A lot of people right now are discussing China. Good point: currency devaluation and economic turmoil tend to cause issues in one country's stock market which can spill over into other countries' exchanges.
Was that the only problem? No.
Was it the Dow death cross, or Apple's likely upcoming one? The death cross is a technical trader's signal, where a long-term moving average crosses below a medium-term one. Later this coming week I'll post an article describing more fully how the death cross works. For now, understand that the death cross is not necessarily a leading indicator — a signal showing where the market is going. Instead, it's a lagging indicator, showing where the market already is or has been. If the DJIA death cross has already occurred (and it happened on August 11) then the DJIA is already by definition going down.
So in addition to fundamental problems in China and the potential for a September rate hike from the Federal Reserve, with investors and traders withdrawing from high-risk free money trades for the safer shores of long-term government debt — in addition to all that, there are technical signal issues in the U.S. exchanges. Market breadth is poor, meaning there are more stocks in downtrends than in uptrends, in itself meaning the current bull market is based on only a few stocks, not the entire market. Bloomberg.com's Joseph Ciolli holds that five megastocks are currently supporting the market: Amazon, Apple, Google, Facebook, and Netflix. Are those five big enough to keep the entire market upright?
Good question. Because it's not just a mathematical matter of market value; it's the psychological possibilities of market perception.
For the past four years, U.S. markets and especially stocks have traded with low volatility, because zero per cent interest rates supported them. With investors beginning to price a September Fed rate hike into the market, that's changing. On Friday, the VIX volatility indicator closed above 28 for the first time in at least twelve months, and Bloomberg.com's Financial Conditions Index formed a classic head-and-shoulders chart pattern as it fell below zero for the first time since 2012, indicating a potential drop.
In other words, everything's going back to normal after a four-year hiatus with zero per cent interest rates. Remember when stock valuations actually had some relationship with the overall economy? Those days seem to be returning.
It's too early to predict a true bear market. But Thursday and Friday wiped a trillion dollars off S&P500 market values. Most indices are solidly in correction territory, with losses of greater than ten per cent from the most recent highs. If losses reach twenty per cent, you'll hear analysts quit using the term "correction" and start substituting "downtrend." And keep in mind, some overseas markets are already there.
Markets Beating Fed to Tightening Ahead of September Meeting
Reason Returns to U.S. Stocks at Awkward Time for Global Markets
The Fiscal Times:
China’s Currency Devaluation Brings Stocks to a 'Death Cross'
Dow Plunges into Correction Territory: Here’s How Bad Friday’s Market Bloodbath Was
Crushed: Dow Enters Correction After Biggest Selloff in Four Years
In other news…
In December of 2013, Detroit Police Chief James Craig encouraged law-abiding residents to carry guns and assist in policing the city, which faced a shrinking PD and growing criminal class. FoxNews.com's Perry Chiaramonte brings us an update on how that's working out. Short answer: pretty damn well. Note that the armed man fighting off a carjacker event happened before Chief Craig's call to arms. Doesn't make it less newsworthy.
Packing heat in Detroit: Motown residents answer police chief's call to arms
Well, that's a problem
Former Secretary of State Hillary Clinton claimed there was no classified information transmitted through her private server — no, that's not how she phrased it. She said that she sent no classified info, nor did she receive any that was marked as such.
Parsed like the 1990s.
Here's PJMedia.com's Charlie Martin discussing the reason it remains a problem whether information classified as top secret was marked or not. Short answer: computers storing top secret and some other classified info are not connected to the internet. Shorter answer: uh, oh.
Hillary’s Air Gap Problem The very fact that TOP SECRET information made it to Hillary's email shows a crime was committed.
The last few months have mainly been spent editing for my alter ego, Dingbat Publishing. But with the next three releases lined up and ready to go, hopefully I can return to a more steady blogging schedule, and maybe even get some actual, you know, writing done. Miracles do occasionally happen.
Thanks for stopping by, and watch your margin calls out there. This could get ugly.