CIRCLING THE DRAIN:
So last weeks turmoil is seemingly not over yet…..Was it simply a storm in a teacup brought on by another one of those market tantrums that erupt every now and again to keep everyone on their toes and eventually evaporate? Or was it a significant tremor giving pre warning of a major earthquake to follow?
WAX ON WAX OFF:
One day its risk on the next........
Historically speaking September and October are not very good months for stocks and there are fundamental arguments for both sides.
But the fact is that there is a lot more to worry about than to be confident of....
There are clearly real concerns both internally and externally that the China's growth rate is running at closer to 5% than 7%, Brazil and Russia are in recession,
Emerging market countries are suffering massive capital outflows and are burdened with huge dollar debts, Abenomics is not delivering inflation in Japan, the Eurozone is an invalid, Greece is a month away from another potential exit crisis, Europe faces a migrant crisis and the Middle East is unstable.
There is plenty of reason to be concerned especially when the global economy is in the anaemic state it is despite a zero interest rate environment and huge injections of QE. At the height of last week’s crisis the proposed responses if the rout continued were for more of the same -- QE in China to be added to more QE in Japan and Europe. There was even a suggestion from the president of the Minneapolis Fed that the week’s developments potentially justified "adding accommodation". All this despite evidence that the impact of each new injection is diminishing and creating side effects that are sowing the seeds of the next financial crisis.
TECHNICALLY SPEAKING,THIS DOESNT LOOK VERY GOOD.....
Having broken the multi year trendline which came in around 2025 ,we rallied back up to the 1994 just shy of that trendline and now we have retreated again…..
Weekly S&P chart:
Should we break the recent low of 1831 the fibonacci retracement levels of the move up from the 1068 level back in 2011 to the high of 2131 would see us test 1725 followed by 1600 which also coincides with the trendline on the monthly chart....it really is rally or else time...should we get back above the trendline then the bull market will still have some legs,but while below there is a major risk that the secular bull market that has been in place since 2008 will be in danger of coming to an end..
What I have not liked from the recent move is that the fixed income market that one would expect to flatten from his point has if fact steepened…this has been down to apparent Chinese liquidation of treasury positions;
YIELDS UP / STOCKS DOWN……
US 30yr futures are off 4 points from the high set on 8/24 which was a yield equivelant of 2.62 which backed off to a high of 2.95 on 8/27...
the next 2 months could be quite hairy.....
In regards to more detailed and expert options and futures advice ,volatility analysis etc ,please contact Darren Krett,Bryan Fitzgerald or John Haden through www.maunaki.com [15] or dkrett@maunaki.com [16]
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