August 23, 2015
Weekly Market Outlook
By Keith Schneider
The nasty market selloff in global equity markets (-6.0 %) last week begs the question, will there be a repeat of the monster recovery rally that happened in October 2014, or is it different this time? From a purely technical perspective the picture is different as the sideways seesaw action that has persisted for almost a year is significant by itself. That action has now resolved itself to the downside, as major headwinds have surfaced.
There is a caveat here and that requires going to the videotape. After the crash of 1987, Ronald Reagan signed Executive Order 12631 called the Working Group on Financial Markets (otherwise known as the Plunge Protection Team). Its stated goal... “To keep the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence.”
Since then, mysterious buying that seems to appear after or during market plunges is often attributed this group.
Fridays price action where the markets were down -3-4% on top of Thursdays declines begs the question, has the PPT team left town early and headed to the beach, or are they going back to the city on Monday and prop up the markets once again?
One might surmise that they are allowing a free fall as a test to see the markets true support levels, considering that the Fed is looking to raise rates. If that is the case, the markets flunked. Some suggest the PPT/Fed is losing control.
On the topic of a Fed interest hike, one might also conclude that the free fall in Chinese stock prices, currency devaluation, and horrific infrastructure issues along with its central bank losing control does not seem like an opportune time jack up rates. US corporate profits hinge on a robust global economy and with the Chinese Communist Party losing its veneer of omnipotence, those factors do not bode well for robust global growth. The Fed now seems cornered, knowing it needs some wiggle room if another financial crisis hits.
Let’s go to this week’s video where we look for critical support levels.
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