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August 3, 2014 – Weekend Market Comment

August 3, 2014 – U.S. stocks declined on Friday, with the S&P 500 recording its worst weekly loss since June 2012, as momentum from the prior day's rout remained in play. On Thursday, the market was hit with multiple combination punches, a few may have even landed below the belt! Let's start with some weak earnings reports from YELP, MOH, GLUU, MTW and DDD.

Those were enough to get Nasdaq moving lower, but we were then hammered with the weakest Chicago Purchasing Managers Index (PMI) in the past 13 months! Then, just to really get markets roiled, they were hit with Argentina's default, and just for good measure Adidas said poor sales of golf equipment and sanctions against Russia caused their profits to fall by 16 percent. That turned a weak opening into a bloodletting as investors hit the exits.

Stocks, bonds, gold, oil and other commodities are falling together, something we have not seen in a few years. I am especially concerned that, unlike previous declines, bonds are not seeing a flight-to-quality rally, something that would hold down interest rates and cushion any decline in equities.

(as always click on any graphic to enlarge it)

Things did not look better in any G7 market, here we we see Germany saying Auf Wiedersehen, but the story was the same in all major European markets. 

Even booming Canada felt the pinch.

Still you were not surprised . . . because for three weeks now we have watched these storm clouds building and moving in here on the CME4PIF blog. We have watched the Primary Sell indicator move from record high bullishness into a slow three week-long march to the exits, and right on time the markets sold off.

We also got a strong heads up signal when small caps were performing way behind the large cap indexes. As I said last week that is always a concern. 

So is this the bottom? Is it time to scoop up bargains? Well no . . . not until the Green Arrow Graph says it is time and for now it most certainly does not. Who knows how long or how bad this sell off could be?
Nope no Green Arrow yet...

Spot VIX meanwhile is trading 16.38, which is 1.44 over the August futures. When spot trades above futures this is known as backwardation. Such situations are rare and show a sudden overwhelming fear has gripped investors. In times like this and under such duress investors create oversold situations in stocks and or indexes as too many people try to get out the exit all at once.

But if you know the markets, panic can be profitable! Did you hedge your portfolio by following me into VXX? If you did you are up over 10% in just a few short weeks.

Still there are signs that this could go a little lower and then turn around, certainly the NYSE 50day overbought graph seldom stay below 30% for long. 

Our favorite lagging economic indicators still are holding in, employment still is strong. 

So is industrial production

But of course these two indicators turn much later than the market. 

The plan is simple, keep you powder dry, sit hedged and in cash and wait for better days in the market, now get out there and enjoy the summer!