China Stock Market Collapses Again
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July 27, 2015

7-27-2015 6-07-34 PM

The market boom and bust was a short term spectacle. The rise was parabolic as novice retail investors used high margin positions to leverage early gains. Then of course, the trades were unwound the damage was severe. The ensuing collapse had spillover to other global markets.

Last night 1,500 China stocks were halted in trading with many limit down. The previous intervention by the Chinese government into markets only made matters worse. The government yesterday went so far as to urge investors to “rat-out” those selling. Short sellers were threatened with arrest.

Of perhaps greater importance is the China economy is believed by most to be in a sharp decline, and of course this threatens an already weakening global economy, including the U.S.

Global markets continued their sell-off marked by sharp declines in commodities and emerging markets.

Economic data in the U.S. featured Durable Goods Orders. They weren’t great especially given further weakness in prior data. The results headline: 3.4% vs 3.1% expected & prior revised lower to -2.1% vs initial reading of -1.8%. Ex-Transportation the reading was 0.8% vs 0.5& expected & prior revised lower to –0.1% vs 0.5%. Additionally, the Dallas Fed Manufacturing Index fell once again to -4.6% vs prior -7% due in most part to energy issues.

Leading market sectors higher included: Bonds (TLT), Utilities (XLU), Euro (FXE) and Volatility (VIX)

Leading market sectors lower included: Everything else.

The top 20 market movers by percentage change in volume whether rising or falling is available daily. Only Treasury bonds escaped the selling.

Volume was higher once again on selling as distribution continues. Breadth per the WSJ was quite negative. We’re short-term oversold.

7-27-2015 6-08-33 PM Diary

Charts of the Day
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  • NYMO DAILY

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    The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.


     

  • NYSI DAILY

    NYSI DAILY

    The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

  • VIX WEEKLY

    VIX WEEKLY

    The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.


 

 

The China rout added much to the decline in all markets. It isn’t so much the damage to China’s retail investors as much as it is to the second largest global economy.

This has an impact on global GDP and perhaps Fed thinking as their meeting begins Tuesday.

Tuesday yields S&P Case-Shiller HPI, PMI Services FLASH, Consumer Confidence and Richmond Fed Manufacturing Index.

With the Fed announcement Wednesday I won’t likely make a commentary Tuesday unless something unusual happens.

Let’s see what happens.

 

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Dave Fry is founder and publisher of ETF Digest and has been covering U.S. and global ETFs since 2001. ETF Digest was named one of the most informative ETF websites in the 10th Annual Global ETF Awards.



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