September Gets Off to a Bad Start

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Following a painful August — the worst monthly performance since May 2012 — stocks kicked off September with more selling. The Dow Jones Industrial Average fell 2.8% and the S&P 500 lost 3% on renewed anxiety over a decline in economic growth in the United States and China.

Before the opening, China’s manufacturing purchasing managers index for August fell to a three-year low. And the U.S. Institute for Supply Management’s manufacturing PMI fell to 51.1 in August from 52.7 in July. This indicated factory growth was at the lowest level since August 2013.

Crude oil fell 7.7% to $45.41 a barrel after vaulting almost 30% in the prior three days. The energy sector was the worst performer of the day, losing 3.5%. It was followed by financials and technology, which both declined 3.2%.

Investors seeking less risk migrated to the 10-year Treasury note, driving prices up and yields down to 2.17% from 2.20% on Monday. Gold jumped 0.6% to settle at $1,139.80 an ounce, its highest level since Aug. 24.

At Tuesday’s close, the Dow Jones Industrial Average fell 470 points to 16,058, the S&P 500 was off 58 points at 1,914, the Nasdaq lost 140 points at 4,636, and the Russell 2000 was down 31 points at 1,128.

The NYSE Composite’s primary market traded over 1 billion shares with total volume of 4.4 billion shares. The Nasdaq crossed 2.3 billion shares. On the Big Board, decliners outpaced advancers by 6.1-to-1, and on the Nasdaq, decliners led by 4-to-1.

Dow Jones Shanghai Index Chart
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Chart Key

The Dow Jones Shanghai Index is down over 40% in less than three months, a correction that was long overdue after doubling in just two years. Tuesday’s late rally in this index, which jumped from a low at 405.65 to 419.68 in the final minutes of trading, was not enough to reverse the loss for the day. It did, however, avoid a fall to a new low. I will continue to monitor this index.

MDY Chart
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SPDR S&P MidCap 400 ETF (MDY) shows an interesting technical feature: a gap at about $259-$257 opened when the index fell on Aug. 24. Note how the gap acted as a magnet and a subsequent rally closed it before MDY again.

Gaps can be a valuable asset to traders who want to capture a few points and then run. Note that a new gap was opened from Monday’s low at $257.71 to Tuesday’s high at $255.33.

Conclusion

The Wall Street Journal published a piece titled, “5 Forces Driving the Global Stock Selloff.” The article listed the following reasons for the recent decline:

  1. China’s economy is slowing and there is little the government can do to halt the decline.
  2. Trade/imports/exports have grown in relation to China’s 10% unsustainable growth rate. China’s neighbors are likely to be hardest hit.
  3. On the valuation front, two weeks ago, the S&P 500 was about 30% above its historical P/E ratio in the 20s
  4. The Federal Reserve may raise interest rates this year.
  5. Market-moving news this week could come in the form of the ECB meeting on Thursday and August’s U.S. nonfarm payrolls on Friday.

While I recommend taking a look at the article, very little is new. My 17-month moving average chart and other technical analysis tools may appear simplistic to economists. But it sure beats the lack of firm direction that discussions over world economics yield. As an old friend once said after an arcane discussion with one of Wall Street’s key analysts, “Just tell me this: Is the arrow pointing up or down?”

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2015/09/daily-market-outlook-september-gets-off-to-a-bad-start/.

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