Global markets routed, stocks crumble, Yen climbs

Quick Recap

A bad week led into a terrible Monday for markets yesterday as stocks fell heavily in Asia, Europe and the US. It was a self-reinforcing loop which offers more of the same for traders in Asutralia and Asia today.

The ASX SPI 200 futures are indicating a loss of around 200 points.

There was some good news of course. It could have been worse with the Dow down 1,000 points at one stage in early trade before closing 588 points lower. So just 1000+ points in two sessions!

The Aussie dollar got hammered at one point falling to 0.7058, USDJPY fell down to the mid 116’s region, US 10 years rallied all the way to 1.90% (remember 3% anyone) and the VIX index went through the roof, and crude oil has absolutely collapsed falling 6%.

I’m going to quote myself from Business Insider this morning:

The last 24 hours, indeed the last three trading days, have been a great example of how markets can feed on themselves. It’s what happens when fear takes over. Fear is of course a manifestation of uncertainty, about the markets, the economy, traders’ pocket books, and investors’ portfolio balance.

But once it hits the tipping point it becomes not the manifestation of uncertainty, but the catalyst for the uncertainty. That sets up the type of negative feedback loop that we are seeing in markets now and we’ll see in Australia today. Traders left the ASX down 4% yesterday and would not have expected they faced a similar loss today. Otherwise they would have sold more heavily. Yet that’s exactly what the SPI 200 futures are suggesting with an overnight loss of 189 points at the moment.

The question for traders though is whether last night was the type of acute weakness, what I like to call a pessimistic crescendo, that can see prices reverse. Given the Dow climbed back from 1000 points down, it just might be. But Goldman Sachs says we might still have another 6 weeks of turmoil before China stabilises. Can the developed world stabilise if China is still burning?

The floor governor of the NYSE reckons last night was the capitulation trade and I tend to agree when I look at the price action over the past few days and the likelihood of the Chinese entering the fray today.

But this is unlikely to be the end of it now that traders know that the emperor, central bankers, are naked. But as John Hussman pointed out again yesterday stocks have been overvalued for ages. We were just waiting for a catalyst for the recognition, and the selling to kick in. He reckons the wheelbarrow full of dynamite has now been rolled amidst the fire-eaters. He’s looking for a 40%+ decline in the long run.

One thing to note: Readers of this note know I am a trader, and I assume they are too, that means I profit at times like these (DAX for example, S&P break, Dow Death Cross). But I am respectful of two things. One, most people are stock investors playing from the long side. Two, I am superstitious of Hubris. So, my commentar yunderstands some readers will be hurting in this sell off and its unsafe to be a cheer leader. Mr market remembers.

The overnight scoreboard (8.40am AEST):

• Dow Jones -3.57% to 15,871
• Nasdaq -3.82% to 4,526
• S&P 500 -3.94% to 1,893
• London (FTSE 100) -4.67% to 5,898
• Frankfurt (DAX) -4.7% to 9,648
• Tokyo (Nikkei) –4.61% to 18,540
• Shanghai (composite) -8.46% to 3,210
• Hong Kong (Hang Seng)–5.17% to 21,251
• ASX Futures overnight (SPI September) -189 points at 4,761
• AUDUSD: 0.7150
• EURUSD: 1.1596
• USDJPY: 118.41
• GBPUSD: 1.5756
• USDCAD: 1.3284
• Nymex Crude (front contract): $38.09
• Copper (US front contract): $2.2545!!!
• Gold: $1,154
• Dalian Iron Ore (September): 428(it’s denominated in CNY folks)

On the day

On the data front today, we get a leading index of economic activity in China, New Zealand inflation expectations and then German GDP and IFO tonight. In the US, we get Richmond Fed activity new home sales, consumer confidence, Case Shiller home prices and the Markit PMIs.

CHART OF THE DAY: ASX 200 – target achieved? Support Found?

This chart speaks for itself.

We targeted 5500, 5300, 5150 and 4800…all targets now achieved and this line needs to watched for the next indication of market direction.