Stock Market Gets a Heavy Dose of Pent up Reality

This has all the earmark of the beginning of a significant stock market correction. Many would argue it’s the beginning of a bear market. After a 7 year bull market from the depths of the 2008/09 GFC neither should come as a surprise.

In a healthy capital market, corrections happen. So do bear markets. Some are more event driven than others. Recall that the sharp correction in October 2014 was coincident to the Ebola outbreak, which carried with it fears of a potential Global Pandemic and tremendous uncertainty, the markets most hated 4 letter word.

Stock Market Gets a Heavy Dose of Pent up RealityI can’t remember a time when there were so many moving parts in the Stock Market Equation.

In Addition to: Oil plunging to levels we haven’t seen since years before the Global Financial Crisis……

Crude below $33 as oil prices fall to lowest in over a decade

Oil prices plunged to levels not seen in more than a decade on Thursday, hammered by the continuing turmoil in China, the world’s second biggest oil consumer.

China’s stock market tumbled and suffered its shortest trading day in its 25-year history, dragging down bourses around the world. That added to concerns about its crude demand at a time of continuing global glut of the commodity.

Brent crude LCOG6, -3.27%  , the global oil benchmark, fell 2.8% to $33.30 a barrel on London’s ICE Futures exchange. Earlier in the session, it fell to as low as $32.16 a barrel, its lowest price since April 2004.

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China having a relapse of the currency/stock market turmoil from last summer…….

China FX reserves fall $512.66 bln in 2015, biggest annual drop on record

China’s foreign exchange reserves, the world’s largest, fell $107.9 billion in December to $3.33 trillion, the biggest monthly drop on record, central bank data showed on Thursday.

The December figure missed market expectations of $3.40 trillion, according to a Reuters poll.

China’s foreign exchange reserves fell $512.66 billion in 2015, the biggest annual drop on record.

North Korea is testing a nuclear bomb, be it an A-type or H-type, complicated by questions of not if?……but how unstable the kid running the country is?…..

The Saudi Arabia/Iran conflict raising potential hostilities in the Middle East to an unthinkable level……..

Commodity markets, taking their cue from both Oil and China, taking another leg down and putting even more pressure on emerging markets…….

Stock Market Gets a Heavy Dose of Pent up Reality

Stock Market Gets a Heavy Dose of Pent up RealityUS Equity Markets have their own challenges, independent of the Global El Nino developing from geopolitical, macroeconomic, and currency/trade issues that engulf nearly every time zone.

US Equity Markets are breaking significant technical support levels.   After today we’ll likely start hearing about the October 2014 lows being right in the markets cross hairs.

Q4 earnings seasonbeginning next week will is all but certain to give us the 4th consecutive quarter of declining revenues for the S&P 500.

I won’t touch the political uncertainty yet  that will play out during the 2016 election season.  It’s not only far too messy to project who might be the President Elect in 10 months, but tell me who that person is, and there’s little visibility what their economic plan will be when the campaigning is over.

I’m sure there are other variables to consider.  While it’s a fluid daily challenge to assign levels of importance to everything in play, sorting the list into positives and negatives is really quite simple……..Everything is a negative.

US Equity Markets have had 2 of the worst 3 days to start the year in a really long time.    It’s very likely that after today that will be 3 out of 4.   Normally, I’d run through the relative performance of the major averages, but in the interest of space and sleep, let’s just say they all declined between 1% and 1½%.

NASDAQ -1.14% held up a bit better while the Russell 2000 and the DJIA trailed, each declining 1.5%.   The Russell 2000 failed to hold the 1100 level for only the 4th time in the last 15 months, closing at 1094.

The DJ Transports -2% at 7217, continue to be a complete mess, as the DJ Transports closed it its lowest level since February 2014.  Note that the Transports are trading with Oil, which declined 5% to 6% rather than counter to it.

Stock Market Gets a Heavy Dose of Pent up Reality

Oil, since you mentioned it, was whacked for maybe 6% or a bit more, but much more significantly Oil is down another 3% very early this morning, has breached the lows of the 2008/09 GFC and is threatening the psychological $30 level.    I wouldn’t be surprised to see a sharp reflex rally in Oil off the lows either today or tomorrow.   The caveat here is that reflex rallies in bear markets are almost always very short lived.

The S&P 500 -1.3% at 1990 closed marginally lower than the 1994 level that we’ve been watching closely.   With a sharply lower opening this morning that level could be a distant memory in a hurry.   It’s a long way down to the late August and September closing lows of 1867 and 1884.  We’ll likely be short term oversold after today, and I don’t expect to trade down to those levels in a straight line.

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