Stock Market drops a lot, now down for the year

The Dow Industrials (that don’t have that many industrial stocks in it any more) dropped 352 points. Broader markets also down. Currencies in the “emerging markets” take a big hit too. Oil has continued dropping, but not new news. Back in June I’d said:

My take on all this is just a ‘flight to safety’ in cash is likely started, while a move away from assets that will be hit by a USA Fed Rate Hike is also happening. Emerging Markets are a ‘risk on’ asset, while this is a ‘risk off’ move. It would be interesting to know what the Swiss Banks accounts are looking like ;-)

So now we’ve got the $US clearly up against just about everything except $US bonds and we’ve got “risk on” assets and commodities continuing to drop. This is my usual composite chart, but I’ve taken USO Oil off of it as that line drops so low it squashes the rest of the chart too much right now. Besides, we already know oil is not the place to be. (Any industry unliked by Obama and the EPA is going to be destroyed by them, given enough time.)

So this is a ‘busy’ chart. The “basics” are that it shows the RUT broad market 2000 stocks vs a lot of other stuff. Commodities, emerging markets, gold, etc. Pretty much all going down except for “risk off” bonds TLT. (Hard to make out but that raspberry color line turns up at the end. Better view in the next chart.)

Russel 2000 vs mixed basket 20 Aug 2015

Russel 2000 vs mixed basket 20 Aug 2015

All the indicators clearly saying “time to be out” with red on top in DMI / ADX and MACD Neither ADX nor DMI- inflected yet, so more to come. MACD well below the zero line and no crossover there yet, either (blue over red when the down tends toward ending). The only good news is that RSI (an early indicator) has declined from a high of ‘near 80’ back in July (saying get out) toward a ‘near 20’ saying “will go up soon”. But wait for it…

EEM Emerging Markets is just tanking. Both due to the China markets going pear shaped and due to the currencies being devalued. The ECB European Central Bank threatened weaker € via money printing back in 2014 and that scared the Emerging Markets bankers, then add in Greece in the toilet and demand dropping globally for “stuff”, so the Emerging folks need to buy $US to get things like oil, but demand for their local “stuff” is off, and that lets their currency drop. So very much a ‘risk off’ trade there.

You will know the world is getting better when commodities head up a little while, and the EEM starts to show some life. Until then, “risk off”.

EZU the Eurozone, diverged from the USA about a year ago (gee, when all those banking and Greece issues came to the foreground pushing loose money got the nod…)

GLD Gold has a bit of an upturn at the end. MIGHT be a time to start accumulating gold and miners as they tend to rise in very down times. I’ll need to run a chart on them later…

We can also see that the Tech Darling QQQQ has been mostly flat for about 2 or 3 months and took a hit ‘lately’. Doubt it can continue to fight the trend. I’ll need to look inside that one later too.

Overall, the SPY, RUT, and QQQQ are looking flat with a downturn. That tends to be a longer term market state change. In this case, from bull to bear. Time for a 10 year weekly chart to confirm that speculation… For now, it is no longer ‘bull market rules’ and is more of ‘topping market rules’ or very short duration trades only and not a lot of big ‘long market’ trades and investing. Once confirmed as a ‘bear market rules’ environment, ‘long’ is only done to negate a short position and the bias is to trade short (or own put options) or just sit in ‘risk off’ assets like cash and ‘real stuff’.

Lets take a cleaner look at the SPY vs TLT:

S&P 500 vs Bonds 20 Aug 2015

S&P 500 vs Bonds 20 Aug 2015

The SMA (Simple Moving Average) stack has rolled over saying “time to be out confirmed” and the MACD is below zero with a (barely visible) red on top. DMI clearly shouting “be out”. Not yet down as hard as the smaller cap RUT (gold on this chart).

The interesting one, though, is TLT. Folks (likely major investors and funds) are rolling buckets of money into Government Bonds (and long term corporates too, most likely) as they get out of large stock positions and into ‘risk off’ assets. Cash $US and bonds. Given the drop of other currencies, we will have a lot of global money making that run here too.

So ‘defensive bonds’ look like they are working. (“Balanced Funds” keep a mix of stocks and bonds just so that the counter cycles of the two dampen overall excursions from both. Note how the SPY and TLT are often counter moving at the dips and rises?)

OK, the overall general impression is one of a global slowdown (those commodities like JJC copper in the above chart and USO that was left off for being down so much) as China hits hard times and the whole EEM group has currency and development issues. The EU not being much of a ‘safe haven’ now that the ECB has said “Sure, you can put your money in our banks; and we will only take what we need when we want it.” a lot of that global money will land on US Assets. Watch for $US Bonds and real estate to benefit.

As that global slowdown spreads, it can have ‘contagion’ to the USA. Typically The Fed has cut interest rates to prevent that. When you are already at zero, that’s a bit harder to do… so I expect to see ‘contagion’ into the US Stock Markets as this unwind happens.

I also expect we won’t see any Fed tightening any time soon. They are kind of stuck between collapsing the property bubble they have just reflated and crashing an already wobbly stock market and killing a barely happening general economy struggle to neutral (hard to call what we have ‘recovery’ or ‘growth’ when it is more like “well, we didn’t die!” yet…)

All in all “not good”. But wealth can be preserved in “risk off” assets and potentially in shorts and options covered positions.

For short terms, use a 10 day chart and trade fast. With the kinds of drops we are having, there will be some rebound up days. That’s a good time to sell over-held long positions and a good time to buy downside protection. Once the longer term trend is clearer then longer term trades and investments can be on deck. I’ll be running some longer duration and some shorter faster charts in the next day or three.

General Question

Do folks find these postings useful? Most of the comments tend to be on the political and Global Warming threads, not the trading threads.

So I do these (though I’ve cut back the frequency to just major market turns or issues) in the hope they help someone, but if it is just me talking to myself, well, I can do other things…

If anyone likes these, just give a ‘keep doing it’ comment and I’ll keep doing it…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money and tagged , , , . Bookmark the permalink.

22 Responses to Stock Market drops a lot, now down for the year

  1. Jim Bender says:

    “Keep doing it” I find most things that you write about to be interesting and educational.

  2. Larry Ledwick says:

    I like your analysis, I just seldom have anything useful to add on these topics other than occasional tips for items I find. As a result I tend to lurk on these threads and learn something rather than cluttering up the comments.

  3. Larry Ledwick says:

    The interesting one, though, is TLT. Folks (likely major investors and funds) are rolling buckets of money into Government Bonds (and long term corporates too, most likely) as they get out of large stock positions and into ‘risk off’ assets. Cash $US and bonds. Given the drop of other currencies, we will have a lot of global money making that run here too.

    This pretty much fits with my theory that although lots of financial issues in the U.S. look really bad on paper, we might benefit from being the strongest sick horse in the race, and end up being the last man standing. Only time will tell on that.

  4. RickA says:

    Keep doing it.

    I enjoy reading your market analysis.

  5. mcdodwell says:

    I always read your posts on markets. I look out for them. Please carry on.

  6. BobN says:

    Yes, keep doing these they are valuable.

    Going to US bonds seems dangerous to me, but I guess if these fail the games over for all.

  7. Chuck J says:

    Keep it up. You clearly have good insights into the market and what to watch for. Thanks again for the posts

  8. stan says:

    Chief, I’ve done very well with the following strategy with my spec cash — buy calendars (short call 2-4 months out and long call 2-4 months later at a strike along the growth path of fast growers (one example — Aug/Nov 560 calendar in REGN purchased back in mid-June when REGN had dropped back to the MA at 500. Cost 12.70, now worth over 31. If REGN bounces some tomorrow, could triple my money at expiration tomorrow and can make even more by selling a Sept call vs the remaining Nov long. And maybe rolling an Oct call next month.

    This is a pretty simple deal for fast growing stocks with picture perfect charts going back over a year in a market that is still a bull. I’ve had a few hiccups but most have been big winners. BUT we now have a different trend. Since near month options don’t have nearly the extra time premium that they once had, I’m not very excited about selling at the money calls in my calendars (or diagonals if I roll the short).

    Question — what do you think of turning this around with put spreads on names which are in a serious long term funk in order to match the overall market trend down? Seems a lot dicier to me.

  9. p.g.sharrow says:

    @EMSmith, I often have conversations between Me, Myself and I.

    I find that they are able to bring up points of view that I had not given enough thought to. Myself, often wonders if anyone cares and for Me, it is just practice for some later opportunity that may never come. 8-(
    Your charts and explanations are additional conformation of Economic conditions we observe.

    This is most valuable to your own decision making process….pg

  10. E.M.Smith says:

    OK, got it! “Keep doing it”…

  11. Graeme No.3 says:

    I am not enamoured of the Chartist approach so don’t comment, but your analysis I read carefully. Your thoughts are very useful. Please keep doing.

    f.y.i. on one of what I think of as “Doctor Doom” sites, this time concerned with the immediate collapse of the EU & especially the UK economy, one commentator posted the advice “try to move to a property with the potential for a 2 acre vegetable garden, with room for a hen house, a pig stye and a she goat. In dealings with the authorities pretend to be illiterate or demented”.
    Curiously almost the same thought I had when visiting England in 1977.

  12. EM – for these types of posts I have nothing interesting to add since I don’t personally invest in stocks. The analysis is however interesting in seeing what people are betting their money on and why. To me it seems that the stock markets are the distilled opinions of a lot of canny people as to what is worth having and what isn’t. Those opinions may be skewed by misleading information from governments and from companies/individuals, and of course in China there will be a lot of people who simply expect the stocks to rise for ever, but it’s generally a good gauge of where real wealth is being generated and where it’s being lost.

    Your posts on financial stuff help to make sense of the reasons why things happen, so may be useful beyond pure interest. Since you’ve been making money on this through the highs and lows, your opinion on what is going to happen has a track record of being mostly right.

  13. Wyguy says:

    Yes EM keep it going. Interesting and informative.

  14. pyromancer76 says:

    Yes, please continue. Informative and helpful in an understandable way. I can send ideas on to those I know with “economics background” and have interesting conversations. Very grateful that you are willing to share your unique knowledge and skills with the rest of us. I would like to comment more, but am not “qualified” — lack in-depth sci-math-tech-engineering background. (I am immensely interested, though. Slowly working through beginning organic chemistry as part of sleepless times between sleeps.)

    Psychoanalysis and history my fields. The former has an important science to it — that of “dyadic relationships within a mental-emotional-somatic field”. Doesn’t let me comment here, though, with anything much to add. Although the envy part I work with extensively; it is central, most central. If the “feeling” can be withstood, it generates amazing creativity and productivity which then continues on its own “energy” (joy, partly). If it cannot be withstood, it is among the most destructive powers we humans display. Trauma, abuse, and significant disinterest in one’s origins play their parts, too. The field can get complicated.

    The other side of the envy is, I guess, greed (for lack of a better descriptor). How to maintain free markets (capitalism) and not have the winners (e.g., robber barons) want to take all and turn to disgusting corruption, themselves? First and foremost, to find a “desire” (something “natural”) on the capitalist-entrepreneur’s part to respect all those workers who helped them acquire/achieve their wealth by rewarding them with a portion of it — not the lowest wages the market can bear. No wonder these people get blistering mad at being taking advantage of. (In my imagination, this change in human response would go a long way toward stopping the seesaw between markets and socialism, but probably is just another utopian idea that can’t work.) The first principle, competition (or politically, multiple competing powers) works up until someone wins. Then the action-hero myth has to be engaged against that world-dominating evil infecting too many winners (no matter their setting up “charitable foundations” — to do what they think is right in the world — their utopianism). Seems to be the globalist infliction/infection today along with the bazillions of $-signs in their eyes.

  15. p.g.sharrow says:

    8:00PDT Friday DJIA down 231, well below 17,000.
    If this doesn’t turn around today, Monday looks to be real bad.
    China economic slump weighs heavy on traders minds…pg

  16. E.M.Smith says:

    @P.G.: Here’s a 10 year weekly chart of Dow vs Utilities vs Russel. It is interesting to note how the RUT signals stronger than the DOW, and how Utilities fairly regularly move in counter point (as folks go to ‘risk off’ that traditionally includes utility stocks):

    Shows MACD at / headed below zero and with DMI ‘red on top’ but neither DMI- nor ADX yet inflected, this strongly says more to come.

    Volume is still low too. Volume drys up at tops, and spikes at bottoms. The greater the fall, the higher the volume spike. We don’t have a volume spike yet; not even a small one like that single line (week) about a year ago. That, too, suggests “more to come”.

    I’ll probably put a ‘capture’ of that live link into another posting in a while… but for now, yes, it is a ‘risk off’ world.

  17. Larry Ledwick says:

    Item on tech stocks dropping into correction territory.

  18. p.g.sharrow says:

    Determined “short” selling is a method of STEALING the wealth of actual Investors. Most market “panics” are caused by this deliberate manipulation by “Market makers”, brokers to line their pockets at the expense of honest stock owners. “Creative Destruction” as practice by Warren Buffet is another way to quire wealth unearned by gaining control on the cheap and stripping the wealth of the company to the loss of it’s creators and workers…. Stock market manipulators in bed with government is a recipe for disaster for the rest of us as they pursue their God Given Right to succeed at others expense…pg

  19. E.M.Smith says:


    Golly, then you will like my sniditude about shorts in the next posting…

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