The Only Chart That Matters Today
After a tumultuous week of wealth destruction and volatility in global stock markets, only one chart matters today as shell shocked investors face more peril ahead.
Chart courtesy of 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 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 realization 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 fouler 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 (BAC), Wells Fargo (WFC), and Citibank (C). China's PMI came in at below 50 which indicates contraction, 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 400,000 level and missing estimates.
Gold got hammered as funds liquidated to cover margin calls and the U.S. Dollar strengthened and the slaughter in Silver 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 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 today, 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.
Editor's Note: Read more from John Nyaradi at Wall St. Sector Selector.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter