Emerging Market Cyclical Decline, Developed Market Previous Investment, Looks Bigger Than Greece

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.