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US Stocks Reverse Yesterday's Reversal


Today's financial recap and tomorrow's financial outlook.

US equities tried to continue the positivity that they left off on yesterday, but failed in early trading. European weakness in the major stock indices ended up bleeding over into the US. Emerging market equities such as India, Australia, and China all posted strong gains overnight due to the weakness in the dollar.

The S&P 500 (SPX) retraced all of yesterday's losses and almost traded below the prior day's lows. Considering that yesterday was an outside reversal day, to the upside, to see all of that momentum negated in the next session is a very bearish signal. The SPX ended up closing down 2.07% and saw further weakness in the after hours session.

Trading volume on the NYSE in declining securities totaled 91% of the total trading volume today, which is typically a signal of capitulation. However, we saw similar activity last Wednesday. Spot volatility, as measured by the VIX, rose above the highest future, implying that near-term hedging had reached very high levels relative to the rest of the market.

While the 2.7% collapse in the Russell 2000 dominated the headlines, energy took the biggest hit, with the Energy Select Sector SPDR (XLE) falling 3.7%, courtesy of crude oil dropping below $85.

Materials, homebuilders, and biotech were also notably weak.

The best-performing sector was consumer staples, which is among the most defensive.

The US dollar reversed its overnight weakness to close higher by 0.32%. The Euro and Pound both fell the most. Some commodities such as gold, silver, copper, palladium, and platinum were strong overnight, and were able to maintain a good deal of that as the day progressed. West-Texas and Brent crude oil both continued to weaken, however, with WTi closing at its lowest level since September 2012.

Apple (AAPL) traded as high as $102.38 after Carl Icahn released a letter arguing the stock is worth $203 per share. However, the stock got caught in the larger downdraft in equities, and it finished at $101.02, up just 0.2%. After the close, Juniper Networks (JNPR) announced better-than-expected earnings results, but disappointing guidance, and the stock slid.

Tomorrow's Financial Outlook

After today's outsized move, statistically we should see a calming tomorrow. However, because the recent low of 1926 in the S&P 500 was almost violated today, it is still very possible that we see further selling tomorrow, as a third test of that support is unlikely to hold. The only economic report scheduled for tomorrow is the September import price index, which is expected to decline by 0.7% from the prior month. Three Federal Reserve Presidents are also scheduled to speak, all of them hawks.

Overnight, new Australian home loans and the UK's trade balance will be released. Otherwise, the schedule is very bare and will be determined by how overseas markets react to the damage done in the US today.

There are no major earnings reports scheduled for tomorrow.

Twitter: @Minyanville

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No positions in stocks mentioned.

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