Markets gathering steam for more downside

Markets continued to swing to the downside. It shouldn’t surprise readers of this column. But the news attributed for the down move is that banks such as JP Morgan , HSBC, Deutsche Bank, Standard Chartered and Bank of New York facilitated the movement of trillions of tainted dollars through their system.

According to a bombshell report by the International Consortium of Investigative Journalists (ICIJ) between 1999 and 2017 these banks moved more than $2 trillion that were flagged as possible money laundering or other criminal activity by their own internal compliance officers, because it was more profitable to do crime than to not do crime.

What I cannot understand is that why is this such a shocking news? Didn’t banks do this always? Haven’t they been punished before? They know exactly what they are doing. None of their licenses have been suspended or their businesses shut. Compared to what they can profit the fines or any punishment that they receive is nothing more than a slap on the wrist. So the circle continues.

European countries are on the verge of another round of lockdowns and restrictions with increasing rise in COVID-19 cases. In the US , COVID deaths are fast approaching the 200,000 mark as cases have spiked in five states last week.

On the political front things couldn’t get more crazier than what it is now. With the opening of a Supreme Court Justice seat, matters will get to the wire and in more uglier ways than you can imagine.

What it implies is that the political chaos will lead to more market risk. But with the Fed’s full guarantee that they will be in full backstop mode (and that too for a long time), it is very unlikely the markets will completely fall out of bed. That day will come but not now as the public still fears, trusts and respects the Fed.

For the moment, the Fed will do anything and everything to preserve stability and preserve the recovery to protect the trillions of dollars that they have already put out in the markets. They will go even to the extent of buying stocks directly from the markets.

No other past presidents have attached or tried to measure his performance to the movements in stock markets as much as President Trump has. There is hardly any reporting or press conference he makes without a reference to the stock markets. Also no incumbent President has won the presidency if the stock markets have been falling three weeks just ahead of the elections. So the next many weeks are very important for the US markets.

Tesla a stock that has been an enigma for many is holding their AGM meeting today. Will there be some surprises there? We will have to wait to find out.

Also as I mentioned before the Autumnal Equinox, the day the Earth crosses the Sun’s equator happens today. Not that something has to happen but there is enough historical evidence that strange things have happened in markets within six days of the Equinox. So there is a lot of uncertainty and confluences of possible event risks lined up.

Equities

As expected the markets have broken below some key support levels. The NYSE advance/decline line came in at a negative 6.2 to 1. Similarly 85.5% of S&P 500 stocks declined and about 89 pct of the volume on the big board was down volume relative to 11% pct which was up volume.

The rally from yesterday’s lows of 3229 seems corrective and could extend more but it is important that it stays under 3362. If it does the current structure could take a new meaning. Think there is more down side to the current structure and it should trade down to 3000-3050.

Bonds

There is nothing much to comment on Bonds. As mentioned in yesterday’s report the watershed level on the top side is 178^15 .

Euro

Euro dropped to 1.1731 and found support. We need a more solid break of the level to confirm that the upside pressure must have abated. In the short term a snap back rally cannot be excluded.

Gold

Gold made the steepest decline since Aug 11. It moved down 67 dollars. If it declines below 1870 there is good chance it will trade down to 1825 to 1850. From those levels gold can make a rally to rise above the previous high at 2072 to complete this whole structure. However any break below 1765 will diminish any chances of a further rise in gold.