August Lows Loom Large as Market Teeters

Steve Kanaval  |

Markets in North America will open lower this morning giving back the entire gain from the previous day. All that happened there is an expanded notch of volatility as we conclude week two of sixteen. Any market watcher should be wary of the August low we put in during last summers Yuan Flu that caused a double digit drop in 3 days. Today, on a vulnerable Friday, after an ugly start to the year, we will test these levels, and I am telling you well in advance that it will not be pretty.

The current trading is just above these levels (S&P 500 SPY) at 188.80, and any close below 188 will ignite the decline. I fully expect this to happen in the next few trading days, and very well start during Friday's session. The downside for these markets are 177 and 160, so there is a flush coming in August Yuan Flu fashion. Although this catalyst will be different, markets have an ugly 15% downdraft coming, and when you look at trading action since December 1st, we look like a trash chute with a clear channel lower.

Some morning notes from Lou Brien at DFW who I have been following for years. Thanks Lou!!

*Stocks were generally lower in Asian trade. Shanghai was down 3.5%, it is down more than twenty percent in the last three weeks. The Hang Seng fell 1.5%, the Nikkei was a half percent lower and Australia dropped by a third of a percent. European indexes are on offer, with the DAX and Footsie both down about a one and a half percent. US stock futures are down one and a half percent as I write.

*The front month WTI crude oil futures are trading below $30 this morning. Down $1.80 at $29.40 as I write. Oil is down on reports Iranian exports could sooner than previously expected.

*China’s Premier Li Keqiang reiterated this morning there is no basis for a continuous yuan depreciation and that China has the ability to stabilize their currency at an equilibrium level, (wherever that is was not specified.

*Citigroup, Wells Fargo and US Bancorp are some of the notable companies set to release their quarterly results today.

*Three reports are due out at 7:30am CST, including: the December reading of Retail Sales which expected to be -0.1%, while the Sales Ex-autos are forecast to be +0.2%; the December reading of the Producer Price Index, which is expected to be -0.2% on the month, while the estimate for the PPI Core is +0.1%; and the December reading of the Empire State Manufacturing Index, which is estimated to be -4.00, a fractional improvement from the month before.

*The December readings of Industrial Production and Capacity Utilization are due out at 8:15am CST; Production is expected to be -0.2% month on month and the estimate for Utilization is 76.8%, two tenths lower than the month before.

* The preliminary January reading of consumer sentiment from the University of Michigan is due out at 9:00am CST, it is expected to be 92.9, three tenths higher than in December; there’s not an estimate for the 5/10 Year Inflation Expectation, but in December it was 2.6%, a tenth off the historic low.

*Also due out at 9:00am is the November reading of Business Inventories, it is expected to be -0.1%.

*There are three Fed speakers on the calendar today, including: NY Fed boss Dudley, who is set to speak about the economy and policy at 8:00am CST; SF Fed’s Williams who will talk at 10:10am CST; and Dallas’ Kaplan, who has an appearance scheduled for noon CST.

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