On the heels of massive selling in Asian markets, including Shanghai, today two of the greats in the business sent King World News fantastic pieces that warn the turmoil in Asia rocks global markets as crude oil plunges and gold surprises.
Heavy Selling In Asian Markets
September 1 (King World News) – From Art Cashin’s notes: “Overnight And Overseas – Markets are in turmoil again. Shanghai closed down the equivalent of 215 Dow points despite reports of active “mystery” buying in the final 45 minutes of trading. Hong Kong, where there is no rescue team, was down twice as much. Tokyo was down the equivalent of 635 Dow points. European markets are also getting pummeled.
Most commodities are getting whacked with oil falling 2%. Gold in the odd man out, rising 1%. The Euro rallies against the dollar and the yield on the ten year dips back to 2.17%. Dow futures look to a 300 point loss on the opening.
Consensus – Bulls failed to do anything important with the opportunity they bobbled yesterday. Now the ball is clearly back in the hands of the bears. Watch crude carefully for signs that the upside reversal is over. Morning may bring more ETF pricing problems. Stay wary, alert and very, very nimble.”
“According to Hoyle” — An old English axiom
Raymond James Chief Investment Strategist Jeffrey Saut’s note for today: “Edmond Hoyle (1672-1769) was a writer best known as the authority about the rules of card games. The phrase “according to Hoyle” came about because of his perceived authority on the subject.
The meaning of the phrase has expanded over the years to basically mean “things” are going the way they should go. And, “pretty much according to Hoyle” played on the Street of Dreams yesterday as the S&P 500 (SPX/1972.18) gave back nearly 17 points. That should have come as no surprise for after stating a week ago Monday was a tradable low (SPX intraday low of ~1867), to be followed by a subsequent (and anticipated) “throwback rally” taking the SPX into its 1970 – 2000 overhead resistance zone, Andrew and I said we would not expect much more on the upside.
The Dow Theory Sell Signal
To be sure, the follow-up from a 2 – 7 session “throwback rally,” from a massively oversold condition, typically leads to a downside retest. It looks like that retest began yesterday. My biggest fear is that a retest brings about new lows (below 1867). That would force us to honor the Dow Theory “sell signal” of August 24, 2015. As stated, we have chosen to ignore that signal, just like we ignored the May 2010 “Flash Crash” Dow Theory “sell signal” (the last time the Dow fell 1000 points intraday), for reasons often stated in these missives. If, however, the equity markets “speak” with a lower low, we will have to reconsider that position.
Crude Oil Pulls Back After “Stunning” Rally
Not “according to Hoyle” has been the recent stunning rally in crude oil. Yesterday’s surge was sparked by news that Venezuela wants an emergency meeting of OPEC. This comes of the heels of a story that Russia and Brazil are in recession (http://bloom.bg/1JENM7M). This too should come as no surprise since we have been writing that crude oil is in a bottoming phase. We originally thought that bottom occurred with last March’s “undercut low” of $42, but there has recently been another undercut low to $37.75 on 8-24-15.
Last Friday, the insightful David Lutz, of Jones Trading, offered these reasons for oil’s initial spurt: 1) US GDP a full face-ripper; 2) Massive US Drawdowns in Inventory; 3) Refineries coming on line helping alleviate Cushing; 4) Mexico Done Hedging; 5) Force Majeure in Nigeria – Shell yesterday; 6) ISIS gains in Turkey; 7) “Mother of All” China Stimulus bets coming this weekend ahead of Parade; 7) Told PSX refinery downtime may be shorter than expected; and 8) Erika – but not tracking toward GOM. Obviously, the recent R2 (correlation) between crude and stocks didn’t hold true yesterday. Today, however, the R2 is back with crude oil off 2.2% and the preopening S&P 500 futures down 2.15% as China’s manufacturing contracts, Euro zone factory growth eases, and the U.S. weighs sanctions on Russia and China.” ***ALSO JUST RELEASED: DANGER: Richard Russell Warns Investors To Be Completely Out Of The Stock Market CLICK HERE.
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