Market Talk – August 24th, 2015
“Wild” is an understatement to describe today’s equity market moves. Some say this is the fault of the Chinese who started it with the unexpected move in the currency but whatever the reason for the increased volatility you can be sure they will increased margin requirements which will add to the volatility and the further decline in liquidity.
All Asian equity indices were lower around 5% but the Shanghai lost 8.5% on the today. European core markets were also down around the 5% mark with DOW futures already down over 350 points before market even opened on the floor. The DOW saw its worst opening in years losing 1000 points in frantic trading.
As always, the flight to quality was into the Bond market which saw US 10yr notes trade close to 1.92%. In Europe the Bund market was favored and peripherals lost between 10-15bp at 10years. The US/RX 10 year spread traded down to +140bp at best but was quoted +143bp by the close. This is obviously completing the bubble we need in government for the ECM turn.
Oil suffered yet again (closing down and 5.5% and 6.3% TWI/Brent respectively) the Russian Rouble really did not stand a chance closing down 3%. Other Emerging Market currencies also suffered to the US$ with TRY(Turkish Lira) down 2%, the NZ -3%, INR down 1.25% and AUD -2.2%.
The Euro, Sterling, CHF (Swiss Fr.) and JPY all gained ground against the USD (which pushed the DXY to 93.40 -1.6%). This is the capital contract required for the flight to quality bubble.
Gold did benefit but not as much as many dealers had expected. Closing $6 lower at $1154 it lost 0.45% on the day. However, when you look at the losses in Silver (-3.75%) and Copper -2.5% a small 0.45% is actually not that bad. Still, the lack of a flight to gold is in line with our models for the peak in government so we are not dealing with a decline in confidence within government which is the criteria for gold to rise.
The dealers are running very few positions. They insist in taking/working orders rather than put the balance sheet on the line for what could be off-side before they put the phone down. Boards and Risk Departments in banks, Trading Houses, Insurance Companies, GAM’s (Global Asset Managers) and Pension Funds are all in for a late night and expecting a week that is already being written into the history books of the “Week That Was”.
Understanding How the Market Trades
We will update later on tonight after 9pm. But today’s close was WEAK, which was very good because many people were hoping for a strong bounce and the weakness undermines the confidence to hold. This is very similar to 1987. The day after the panic, the market still made a new low intraday but then bounced a bit closing higher. We still have that potential for tomorrow, but we held the Bearish Reversals so that much is good. The prospect that today was the low at least on a closing basis as was the case during the 1987 Crash remains in effect. We will look at what happens if we move beyond a 3 month False Move into a correction for October and what that does to the timing for the latter high.
Will provide a a closer look later tonight.
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