Blizzard Conditions & Market Turmoil Easing?

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Did You See This $8 Trillion Disappear?

It was a nasty week. At its lows this week, global equity markets erased almost 8 trillion of equity!

Fortunately world equity markets ended the selling storm this week by recovering smartly after a nasty selloff.

The NASDQ 100 recovered 2.89% by the close Friday, trailed by the S&P 500 which closed up almost 2%. The US markets are still the world’s strongest, now only down -7% for the year.

However, the big question remains…

Has oil bottomed?

This is critical because equities are moving in lockstep with oil, until…

They don’t. And one way to see that big change coming is to look at the long-term differential between very depressed emerging markets as compared to US equities. Last week this reached extreme levels and could be ready to diverge.

Like all massive storms (they burn themselves out fairly quickly) and the twin blizzards that hit Wall Street seems to be clearing, but the question remains…

Are we still in the middle of the winter where another storm could crop up sooner rather than later?

We now have several tests of support going back several years (December 2013) and those levels are reaching a breaking point. Momentum is failing, and the next test is more likely to fail, because…

Here are the facts.

1. The bounce that started on Friday came in the midst of very deeply oversold market internals, and negative (but not extreme) negative sentiment readings as measured by the VIX. (more details in the video)
2. In fact, the reading in sentiment currently was not even close to the much more extremes reached last August, so the ‘blood in the streets’ fear that creates bottoms has not yet been reached.
3. The Triple bottom that has formed could easily bounce another 4-5%, but it will run into a wall of resistance.
4. Fund managers have reduced equity holdings to levels associated at important lows, which suggest they are expecting lower prices and… if they see them they may be thinking the next “good buy” is 10% below the current low! (this level was suggested by Geoff’s Trades and Tutorials blog post that you can find on this same page titled “This is a great time to expect the Bulls to show up!”)

The Fundamental Energy Analysts Should Find the Rumble Seat

The rout in energy abated on Thursday and Friday, and led the intraday 500-point Dow rally, but it still leaves oil down around 15% YTD.

It’s still unclear whether or not crude oil’s washout low is in place.

This week oil prices touched down to levels seen since the beginning of the first Gulf War!

Therefore, the freefall and bounce in oil and markets is now best played by pure technical trading. Fundamentalist should take the rumble seat!

The tug of war between energy and market internals/sentiment seemed tipped in favor of oil as the bigger factor.  Add in China’s meltdown and slowing growth rates as a major factor in oil and you have pretty much all you need to know that we are in a very fluid situation.

Once again risk management and chart reading are what you need to navigate these markets, so…