Thursday recap: Equity markets finally ran out of “Get out of Jail Free” markers, as stocks opened ~1% lower, never staged a serious rally attempt, and deteriorated late in the day to close at session lows.
By day’s end Major Market Averages were lower by 2% and more, volumes were reasonably strong for mid August and market internals were heavily to the downside.
The DJIA, -2% at 16,990 closed at its lowest level since late October 2014, and is just less than 5% below its 200 day moving average. Having lost over 500 points in 2 days, it’s easy to say we’re oversold in the very short term, but it’s best to treat initial rallies with skepticism until proven otherwise.
The S&P 500, -2.1% at 2035.73, is easily the sharpest break below the 200 day MA since last October. The S&P 500 is still above its January ‘15 double bottom of 1992 and 1995. We also must note that the gap between the 50 day and 200 day moving averages has closed to 15 points. It’s almost inevitable the S&P 500 daily chart will be haunted by the evil “Death Cross” sometime in September.
The NASDAQ, -2.8% at 4877, lost both the benchmark 5000 level and its 200 day MA on the same day. The NASDAQ is right at the 4825 to 4875 support level from 6 months ago when it rallied off that level 3 times before taking out the 15 year highs in late April.
The Russell 2000 -2.5% at 1172.52 continues to be the ugliest chart of the lot. the Russell is -9.5% just in the last 2 months from its late June all time high!!
If you’re really looking for a spot to initiate a new long position, the Russell 2000 has RETRACED EXACTLY 50% of its move from the October ‘14 lows of 1049 to the late June ‘15 all time high of 1296. It’s definitely worth a shot, but proceed with caution.
Market internals were understandably very weak, but not quite emblematic of capitulation as advancing issues led decliners by 5 to 1 on both NYSE and NASDAQ. One number to keep a very close watch on is the new 52 week highs and lows as yesterday we had only 8 new highs and 368 new 52 week lows. As a point of reference, at the lows last October 15 and 16 we had 600 new lows 2 days in a row.
On July 8, 6 weeks ago we had a over 450 new 52 week lows, shortly after which the market rallied sharply for 2 weeks. Watch those 52 week lows closely!! If we get another reading in the high 300s or over 400 it could set us up for at minimum a short term trading rally.
China: While the Chinese currency has stabilized quite a bit this week their stock market had not. The Shanghai Composite sold off another 4+% last night but did manage to hold the 3500 level, below which the government intervened to support the market earlier in the week.
The weakness in Chinese equities last night was exacerbated by a disappointing PCE report. The steady stream of below consensus economic data from China continues to fan the flames of controversy over what their real growth rate is.
Stock Market Downdraft | August 21
The Early Line: US Equity futures are pointing toward a modestly lower opening as Eurozone markets are down approximate half of 1% at midday.
I doubt we’ll have nearly the volatility to match the last couple days. Most likely scenario is a back and forth session on lighter volume to end the week.
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