After a tumultuous week of wealth destruction and volatility in global stock markets, with the Dow Jones (DIA) suffering its worst week since the dark days of 2008, only one chart matters as shell shocked investors face more peril ahead.
At Wall Street Sector Selector, our ETF Master and Option Master Portfolios logged unrealized gains during last week’s wild action. We continue to expect lower prices ahead.
On My Wall Street Radar
Only one chart matters as we look to Monday:
all charts courtesy of www.stockcharts.com
As volatility whipped through global markets and erased roughly $1 Trillion in equity, it was fascinating to watch the action through the lens of point and figure charting which takes out all of the “noise,” emotion and volatility from the action.
The chart of the S&P 500 (SPY) above shows the red “bearish resistance line” which acts like a solid wall, and last week, prices rose virtually exactly to this level, touched the line, then turned and headed south with a vengeance.
A “sell” signal was generated on Wednesday and the initial downside target is now 1010.
Significant support sits at 1100 which will be the last stand for the bulls if they hope to turn this rout around.
The Economic View from 35,000 Feet
Economic data remained mostly glum last week, with the biggest news coming from the Fed’s announcement. “Operation Twist” makes it clear that the Fed is virtually out of bullets now, as further small reductions in long term interest rates is unlikely to fix anything, and the realisation that the “Bernanke Put” was over, sent markets into a panic attack.
Beyond that, the Fed’s view of significant downside risks” for the economy put markets in an even more fowl mood.
Negative news included ongoing trauma in Europe and more gridlock at home as the White House unveiled its proposed tax increases and the Republicans protested “class warfare.” The International Monetary Fund downgraded its estimates of GDP growth rates around the world, including dropping the U.S. estimate to 1.5% from 2.5% which puts us perilously close to “stall speed.”
Italy’s credit rating took a hit, along with Bank of America, Wells Fargo and Citibank. China’s PMI came in at below 50 which indicates contraction and so a hard landing for the dragon becomes a more likely possibility.
August housing starts fell dramatically and remain near the lowest levels of 2009 while home builders reported a gloomy outlook and August Leading Indicators declined from July’s reading.
Good news saw August existing home sales rising, home prices rising and weekly jobless claims improving but still staying above the pesky 4000,000 level and missing estimates.
Gold (GLD) got hammered as funds liquidated to cover margin calls and the U.S. Dollar (UUP) strengthened and the slaughter in Silver (SLV) was epic.
What It All Means for Stock Market and ETF Investors
What this all means is that the global economy is nearing “stall speed” and likely will slip back into recession. Stock markets around the world have entered bear market territory and from a technical viewpoint, the U.S. stock market (SPY) is in bear market territory. Global dangers abound while at home gridlock threatens a government shutdown and yet another deficit debate fiasco as we move into the seasonally treacherous month of October.
Most troubling, policymakers seem to have run out of everything but promise, which apparently leaves global investors and economies on their own to fend for themselves.
This Week’s Business and Financial News and Economic Reports
Important news this week will include new home sales on Monday, Consumer Confidence on Tuesday, Durable Goods Orders on Wednesday.
Biggest news of the week comes Thursday with the weekly jobs reports and a new revision to second quarter Gross Domestic Product. A negative print here is quite possible and will be a particularly troubling development.
Wishing you a great weekend wherever you may be,
Disclosure: Wall Street Sector Selector actively trades a wide range of ETFs and positions can change at any time.
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