On the heels a big surge in Asian markets, today King World News is featuring a piece from one of the greats in the business discussing the attempt by the global markets to stabilize with the Dow Theory “sell signal” already triggered. Also included is a quick note from Art Cashin.
“Hey Jeff, on your report this morning, we are using the closing low on Monday 8/24/15 (15871.08) for the Dow, but the closing low of 8/25/15 for the Transports. Why do we not use the closing low of 8/25 on the Dow of 15666? Thanks.” — A concerned financial advisor emailing about Thursday’s Morning Tack (9/3/15)
By Jeffrey Saut, Chief Investment Strategist at Raymond James
September 9 (King World News) – As I read Brian’s email (above) I thought to myself, “How could you make such a big oops?” because, sure enough, he was right. The closing low for the D-J Industrial Average (INDU/16492.68) was indeed on August 25th, coincident with the lowest closing for the D-J Transportation Average (TRAN/8012.86). Alas, when you publish you make mistakes, but I cannot recall making such an obvious mistake. In retrospect, I must have been so freaked out by Monday’s Mauling (-588 points), where the Industrials actually made their “print low” of 15370.33, that I just assumed that session’s closing price was the lowest closing low for the senior index.
My Error And The Dow Theory Sell Signal
My mistake, and in this business when you make a mistake you say so and move on. So, for the record, both the Transports and the Industrials made their closing lows simultaneously on August 25th at 15666.44 and 7466.97, respectively. Obviously, this “reset” gives the Dow a few more hundred points of wiggle room. The important point, however, is that there was indeed a Dow Theory “sell signal,” at least by my method of interpreting Dow Theory. I do find it interesting that the S&P 500’s (SPX/1969.41) “bone crushing” decline of 2008 – 2009 found its nadir at the mark of the devil, namely 666, on March 6, 2009. Hopefully, the same was true for the Industrials on August 25, 2015 at, you guessed it, 15666.
In yesterday’s Strategy report I wrote, “This week we look for a sharp rebound, very similar to what the SPX did on August 26th (+72.90) and August 27th (+47.15), but then for the indices to stall out in the 2030 – 2050 zone followed by renewed weakness.” Today’s “upside test” should come at ~1993, which was the August 28th intraday reaction high. Bettering that should lead to a rally towards/into the 2030 – 2050 level, where barring some kind of spectacularly bullish news, the rally should stall, followed by another attempt on the downside.
Equity Markets Have Stabilized, For The Moment
As I said on TV yesterday, “V-shaped bottoms are pretty rare. Sure they can happen, like what happened at the October 15, 2014 low (we were bullish), but more often bottoms are a process. What you typically see is a capitulation low, followed by rally attempts, and then a retest of the capitulation low. That pattern looks like a ‘W’ in the charts. I am hopeful that will be the case here.” Verily, the equity markets have stabilized above the August 24th intraday lows, but to me the upside seems limited until the aforementioned sequence takes place. While that pattern does not have to play, it is the way most declines end. This morning, as expected, the preopening futures are sharply higher as participants believe no interest rate ratchet is coming. Japan’s disappointing 2Q15 GDP report and China’s ugly trade data bolster that view.
Also, here is a quick note from Art Cashin: Overnight And Overseas – Tokyo exploded 7.7% to the upside, the equivalent of over 1200 points in the Dow. The spark appeared to be the promise of tax cuts and other economic stimuli. Shanghai rose over 2% as did Australia. All Asian markets were up save for Indonesia.
That rally quickly spread to Europe where markets are up between 1.5% and 2%. Both the Euro and the yen are weakening as is oil and gold. Base metals are steady to a touch higher. Yield on the two year Treasury inches up to a four year high. U.S. stock futures are solidly higher.
Consensus – JOLTS data and the assumed Apple rollout may be important to markets today. Several key resistance points are within reach based on current futures spike. Stay wary, alert and very, very nimble.” ***ALSO JUST RELEASED: Richard Russell – The World Is In Serious Trouble CLICK HERE.
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