The Markets Opening August 25th, 2015
The world share markets remain volatile yet should begin to stabilize now showing tentative signs that the panic of Monday is starting to subside. The reported epicenter of Shanghai for the rout, however, has suffered another big sell-off. The mayhem in China’s equity markets showed no signs of abating on Tuesday, as the Shanghai Composite index accelerating its downfall in the afternoon trading session to settle below the key 3,000 psychological mark.
In Tokyo, Japan’s Nikkei 225 index was the second-biggest loser in the region, closing down 4% after turning negative late in the day. Going into the lunch break, the Tokyo market staged a comeback along with most of the other Asian stock indices. To some extent, this was supported by the fact that the Dow Jones Industrial Average futures opened up more than 100 points Monday evening. As noted before, the sell-off in the US market into the close illustrated the crack in confidence and it was a better position to leave the market appearing weak rather the strong for the close. A strong close would have encouraged people to hold whereas a weak close shakes the weak players out of the tree.
Nevertheless, the Shanghai charts is a completely different technical perspective from the rest of the world. Here the market had to move back down to test the bottom of the channel. There was just no technical support to cling to in mid-air. Consequently, there should be some decoupling since the sell-off was not really caused by China, but total global confusion. This is raising hopes that as the day unfolds around the world, Monday’s low in the USA may indeed hold.
Name …………………………………….Price Change %Change
Nikkei 225 Index …………………… 17806.70 -733.98 -3.96%
Hang Seng Index ………………….. 21037.48 -214.09 -1.01%
S&P/ASX 200…………………………. 5137.30 136.02 2.72%
Shanghai Composite Index………. 2960.40 -249.51 -7.77%
KOSPI Index………………………….. 1846.63 16.82 0.92%
Nikkei 225 Index …………………… 17806.70 -733.98 -3.96%
Hang Seng Index ………………….. 21037.48 -214.09 -1.01%
S&P/ASX 200…………………………. 5137.30 136.02 2.72%
Shanghai Composite Index………. 2960.40 -249.51 -7.77%
KOSPI Index………………………….. 1846.63 16.82 0.92%
In the previous session, the Shanghai bourse nosedived nearly 9% to make up its biggest one-day percentage loss since 2007, as it is now being called “Black Monday.”
Analysts attributed the market crash to the erosion of confidence among investors coming in from overseas traders. Indeed, the China devaluation rattled foreign investors for that was effectively a tax on such investment. Chinese regulators indeed have enormous resources and tools to normalize the market according to investor expectations as was the case in Japan. People tend to think in conspiracy terms that there are actually plung-protection-teams in place by all governments. The rude awakening that such conspiracy theories are total BS shook investor’s confidence disappointing then when the policy responses from China thus far were absent. There was a growing sense that the government responses have been unorthodox, ineffective and unhealthy for the long term functioning of the Chinese capital markets. This is the classic blame-game to try to explain events always in the context of someone is in control when they are not.
Analysts attributed the market crash to the erosion of confidence among investors coming in from overseas traders. Indeed, the China devaluation rattled foreign investors for that was effectively a tax on such investment. Chinese regulators indeed have enormous resources and tools to normalize the market according to investor expectations as was the case in Japan. People tend to think in conspiracy terms that there are actually plung-protection-teams in place by all governments. The rude awakening that such conspiracy theories are total BS shook investor’s confidence disappointing then when the policy responses from China thus far were absent. There was a growing sense that the government responses have been unorthodox, ineffective and unhealthy for the long term functioning of the Chinese capital markets. This is the classic blame-game to try to explain events always in the context of someone is in control when they are not.
There is no easy explanation to create confidence once again in the markets as we head into September. Hence. for the meltdown in the Chinese mainland markets is likely to continue in a volatile and choppy pattern which indicates that significant downside risks remain.
European shares are seen to open higher, with spread-betters expecting more than 2 percent gains in Germany’s DAX and a rise of above 1% in Britain’s FTSE. China’s economy continues to slow and the US Fed is still likely to raise rates before the end of the year. The Fed’s problem is the low interest rates are creating the next crisis – bankruptcy in pension funds especially public at the state and municipal levels. The Fed’s low rates have been kept there for far too long as an accommodation to Europe. The banking crisis has been long over in the USA and low rates have hurt so many areas that the Fed has lost all control of the economy where they have been boxed in by low rates which have been exploited outside the USA with more than $9 trillion in dollar denominated debt created among emerging markets.
Even in China, players have been borrowing dollars in Hong Kong and taking the money home helping to confuse analysts that China’s exports were not so bad. But with expectation of the Fed’s coming rate hike, many of those loans were in trouble and this too contributed to the Chinese “Black Monday” as Chinese investors sold to cover dollar loans that suddenly jump by the devaluation in addition to the expectation of rising interest rates. China’s devaluation helped to curb the rush of foreign investors into China, but it also helped to curb Chinese investors borrowing dollars for speculation in China.
Dow Update
In the Dow, we can see that Energy bottomed out so we have a counter-trend at work right now. We do have a pair of Daily Bearish Reversals at 14769. We continue to see the prospects that today will remain at least perhaps as the lowest closing. Nonetheless, a new intraday low is possible given that we may yet see lower lows in Shanghai.
Because the TV and pundits are blaming China, new lows there today will have some impact in the West. This correlation is not on track so it appears to be more of a desperate attempt to simply explain that capital was withdrawing since May where we also saw a turn in long-term debt.
Shanghai Share Market Outlook
Despite the fact that the rally in Shanghai was by no means a real bull market regardless of the percentage move back up, keep in mind that what goes up big also goes down in a hurry. This market can make new lows in today’s session taking a hint from the USA and Europe.
Our timing models here point to today with volatility remaining high for the balance of the week. This should keep Western markets on their toes, albeit they are not in the same technical position.
The critical support lies at 3049100 and a monthly closing beneath that warn that we should see a sharp drop test back at the 1980000 area. Support lies at the Weekly Bearish Reversals to be found at 3195880 and 3126900. A breach of this area warns of an eventually drop back to 1984800. A monthly closing beneath that level will confirm a revisit of the old lows lies ahead
Here we fully expect that the low on this correct may not be seen until September. This would certain keep Western market on the edge.
Dow in Euros
QUESTION: Mr. Armstrong;
In Munich, you said the US share market had peaked in euros and the low looked to be in August. Is that view still on track?
WG
ANSWER: Yes. When you plot the Dow in Euros, the high was March not May as it was in dollars. This suggested that August would be a 5 month correction in Euros, but perhaps a 3 month FALSE MOVE in dollar terms. This was linked to the decline in commodities which of course would spark repatriation by Europeans from Emerging Markets where they have been heavy investors in commodity production.
Forecasting Against the Wind
The leading story for the sell-off has been that Wall Street was shocked by the mounting worries over instability in China and emerging markets. The tumultuous decline has sent investors clamoring to race into safe-haven assets amid the confusion. Why anyone missed this is really befuddling since China’s share market peaked in 2007 and the rally into 2015 has been merely a reaction instead of a bull market. The devaluation of the renminbi is another shocking mystery since the dollar bottomed in 2013 and 2014 was an outright reversal to the upside. So the devaluation was merely in line with the trend, not a change in trend. This is how the fundamentals are applied without any common sense. It was simply time for a correction because we needed the last rush to the save-haven to create to bubble in government bonds for this turn in the ECM. Thus, this correction is on point and good because it will distract everyone from the real crisis – debt.
Thank you for all the supporting emails. Yes this has been just as a public service. These types of updates during a crisis will be reserved for those who are signed up for Socrates. Mainly, to try to prevent this info from being just squandered as subscribers request. No worries. The mainstream media will NEVER report our forecasts because we do not do the traditional promotion analysis. Likewise, there are far too many people who would never understand this anyway and should stay with their favorite guru. Here is the typical comment from someone who will never understand markets or trading: “I read your blogs and cant make a dime from your jibberish…..wishy washy….this then that ….all seems like utter bs to me…I admit I am an idiot,…..maybe you should to.” Most likely a diehard gold propagandist. But no matter what you try to explain to such people, they will never believe anything. Why they even read who knows. Probably just because they hate my guts as some have expressed. It is amazing such hatred exists all over gold.
If you have suicidal tendencies, be very careful when you call a help line. Many are stationed in the Middle East. They could get all excited and ask if you can drive a truck.
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