I've never witnessed a candlestick in the Dow Jones Industrial Average of today's kind. What's more is that this candlestick formation is common among all indices and heavily traded stocks. Learned observers seem to have a common opinion that this is not only unusual, but also historical.
The bizarre dynamic happened with market futures opening with indications of a significant decline, 800 points down for the Dow. Next was a climbing opening for the Dow, reaching about only 400 points negative, then a nose dive of up to 1,100 points. That is a capitulation to sell. Then I saw the sellers capitulate to higher pricing and the Dow reached a point of being down only 140 points.
Volatility shot through the roof, and the prices of options also shot up. Then down, then up. In fact liquidity in options seemed rather slow due to the rapid and extreme movement in index pricing. Such pricing difficulty presents complication for one seeking to open a new position at this time. Even exiting a profitable position was difficult today. But really not bad at all, with these price movements. Essentially, the exits got clogged today, then the entry got clogged, then market makers didn't want to undersell the market or oversell the market.
Market pricing at this point isn't just an issue of a couple day's sentiment. Reality is in the equities of China collapsing. China is the 2nd largest single country economy in the world. By itself, China's stock can do what they do. But when China's stock market makes significant moves, one must search for implications. The most ready implication is confirmation of pricing discrepancy between China's real GDP performance against China's equity earnings performance.
Perhaps China's stock market got well ahead of itself. And maybe China's policy makers realize that.
What appears to be most concerning for U.S. markets is emerging market currency decline, due to cyclical demand declines. This dynamic pressures pricing of all commodities. Should emerging markets really be entering the decline aspect of their economic cycle, the yield hungry investors from developed economies provided substantial debt to the emerging markets. Today, the combination of emerging market debt and emerging market cyclical decline bring a ration of reality to U.S. equities. That seems to be what we see.
Monday, August 24, 2015
Tuesday, August 18, 2015
China is Once More Disturbing Markets
I trade the markets, and I've found an unsettling development this week. Where last week I found the markets respond in deep decline to China's currency devaluation, that same market came back the next day in a seriously bullish action. In fact, the market closed up considerably. This last price action happened on Wednesday of last week.
Since Thursday of last week, the major indexes are flat. Essentially, the bulls showed major resilience, but no capacity to follow-through over a few days now. Same with the bears, which got their back broken on Wednesday of last week.
Otherwise for the Dow, Walmart guided down and Home Depot outperformed. I think Disney was downgraded, by someone (ESPN cable issues). Disney owns the franchise. Yet, the only proprietary franchise merchandise I care to get off ESPN is during college football season (cancel and reconnect).
Looking at Monday, the indexes were up and finished with a little rally at the close. That looked bullish going into Tuesday, and looked promising for a follow-through increase. But on Tuesday morning, the indexes were down, and finished the day down, and more pointed is the indexes were down only marginally.
Today of August 19, for the first time in several days, a significant decline was observed in all indexes. Such a decline was not linear. Rather, the decline occurred after a major rally, but the push up ended in considerable decline given the range since last week.
Causation certainly appears to be China and it's stock index losing 6% on Tuesday, only to lose 4% today but find a 1% gain at closing today. This leads to the appearance of the Chinese government support of their stock market not being the salvation once thought.
Probably more concerning is that the People's Bank of China released more money to their associated central banks than since January 2014. That by itself is meaningful. Especially when this release of funds occurs at a time after a currency devaluation.......How much money did China expend in preventing a collapse of their currency. How much more money will be needed for a second resetting down of currency price.
Perhaps an appropriate question is whether China devalues again. Market pressures seem to want more devaluation. And, China wants their currency to reflect markets. Their stock market, however, isn't so much based on a market. Large stock holders can't sell and the government today took a step back on Tuesday from supporting prices. Perhaps China's troubled state owned enterprises are buying stock to support the market. Yet, if China follows the policy of their currency, and remain consistent with their stock market intervention limitations, that stock market is going to follow market influences in a fashion similar to their currency.
Further Chinese yuan/renminbi devaluation only increases the cost of China's bloated foreign currency debt. It also makes China's exports comparatively cheaper. Between the two "onlys", which is more powerful?
By devaluing a currency, a country makes debt burdens more difficult for domestic businesses that hold foreign, especially U.S., denominated debt. This situation namely arises in China for its property development businesses, which seem to be a Potemkin village. However, most of this debt is held by state enterprises, which is ultimately China's corporate debt, and not the state held debt.
Since Thursday of last week, the major indexes are flat. Essentially, the bulls showed major resilience, but no capacity to follow-through over a few days now. Same with the bears, which got their back broken on Wednesday of last week.
Otherwise for the Dow, Walmart guided down and Home Depot outperformed. I think Disney was downgraded, by someone (ESPN cable issues). Disney owns the franchise. Yet, the only proprietary franchise merchandise I care to get off ESPN is during college football season (cancel and reconnect).
Looking at Monday, the indexes were up and finished with a little rally at the close. That looked bullish going into Tuesday, and looked promising for a follow-through increase. But on Tuesday morning, the indexes were down, and finished the day down, and more pointed is the indexes were down only marginally.
Today of August 19, for the first time in several days, a significant decline was observed in all indexes. Such a decline was not linear. Rather, the decline occurred after a major rally, but the push up ended in considerable decline given the range since last week.
Causation certainly appears to be China and it's stock index losing 6% on Tuesday, only to lose 4% today but find a 1% gain at closing today. This leads to the appearance of the Chinese government support of their stock market not being the salvation once thought.
Probably more concerning is that the People's Bank of China released more money to their associated central banks than since January 2014. That by itself is meaningful. Especially when this release of funds occurs at a time after a currency devaluation.......How much money did China expend in preventing a collapse of their currency. How much more money will be needed for a second resetting down of currency price.
Perhaps an appropriate question is whether China devalues again. Market pressures seem to want more devaluation. And, China wants their currency to reflect markets. Their stock market, however, isn't so much based on a market. Large stock holders can't sell and the government today took a step back on Tuesday from supporting prices. Perhaps China's troubled state owned enterprises are buying stock to support the market. Yet, if China follows the policy of their currency, and remain consistent with their stock market intervention limitations, that stock market is going to follow market influences in a fashion similar to their currency.
Further Chinese yuan/renminbi devaluation only increases the cost of China's bloated foreign currency debt. It also makes China's exports comparatively cheaper. Between the two "onlys", which is more powerful?
By devaluing a currency, a country makes debt burdens more difficult for domestic businesses that hold foreign, especially U.S., denominated debt. This situation namely arises in China for its property development businesses, which seem to be a Potemkin village. However, most of this debt is held by state enterprises, which is ultimately China's corporate debt, and not the state held debt.
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