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.)
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:
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.
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…