Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
I wrote about a week ago that China was acting quite poorly relative to what was happening in European and U.S. markets. I guess yesterday a brokerage report hit that said the same thing and now a host of pundits are waving it around as a bearish signal. It shows how quickly group think is created on Wall Street as long as it originates from a major brokerage house. Whatever the case, while the U.S. is in some form of strange holding pattern with holiday type volume and an extremely narrow range post August 3rd spike up, some key overseas markets are weakening along with China. Now some of these are resource focused (Russia, Brazil, even Chile) so as a lot of commodity plays sell off after their early month reversion to mean spike, the sector rotation seems to be creating a big tailwind for those countries.
India has been relatively stronger among the BRICs, although it too has had a rough week.
If anything it seems the U.S. continues to benefit from the best house in a bad block syndrome. However without semiconductors, transports, or commodities it will be hard for the other parts of the market to continue to levitate on their own. A lot of the steel, coal, et al stocks that surged post Draghi comments in late July have given up most of their gains already, as has the transports index. Here is an example of what I speak of – a massive rally which in hindsight seems to be short covering, and now giving up the ghost.
As for Jackson Hole tomorrow there seems to be a concentrated effort this week to “talk down” expectations for Bernanke’s speech. If that is in the market or not at this point, who knows but the focus seems to be switching to Draghi at the end of next week instead. The first week of the month is also the one with a heavy data set (PMIs, ISMs, employment report) so one assumes the current zombie like state of the market should finally change. Futures are pressured some this morning but again since the August 3rd jump and ensuing Monday follow through rally, the S&P 500 has gone nowhere – there has been rotation under the surface from one group to another week to week but little change at all on the top line indexes.
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