Daily Market Update – July 27, 2015 (8:30 AM)
Last week was one of revelation.
There came the realization that despite the markets having hovering near new highs the indexes were portraying a picture of market health that was largely illusory.
All it took to realize that was to see the consistent deviations that the major indexes had from one another and then to dissect out some of the biggest winners whose equally big market capitalizations moved their respective indexes while leaving so many other index members behind.
As last week came to its end, with the entire week having taken a strong turn downward as the second full week of earnings started uncovering some disappointments among the few gems, the expectation was that this week would be guided by more earnings reports and the FOMC Statement release.
While some good earnings could help to bring the market higher, it’s not too likely that the FOMC will have anything to say that would be interpreted in a positive way by the markets in the immediate day or two of its release.
For the most part, there wasn’t too much reason to believe that this week would be very active, but that was the case last week, too, as there was very little in the way of scheduled economic news, other than earnings and the rest of the world seemed to be quiet.
It’s a little different than expected this morning, however. There’s not very much scheduled economic news this week, but the week looks as if it will be getting off to a negative start as the unexpected comes into play.
While China’s overnight sharp sell-off took about 8% off the Shanghai market, it probably shouldn’t have been too unexpected.
What may have been more unexpected is that their attempt to manipulate the market and keep natural forces from doing what they need to do, had worked for the 2 weeks that it did. That’s a very long time to be able to hold markets back from what they find as their natural course.
As the futures are trading this morning in the aftermath of the sharp sell-off in China, they are relatively muted in response, although we had seen that last week as well, with the market taking mild to moderate negative trading in the futures market and then exploding it in a bad way once trading started.
WIth a small number of positions set to expire this week and with cash reserves still at much lower levels than I would like to see, despite the possibility of another lower opening this morning, my expectation is to keep my personal activity low.
Last week there was a prevailing belief that bargains were being formed, but with each day they became better and better bargains. While there may seem to be compelling reason to step in and buy something, at this point it really takes a fair amount of faith to do so.
The bounce higher from the lows of a few weeks ago that erased the 5% decline so quickly was a good sign, but the rapidity in which that gain has eroded is definitely not a good sign. As the week sets to begin in continuation of last week’s decline that erased all of the previous week’s really nice advance, there’s not too much reason to want to “buy on the dip,” at least not yet.
With the market having tested its support at about the 2045 level on the S&P 500, but failing to surpass its resistance level at about 2037, it looks as if the market wants to re-test its support and I will likely be testing the support of my La-Z-Boy, while watching to see how the market reacts to an overnight return of natural forces and wondering how those forces may take control and then what actions the Chinese government takes next, particularly with its own portfolio of bond holdings.