Stocks slumped at the open of trading in New York on Wednesday in response to further indications the Greek debt negotiations are ill fated — with European officials talking up emergency humanitarian plans for Greece should a euro exit happen — as well as further volatility, trading halts and deeper declines on the Chinese stock exchanges in the overnight session pushing the Shanghai Composite down 32% from its June high.
Then, market fragility hit home as the New York Stock Exchange first closed floor trading then all trading due to “connectivity issues” that are still being investigated.
Losses accelerated in afternoon trading in the wake of the release of the latest meeting minutes from the Federal Reserve — indicating that a rate hike is still due before the end of the year — and ahead of the start of the second-quarter earnings season. The NYSE eventually reopened after a 3.5-hour shutdown, but the damage was already done.
In the end, the Dow Jones Industrial Average lost 1.5%, the S&P 500 lost 1.7%, the Nasdaq Composite lost 1.8%, and the Russell 2000 lost 1.5%.
Technically, today’s drop is a big deal since after two days of flirting with a breakdown, the Dow Jones finally closed below critical support at its 200-day moving average that has held the has sustained the post-2012 uptrend as shown in the chart above. The exception was the short-lived breach in October associated with the market’s Ebola-driven selloff.
Continued losses here would call into question the longevity of the market’s run without suffering a 10% correction — which stands at the third-longest in recent market history behind the runs seen during the last two bull markets.
After months of apparent tranquility, American investors are becoming aware of just how fragile U.S. financial markets have become.
Commodities remained hard hit, with crude oil down another 1% to close at $51.83 a barrel — the fifth straight decline — on bearish inventory data. The boosted the ProShares UltraShort Crude Oil (NYSEARCA:SCO) recommended to Edge subscribers in late may to a 27% month-to-date gain. Energy stocks as a group lost 2%, with oil services icon Halliburton Company (NYSE:HAL) down 2.3% to lift the July $43 put options recommended to Edge Pro subscribers to a gain of 165%.
In corporate news, Tesla Motors Inc (NASDAQ:TSLA) dropped 4.8% after suffering a downgrade from Pacific Crest on valuation concerns. Alcoa Inc (NYSE:AA) kicked off the Q2 earnings season with an earnings miss but a revenue beat. Shares lost 5.1% in the trading session, but are clawing back 0.8% in after-hours trading.
The NYSE glitch came in the context of a grounding of flights at United Continental Holdings Inc (NYSE:UAL) this morning due to a computer problem and the downing of the Wall Street Journal website. According to officials from the Department of Homeland Security and the FBI, the problems don’t appear connected, nor do they appear to be caused by a cyber attack.
But it does reinforce the perception that the market is more fragile than it appears, suffering price dislocation events on an increasing basis as high-frequency trading algorithms become a bigger and bigger part of the financial system. Market research firm Nanex has documented many of these events, which are now attracting the attention of Fed researchers worried about the impact on market liquidity and stability.
Attention now turns back to the Asian markets as China continues to throw everything it can to halt its precipitous share price decline — including the banning of selling by large shareholders for six months. I don’t think we’ve seen the end yet and recommending subscribers continue to hold the ProShares Short Emerging Markets (NYSEARCA:EUM) which is up 11.5% since first recommended in May 28.
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