U.S. Equity Markets Attempt to Stabilize

August 6, 2014 10:59 AM

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As expected, U.S. equity markets opened  lower following the lead established by global markets in the overnight. Of particular import this morning, not unlike many mornings recently, was and remains the EU overhang that continues to focus on the Russia/Ukraine saga. The most recent EU economic data is doing nothing to offset the sanguine mood of investors either. However, the themes (US domestic economic expansion et. al.) that many briefly took their collective eyes off of as a result of this geo-political risk re-merged in today’s calm of midmorning.

Equities here in the US managed a U-turn and after giving ground early, traded in the green. Unfortunately volume has not been exactly robust. The turn was in many ways reminiscent of the positive session we saw Monday in response to last week’s drubbing. Last week we gave ground to the tune of 2.7% - 3.0% only to gain back some of those loses on Monday. The operative word being “some.” The rebound staged on Monday was not enough to alter our directional trade as I outlined in yesterday’s note. That directional trade lower was confirmed yesterday as  markets took a pounding - all registering significant loses.

The bounce back today following yesterday’s action feels similar. Again, we have gained back “some” of the loses but with little in the way of volume or internal strength. It almost seems as though Monday and today’s bounce were nothing more than reactions to oversold conditions in the market. Nice to have but without the imprimatur of volume and solidly positive internals to confirm its staying power these brief respites in a strong counter directional trade provide little in the way of comfort. Thus far today volume on the NASDAQ has expanded modestly (see market internals below) versus yesterday and though our recent pullback has felt rather jarring, there are clear signs that markets are attempting to stabilize.

As a result of leadership from US equity markets, European markets trimmed their collective loses by half – closing with some positive momentum. In fact Germany’s DAX bounced off of its 10% correction level. Moving forward look for the narrative that is focused on European markets and economy to increasingly be informed by the recessionary weakness present in Italy and by talk of upcoming stress test for financial institutions in in Greece. The Euro traded to a nine month low today and European stocks are trading at a three month low. Pressure on the ECB will take form in tomorrow’s interest rate meeting. The last thing that the ECB needs right now is for consumers to tighten spending in the face of the crisis in Ukraine not to mention an increasingly long list of punitive economic/trade sanctions focused on Russia and the flagging economic performance materializing in some peripheral EU economies.

Intraday S&P 500 Sector Heat Map:

Energy + 0.96%

Materials + 0.83%

Consumer Staples + 0.81%

Financials + 0.78%

Consumer Discretionary + 0.33%

Information Technology + 0.26%

Health Care + 0.25%

Industrials – 0.09%

Market Internals:

NYSE volume 267M shares, about 19% above its three-month average; advancers lead decliners by 2.2:1.

NASDAQ volume 780M shares, about 4% above its three-month average; advancers lead decliners by 2.1:1.

VIX index -6.6% at just under 16.00 - Source TradeTheNews.comi

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