Market at a Glance 8/20/2015

By: Christopher Mistal

August 20, 2015

Psychological: Edgy. Volatility, measured by CBOE VIX index is rising. Major indices are negative year-to-date again. 200-day moving averages have been violated and there is a death cross on DJIA’s chart. Traders and investors not in cash and/or on vacation are definitely worried. CBOE Weekly Put/Call ratio climbed to 0.78 and Investor’s Intelligence is reporting the highest number of correction advisors since last October. Sentiment is approaching bearish levels seen at some recent market lows, but a catalyst to turn the market is still absent.

Fundamental: Weak. Corporations are struggling with sluggish global growth and a strong U.S. dollar. Revenues and earnings may have largely beat expectations in the second quarter, but the bar was not that high. Depending on data source, Q2 earnings were flat or negative and Q3 is currently forecast to be even weaker. Crumbling commodity prices are fueling fresh new deflation concerns. For the time being, the U.S. economy has largely managed to shrug off falling global growth. At some point, it may no longer be able to do that.

Technical: Range bound. Just barely hanging on to the bottom end of their respective trading ranges is a more accurate description. DJIA, S&P 500, NASDAQ and Russell 2000 have all dropped below their 200-day moving averages. DJIA has a death cross on its chart on August 11 and is the weakest of the group. NASDAQ is still the strongest looking chart, still trading above its March low and still positive year-to-date. Mid-December/January lows for DJIA, S&P 500 and Russell 2000 are the next key levels to watch. DJIA closed below 17000 at the close today. S&P 500 is flirting with1990-2000 and Russell 2000 1150.

Monetary: 0-0.25%. Based upon 30-day Fed Funds Futures traded at the CME today, a September rate increase is not that likely. The September contract is currently suggesting Fed funds around 0.165 when it settles on October 1. These contracts represent actual money and are probably the best indicator of when the Fed will make a move. Assuming the Fed stays dovish and just goes to 0.25% on its first move; Fed Funds Futures currently suggest a hike in December.

Seasonal: Bearish. Since 1950, September is the worst performing month of the year for DJIA, S&P 500, NASDAQ (since 1971) and Russell 1000 (since 1979). Beneficial pre-election-year forces do little to change this. Depending on index, September is still the worst or second worst month of pre-election years, negative across the board.