Global markets stumbled through the last day of August. The Chinese market actually took a nosedive falling almost 7%. Normally bullish merger and acquisition activity here in the U.S. was not enough to shake off the worldwide profit taking. Positive economic data out of the Chicago area was overlooked in favor of bearish investor sentiment readings. The U.S. dollar is down and commodities are also sliding lower with crude oil down almost $3.50 trading near $69 a barrel.
Asian markets held the spotlight today. Japan made headlines following a landslide victory for the Democratic Party of Japan. The DPJ swept 308 of the 480 lower-house seats to end a 50-year rule by the Liberal Democratic Party. While the results were widely expected the Japanese NIKKEI didn't know how to react. First the NIKKEI was up 2%, then down 1% and eventually closed with a 0.4% decline. The trend of alternating up days and down days has now reached 11 in a row for the NIKKEI.
The Chinese Shanghai market was the main headline today. The index fell more than 6.7% to 2,667. The Chinese market had been red hot with a 100% rally from its November 2008 lows but that rally peaked in early August. In less than a month the Shanghai has fallen more than 23%. Normally a fall of more than 20% is considered a new bear market. Some analysts consider it just a natural correction after such a steep rise. The Shanghai's 20% drop in August was the second largest monthly decline in 15 years and the August declines snaps a seven-month winning streak. Over the weekend one analyst called the Chinese market a "bubble" and suggested it should be trading under the 2,000 level. Out of the almost 900 stocks in the Shanghai index about 150 were limit down at the -10% daily limit for the Chinese market. The Hong Kong Hang Seng traded lower as well with a 1.8% decline and its first monthly loss in six months.
European markets were quiet with the English market closed for a holiday. The German DAX lost 0.96%. The French CAC-40 gave up just over 1%.
In the U.S. the American Association of Individual Investors survey was making headlines. The AAII survey takes a measure of bullishness, bearishness and neutral sentiment amount individual investors for the next six months. Evidently the index has peaked with bullish sentiment falling to 34%, neutral sentiment falling to 17.5%, and bearish sentiment climbing to 48.5%. These are all outside of their normal long-term averages and the recent changes suggest a market correction. Is it a coincidence that we're hearing this now as we face September, historically the worst month of the year for stocks? Contrarians might find this to be another brick in the wall of worry for stocks to climb.
We did have some positive economic data this morning with the Chicago Purchasing Managers Index (PMI) coming in at 50% in August. This was a big jump from the 43.4% reading in July and above economists' estimates for a rise to 48. Readings below 50 indicate contraction and readings above 50 indicate an expanding, growing economy. This was the highest reading since September 2008 and bodes well for the national ISM report due out tomorrow. Economists are predicting that the ISM will jump from 48.9 in July to 50.5 in August.
Monday delivered some merger news. Media giant Disney (DIS) announced it had reached a $4 billion deal to buy MARVEL Entertainment (MVL). Marvel has been doing well with its Spider-Man, X-men and Ironman franchises and owns more than 5,000 "characters" for potential development. MVL shareholders will get $30 in cash and 0.745 shares of Disney stock valuing MVL at $50 a share. Shares of MVL gapped open at $48.60 for a 25% gain.
In the oil sector Baker Hughes Inc. (BHI) announced a $5.5 billion deal for BJ Services Co. (BJS). This is the largest M&A deal in the oil services sector in more than 10 years. BJS shareholders will receive $2.69 in cash and 0.40035 shares of BHI stock. BJS gapped open higher at $16.83 and they're trading with a 6% gain.
Currently the S&P 500 index is off less than 13 points at 1,016 near the bottom of its recent trading range. The NASDAQ is down about 27 points near 2,001 around the bottom of its recent trading range. The Dow Industrials are off almost 95 points at 9,449. The small cap Russell 2000 index is down almost 10 points near the 570 level.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Glancing over the OptionInvestor.com play list for movers today I see that AAPL is struggling with a 1.3% decline. ATI is off more than 5% and is testing round-number support at $30.00. We had a trigger to buy calls on ATI at $30.25. The ATI play is open. EOG is down 2.2% and testing its 50-dma. Flour Corp. (FLR) is testing its long-term trendline of support near $52.00 and its 50-dma. This looks like a new bullish entry point, just use a tight stop loss. FLS is down 3.6%. GWW is down 2% and approaching our buy the dip entry point near $86.00. IBM has hit our stop loss at $117.45. Oil stock OXY is down 2.8%. Banking stock STT has hit our dip entry point at $52.00. The USO oil ETF has hit our dip entry point at $36.50. Metals stock VMI has hit our dip entry point at $82.00. FSLR, a put play, has hit new lows under $120 this morning. Our put play on MVL is over. Today is a good example of the dangers of shorting stock versus buying puts. Shorts had unlimited risk while put holders' risk was limited to the amount paid. When DIS announced the MVL deal and the stock gapped higher our puts evaporated into thin air.