Yesterday the market rose more than one percent on comments from Fed Vice Chair Fisher. The statement relative to inflation needing to rise before the Fed would need to act on rates was the catalyst. Another catalyst was the Chinese markets rising five percent on the continued intervention by the government relative to short selling or even selling particular securities. I made comments the news/speculation was not a justifiable rationale for the markets going higher. Today the Chinese government again intervening in the markets… currency markets… by devaluing the yuan by nearly two percent in hopes of stimulating exports. It may help short term, but historically it has never worked longer term. Thus, once again we have a country attempting to stimulate growth by devaluing their most precious asset… their currency. As you would expect the US markets responded with a decline equal to Monday’s gains. Easy come, easy go!
Here in lies my greatest challenge about putting money in harms way… speculation that moves markets without a hint of reality involved. The last couple of weeks my comments have been to play golf, travel, relax anything but attempt to trade this current environment. My closing comments last night were to see how today unfolded… well it wasn’t pretty is all I can say. The euphoria from Monday was I’m sorryia today. I am sorry you put money to work. Now tomorrow may be different or it may be more of the same, it just depends on who will say what and if it is believable. So far we are two for two on stories that pushed money in or out of the market.
China (FXI) – bounced off the lows on Monday. Sold today. But, the bottom is still in place and the upside may well play out in their favor after everyone digests the news. Markets don’t like surprises and the move by the government overnight was a surprise and markets reacted. Now we watch to see if they accept it, move forward or dwell on it enough to push the downside movement with a follow through tomorrow.
Crude Oil (OIL) – bounced on Monday and all was well. Fell 3% on today and hit the $43.20 level. We are testing the March lows and the buy side looks to have taken an extended vacation. Oversold is oversold until someone finds value. The refinery stocks are benefiting, the balance of the sector is struggling to bounce. I am not overly optimistic, but we continue to watch as this all unfolds.
Apple (AAPL) so much for the rally? The news erased the solid move from yesterday and is now testing the low of the most recent selling. Where do we go? Some say up, some say down. I say… watch and see how it unfolds.
The above were commented on last night and wanted to update thought on them. We saw selling equal in value or worse today. What does that offer in terms of opportunities? The Volatility Index (VIX) jumped back above 14 on the day and the VXX trade set up to clear the $16.60 level near term. That would show increased uncertainty that could convert to fear and then some more selling. You expect volatility when the markets are uncertain and that was reintroduced with the news from China. Tomorrow is another day and we will be watching to determine what the outcome will be… at least for the near term.
Telecom (IYZ) attempted to complete move higher from consolidation pattern. We will watch into trading day tomorrow to see how that unfolds.
Dollar (UUP) fell in response to China. Still holding the upside, but worth keeping an eye on how it plays out.
Gold (GLD) followed through on the break higher from yesterday. $106.50 level will be key to any upside follow through.
All the downside trades we discussed in the weekend update are back as possibilities as well. We will take the last two days for what they are and we will continue to watch, listen, adjust and take what the market gives… nothing more or nothing less.