- New Trades -
(August 23, 2015)
Last week I was complaining that the U.S. market couldn't make up its mind and was stuck in a sideways trading range. Well worry no longer. It took a few days but the effects of the Chinese yuan devaluation are rippling through the global markets. The results have not been pretty.
The Chinese market plunged -11% last week. European stocks suffered their worst weekly decline in four years. The American markets followed suit. The S&P 500 lost -5.7%.
Once the market broke down on Friday morning it produced a cascade. The selling was undiscerning and washed across all the major indices and sectors.
The Dow Jones Industrial Average, the small cap Russell 2000 index, and the large cap NASDAQ-100 index are all in correction territory with -10% declines from their highs. The NASDAQ composite and the S&P 500 might be right behind them.
The major U.S. indices closed on their low for the session on Friday. That does not bode well for Monday morning. S&P futures are negative as of Sunday night and suggest a spike lower at the open.
On a short-term basis the market is oversold and due for a bounce. However, stocks can always get more oversold. While I think this breakdown represents opportunity I am suggesting caution. We do not have to be the hero trying to catch the market's falling knife.
If you read my market wrap tonight then you already know that market corrections usually take about three months to play out. Considering historical trends and where we are on the calendar it would not surprise me to see the market decline and eventually bottom in October this year. However, that's just speculation at this point.
No new positions at this time. Let the dust settle. We'll see what survives and re-evaluate next week.