays enough to support a family. The lightly followed Department of Labor’s quarterly E … |
| Germany backs Greek bailout as Tsipras mulls early polls BERLIN/ATHENS (Reuters) – Germany’s parliament approved a third bailout for Greece on Wednesday after Finance Minister Wolfgang Schaeuble argued the country should get “a new start”, while in Athens the government agonized over whether to call a snap election. |
| Oil Drops to Six-Year LowsOil prices fell to a fresh six-year low Wednesday after data showed a surprise increase in U.S. stockpiles, adding to a massive glut of crude around the globe. |
| IMF freezes benchmark currency basket, defers any yuan addition WASHINGTON (Reuters) – The International Monetary Fund said on Wednesday it will freeze its benchmark currency basket until October 2016, giving markets more time to adjust to the possible addition of China’s yuan as part of a review of global reserve currencies. |
| Wall Street falls on China worries; Fed minutes awaited (Reuters) – Wall Street was sharply lower on Wednesday as investors worried about the effect of China’s slowing growth ahead of the minutes from the latest U.S. Fed meeting that could give clues regarding the timing of a rate increase. |
| Citigroup Global Markets Charged With Compliance And Surveillance Failuresby Securities and Exchange Commission The Securities and Exchange Commission today announced that Citigroup Global Markets has agreed to settle charges that it failed to enforce policies and procedures to prevent and detect securities transactions that could involve the misuse of material, nonpublic information. The firm also failed to adopt and implement policies and procedures to prevent and detect principal transactions conducted by an affiliate.
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| Target raises full-year earnings forecast after profit jumps CHICAGO (Reuters) – Target Corp on Wednesday reported a higher-than-expected quarterly profit and raised its full-year earnings forecast for the second time, benefiting from strong demand for clothing and other product categories at the center of its growth plan. |
| Citigroup to pay $15 million to settle U.S. compliance charges WASHINGTON (Reuters) – A unit of Citigroup Inc will pay $15 million to settle civil charges alleging it failed to enforce policies designed to prevent and detect insider trading, U.S. regulators said. |
| Bill Gross: Fed will hike rates in Sept as financial conditions a priority (Reuters) – Bond investing guru Bill Gross of Janus Capital Group Inc said in a tweet on Wednesday that the U.S. Federal Reserve will hike rates in September as financial market conditions take precedence over economic conditions. |
| Lowe’s sales beat on demand for appliances, outdoor equipment (Reuters) – Lowe’s Cos Inc , the No.2 U.S. home improvement chain, reported stronger-than-expected growth in quarterly same-store sales as customers bought more expensive items in categories such as appliances and outdoor power equipment. |
| Nasdaq Drops Below 5,000 ‘Maginot’ Line; S&P Unchanged In 2015The Nasdaq has once again dropped below its crucial “everything is awesome” 5,000 level. This follows The Dow losing 18,000 and The S&P losing 2,100 and is back to unchanged in 2015. Somebody do something!!
Small Caps are notably red year-to-date and The S&P is almost red…
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| One Word Defines This Era: StagnationSubmitted by Charles Hugh-Smith of OfTwoMinds blog, If we call stagnation progress, what have we accomplished? Beneath the surface PR of progress, the operant dynamic of this era is stagnation. Cheerleaders of progress have a few unalloyed wins in the past 15 years–battles won against diseases, for example–and a general increase in living standards among the world’s poorest populations. But much of what is sold as progress is an inch deep and a mile wide: the proliferation of smart phones and social media for example. What the cheerleaders of progress don’t dare mention is the stagnation of quality, political choice, productivity and growth that isn’t dependent on the hyper-expansion of debt and financial speculation. I addressed some aspects of the stagnation of quality in China and the Decline in Quality (and Soon in Profits), but this only scratches the surface. In effect, rather than advance the quality of goods via increasing automation and competition based on quality, the West moved much of its manufacturing to China where the work involves hand-assembly of inferior quality materials and parts–a process in which every possible corner has been cut to lower costs. How many of you can honestly claim that the services you get from government or global corporations are better now than it was in 2000, or 1985? Get real, people; more often than not, the service has declined or stagnated rather than improved. Meanwhile, what services you do get cost a lot more. To get local streets repaved, now you have to approve a bond–in other words, the cost … |
| What Today’s Oil Plunge To 2009 Levels Means For Earnings, In One ChartMoments ago, following the DOE report of an unexpected jump in oil inventories which caught all algos by surprise, oil plunged by over $1 to a price not seen since 2009.
So what does this mean for S&P 500 earnings in general, and energy earnings in particular? Nothing short of much more pain, if not a complete wipeout, as the following chart – showing energy EPS with a 4 month lag vs oil prices – from Citigroup reveals.
Which, as we also reported two days ago, means forward energy multiples are about to explode to record highs and, as we also commented, if and when the realization arrives that forward multiples in the 25-30x range are just a “tad high” and multiples mean revert, watch out for a 50% crash in energy stock prices…
… which after a year of hopium courtesy of central banks, will finally metastasize to the rest of the S&P 500. |
| S&P 500 Breaks Below Key Technical SupportThe S&P 500 has broken back below its 200-day moving average once again…
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| Crude Plunges To Cycle Lows After Biggest Inventory Build In 4 Months Despite Ongoing Production CutsFollowing last night’s API inventory ‘draw’, DOE reported a much larger than expected build of 2.62 million barrels in crude inventory – the biggest weekly build since April. WTI Crude prices are tumbing on the news to new cycle lows. However, it is worth noting that US crude production fell for the 3rd wek in the last 4 to its lowest in over 3 months. This is the biggest 4-week production decline since Oct 2013.
WTI Crude reacted immediately and tumbled..
Despite the 3rd week in the last 4 of production declines… This is the biggest 4-week decline since Oct 2013
Crude prices are not helped by the fact that (as Bloomberg reports) |
| The Next Leg Of The Commodity Carnage: Attention Shifts To Traders – Glencore Crashes, Noble Default Risk SoarsOne month ago we asked:
Today we got our answer. Commodity trading giant Glencore may have top-ticked the commodity supercycle with its 2011 IPO, but it’s been downhill ever since (66% downhill to be precise if measured by the tumble in the stock price), culminating this morning when the Baar, Switzerland-based mining and commodity giant reported a first half net loss of $676 million, compared with net profit of $1.72 billion a year ago. Revenue tumbled 25% to $85.7 billion after the company admitted China’s economic slowdown had caught the company “by surprise” and that no one in the mining industry “can read China” at the moment. The result: GLEN stock had plunged by 9% as of the last check, wiping out $3 billion in market value, and down a whopping 44% in the past three months, substantially underperforming its peers Rio Tinto (which Glencore once tried to acquire) and BHP Billiton.
In addition to the poor earnings, the company slashed both its operating outlook and its spending plans: Glencore said it expected trading, or what the company calls its marketing division, to post full-year earnings before interest and tax of $2.5 billion to $2.6 billion. Glencore Chief Executive Ivan Glasenberg had previously said he expe … |
| China Rushes To Inject Hundreds Of Billions In Liquidity To Offset Yuan InterventionNow that the PBoC has created a situation where it’s forced to prop up the yuan via open FX ops just about as often as it’s forced to prop up the SHCOMP via China Securities Finance, concerns are growing about liquidity and a severe tightening of money markets.
With each successive intervention, China is draining liquidity from the market, a decisively unwelcome outcome as it effectively works at cross purposes with the multiple policy rate cuts the PBoC has resorted to this year in a desperate attempt to buoy the flagging economy. In short, RRR cuts were meant to free up cash for lending and speed up economic activity. Unfortunately, demand for credit is weak (unless one counts “demand” from the plunge protection team) and ultimately, rate cuts have proven ineffective. As such, China resorted to devaluation (just as we said they would) but because the market expects the yuan to ultimately weaken by around 10% (which would presumably give exports a boost of around 10 percentage points with a three-month delay), the PBoC has been forced manage expectations by supporting the yuan and that, in turn, offsets the effect of the RRR cuts. Cue the frantic liquidity injections. As we noted yesterday, the PBoC injected CNY120 billion via 7-day reverse repos on Tuesday – that was triple the CNY40 billion injected late last week. “As the PBOC tries to stabilize markets, keeping liquidity ample to ensure proper … |
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