Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Much of the focus this morning has turned to China as interbank lending rates (SHIBOR) have had a wild and woolly ride the past two weeks. While lending rates actually fell overnight the Shanghai index was pummeled to the tune of -5.3%. Apparently the shadow banking system in China has grown too big for central commands taste, and they have created this “situation” to wring some excess out. This adds to the recent playbook of “if it’s not one thing, it’s another”. Contrast that to the months on end where all news was good news and bad news simply didn’t matter. Often you have to look at things in reverse with the market – when it wants to correct it will find a litany of reasons – lately it has been Japan, yields on Treasuries, Bernanke, and now China. Futures are down significantly this morning (back to Friday’s lows) and the folks at Zerohedge are positively beaming.
We have a litany of lesser economic reports on deck this week (durable goods, housing stuff, consumer sentiment, Chicago PMI) and an entire galaxy of Fed officials jawboning. As noted late last week they already sent the troops out to try to walk back the tightening talk after just a 5% correction. Doves should be out in force. 10 Year Treasury yields continue to rally; this morning they have shot up to 2.64% as I type – looking at the chart after this breakout over 2.4% there is clear sailing til the 2.8% area. That said I am not sure how “technical” this market trades…
Usually you can run to bonds to “hide out” during corrections but this time around the selloff in bonds is part and parcel a reason for the selling in equities so aside from the dollar there really has been no safe haven. Certainly not precious metals!
As for equities we posted the Fibonacci levels Friday – within downtrends come vicious rallies but also a lot of opportunities to lose money. A lot of interesting stocks in the growth category were down 2-4% Friday even as the indexes held up simply because the most beaten down yield sectors staged a dead cat bounce of sorts. The damage is significant now and while a V shaped recovery can never be taken off the table in a QE market, a lot of charts have major issues.
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