10 Things You Should Know About Black Monday, Part Deux
In an email sent to investors, analysts at Credit Suisse shared 10 observations on Monday’s price action.
1. Chinese Influence
Global stocks plummeted again on Monday morning; the downtrend was triggered, once more, by China action – down 8.5 percent. Chinese authorities did not act on the selloff over the weekend; crude is trading below $39, hitting a new 6.5-year low “on Iranian supply concern and China route.”
2. Huge Volumes
Volumes were ginormous and seem on their way to hit a five-year high. However, energy and materials are slightly lagging, and the experts believe this is because these sectors have been underperforming for a while now, while others are just now catching up. On the other hand, ETF volume hit its highest point of the year.
3. 'Flash Crash' Feeling
The early price action had a “flash crash type feel to it,” the analysts noted, highlighting the fall of USDJPY, Oil, the S&P 500 and one of the companies in this list, XL Group plc (NYSE: XL), down 90 percent for a few minutes in the early morning – it has now recuperated and is only down 3.7 percent.
4. Panic And Buying Scrambles
People were panicky at first, then scrambled to buy on the massive reversal from the lows. Desk by desk: the U.S. dollar and emerging market currencies are all getting beat up; ETF shorts are being covered after a panicky morning selloff; the options desk saw “mostly unwinding protection this morning;” hedge funds were “covering down 2-3 pts” in high yield on popularly shorted stocks.
5. Momentum Names
“Prime service team highlights positioning in the momentum names remains elevated despite recent bloodbath.”
6. Commodities' Bottom?
It is not time to pick a bottom in commodities. “The year-over-year change in the broad commodity index maps pretty well to the year-over-year change in CNYUSD. Thus, if one expects this devaluation in China to be an ongoing event over the next several weeks/months (or at least until we find a market bottom), then commodities are potentially far from out of the woods. This also brings up the growing fear of a deflation shock to the system. I suspect this news could have some big ripples globally.”
Source: Credit Suisse
7. Movin' M&A
M&A is not slowing down. Among other moves, one could highlight the following: Monsanto Company (NYSE: MON) raised its bid for Syngenta AG (ADR) (NYSE: SYT); TreeHouse Foods Inc. (NYSE: THS) said it is in talks to acquire a ConAgra Foods Inc (NYSE: CAG) unit for $3 billion; Southern Co (NYSE: SO) will purchase AGL Resources Inc. (NYSE: GAS) for $12 billion.
8. Tactical Optimism
“Tactical optimism – Several people trying to call the lows, gauging capitulation signs.”
9. Contra-Indicator: Circuit Breaker Levels
“Circuit breaker levels – Usually a good contra indicator when these start getting passed around – no different this morning.” Check out the price limit guide here.
10. Important Levels To Watch
- The S&P 500 (cash), which “maintains a large top” and the firm remains bearish for 1955/50. Below that, they say they can target 1885.
- The S&P 500 (September) “is seen at risk to further weakness to 1886/82 – the 23.6 percent retracement of the entire uptrend from late 2011.”
- The MSCI World Developed Index has hit a top below 1701. “Price and retracement support at 1647/32 should be allowed to hold at first, ahead of a move to more important support at 1586/72. Failure to hold here would complete a medium-term top.”
- Shanghai Comp has reaffirmed its bearish continuation trend, and Credit Suisse remains bearish for a clear break below 3200/3198 for 3121/20 initially and 2480/40, eventually.
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