The current redux would have to be about the modern day “accident” of economic forecasting and market regulation currently being played out in China, how much damage will be done to their long term growth, and to economies and markets on the other side of the globe.
China has done many things right in the last 2 decades of growth and modernization, and a few things very wrong. Right now they are at serious risk of violating a Golden Rule of Wall Street and the Investment World. Never!! over promise and under deliver!!
Tuesday trading recap: If you’re just back from a 4 day weekend, you really didn’t miss much as stocks are just fractionally higher than Friday’s close. Volumes were decent for mid August. The DJIA broke its 7 day losing streak on Monday. The S&P 500 is just slightly more than 2% from its all time highs and we’re 90% through a very underwhelming 2Q earnings season.
A couple of other stock market highlights:
Google has created a new parent company structure, a modern day conglomerate if you will.
The turmoil in the oil markets continues with the commodity hitting a 6 year low on Tuesday as global production remains near record highs.
China devalued their currency Monday night.
If you were in the last 2 days, What a wild ride to start the week!! With very likely much more to come!! Basically, Monday we had a 1%+ reflex rally off very short term oversold levels on market averages, highlighted by the DJIA breaking a 7 day losing streak and the S&P 500 and Russell 2000 bouncing off their 200 day moving averages.
Tuesday, was another 1% move in market averages, but in the wrong direction as we gave up nearly all of Monday’s gains. The catalyst of course was the 2% devaluation of the Chinese Yuan by the PBOC and we’re looking at a second straight day of volatility in the currency markets for Wednesday.
While the Monday’s devaluation was marginalized by finance officials in China as a “one off” adjustment to current market conditions, the Yuan is lower again Wednesday by an additional 1.4% The Chinese currency has now had its largest 2 day move since the Asian Contagion/Russian debt default crisis in 1998.
Global Markets are in full scale retreat again this morning, possibly setting up US Market Averages for their third 1% move this week. More significantly, numerous negative technical warning signals are flashing bright red among Major Stock Market Averages.
DJIA: We mentioned the evil “Death Cross” yesterday. The DJIA has now been below its 200 day MA for 2 weeks and has declined 12 of the last 16 trading sessions. The next key support is the low close of the year of 17,165 from the last day of January.
The S&P 500 will likely open below its 200 day MA this morning and this will be the 4th test of that benchmark in the last 2 months. With Oil persistently weak, I feel it’s running out of second chances.
The Russell 2000 has been the worst performing index by far in Q3 after hitting an all time high toward the end of the second quarter. Like the S&P, the Russell 2000 is at major risk of not only losing its 200 day MA, but also the benchmark 1200 level that was such stiff resistance during most of 2014.
This is not good.
While NASDAQ is comfortably above its 200 day MA, the benchmark 5000 level will be threatened today. NASDAQ can’t prosper on gains in Google alone. Note that AAPL was -5% yesterday. AAPL -5%!! and it wasn’t the lead story of the day!!! No doubt, there is a major China play imbedded in AAPL and it’s likely to take on more selling today.
Final thought: In one of the most freakish “fictional movie plot meets reality” moments ever, The China Syndrome movie was released in mid March 1979. 2 weeks later an “incident” at GPU’s Three Mile Island Nuclear Power Plant in Pennsylvania brought an abrupt end to the nuclear power industry in the US.
We haven’t built a nuclear power plant since.
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