- Markets hit hard by Chinese concerns about plunge
- A slight rebound from the lows and a decrease in volatility from the previous highs can be supportive.
- The Fed is focusing on tomorrow’s meeting as short-term tapering concerns may be beginning to ease
It was “Manic Monday” on Wall Street.
In dull and unpleasant memories of how a crisis thousands of miles away can pierce the center of the U.S. market, the Hong Kong real estate crisis is more than two months into a major U.S. index. Responsible for many of the most acute daily losses in the United States. So-called “risk jockeys” such as fixed income, volatility, the US dollar and the “defensive” equity sector have returned to the saddle after months of laid back around the enclosure.
Analysts have raised issues primarily regarding Hong Kong-listed Chinese developer Evergrande Group and whether Beijing will bankrupt debt-bearing companies, but that’s not all that is shaking the world today. There wasn’t. However, it should be noted that defaults can potentially mean billions of losses for shareholders and bondholders not only in Asia but around the world. Reuters reported on Monday that an evergrande bond was trading in dollars for 29 cents.
The news came in addition to continued concern that the Chinese government would continue to leverage real estate and other industries that it was trying to curb, which could have a spillover effect on the rest of the global economy. .. These include technology, gambling, and video games. Keep in mind that the Chinese market was closed due to a Monday holiday, so opening the market tonight could increase behavior and volatility overnight.
Concerns about defaults and their possible side effects can help explain why S & P 500 Index (SPX) financial stocks are the hottest on Monday.Also energy
With strains like Freeport-McMoran, the material took a big punch
Meanwhile, in Washington …
Returning home, concerns are rising in Washington, DC, and House has a debt cap this week and a temporary spending measure to keep the government running past the end of the fiscal year ending September 30. Preparing to vote for.
As a result, the Fed will begin a two-day meeting tomorrow. Last month, Fed Chair Jerome Powell revealed that the central bank would begin easing exciting bond purchases. Later, the European Central Bank (ECB) announced that it would reduce the amount of its own stimulus.
Despite growing concerns about the global economy, the prospect of the central bank starting to withdraw its punch bowl is a factor in the overall weakness seen throughout most of September, not just today’s sold-out. There is a possibility of becoming. As the Federal Reserve Board of Governors tries to determine whether the Evergrande is simply kicking out speculators or the starting point for something bigger, it’s unlikely that you’ll hear a tapering story right away.
From a technical point of view, today’s charts have suffered a lot of damage. SPX set a 50-day moving average fairly quickly. This is a level that has been strong for months. To determine if the technical pattern is changing, you need to be at least one day below the key moving average. Returning to May, SPX closed several times below 50 days, but managed to clawback and resume the rally. You should carefully monitor whether that level (which was 4436 on Monday) will work again the next day or two.
“Buying a dip” is a year-round call for a rally on Wall Street, and analysts say the bystanders still have a lot of cash. The weakness of the day, or even the weakness of the half-moon as we have seen, does not seem to mean anything about long-term trends. One level monitored on Monday was close to 4370, and SPX began to rise again later in the month after brushing twice during the short weak period of August. By the end of the day, SPX was below 4370, the lowest level since mid-July. The July lows for 4233 are still much lower. However, the 100-day MA was close to 4330, and SPX was well below the average of daytime trading and returned to the end of the day.
After a day like this, it’s important to look at overnight deals to see if buyers are coming in and trying to confront. Sometimes weaknesses give rise to weaknesses, and early the day after they are sold out, you will see more sales in the first 30 minutes. That’s what happens after that, really, it may be more important. Whether or not to buy a dip is a question that anyone active in the market may be thinking about.
Perhaps in favor of the bulls, the key indices fell well below Monday’s lows and returned to scrambling in the last 30 minutes. It was still a really ugly day, but a slight rebound could suggest some positive feelings that could make things a little more zippered tomorrow.
TD Ameritrade ® commentary for educational purposes only. Member SIPC.