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Jan 05

The Market Today 1/5/16: China

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Happy New Year!!! The market certainly has not started on the right foot! Starting Sunday night, the futures were positive at the start, then news from China surfaced, that they opened down 3%! It got worse, trading curbs kicked in, and the Chinese market closed down 7% before the shut trading for good well before the normal close. This trading action spread like wildfire through out the globe. Our markets were down over 2%!! Not the way we would like to start a new year. Of course, it is not good when you look at the trading proverb, how the first 5 trading days in January, determines how the year ends up. If this is the case, don’t expect a good year! If you believe this bull, then sell, and hold cash all year. Last year started the same way. While we ended up flat, it would have been worse if those proverbs were correct! News about the breaking down relationship between Saudi Arabia and Iran also surfaced, causing the price of oil to spike! The move was short lived, once the afternoon came, oil went down with the rest of the equity universe!! Not a good sign if your bullish oil. I have been buying oil lightly down here, so it is not what I want to see!  The sentiment is certainly negative on the markets as a whole. There are not too many bulls out there right now. As long as the trading continues to act like it has at the end of last year, and the first day of the new year, sentiment will only get worse. The positive spin, markets tend to reverse with such extreme pessimism.

China: Stocks

As mentioned above, stocks are off to a rough start thanks to China! The chart above certainly is not the most promising. As you can see, we closed below the red line of the triangle. This is a bearish sign. The bottom of the triangle is at the 2,023 level in the S&P. Market bulls need to reclaim the 2,023 level for bullishness to re-assert itself! The news from Saudi Arabia and Iran should have been bullish for oil. The problem, oil moved down, and is continuing to move down today! For the last month or so, it seems as if the market direction is takings its cue from oil trading. If oil continues to falter, will it bring the rest of the market with it? The Dow Jones Transports continue to hit daily lows, this is not a positive at all. These are strong headwinds for the market right now! What catalyst is out there to move these markets ahead? As of right now, I certainly do not see one. Other that the fact that the markets are nearing an oversold condition. Right now, I do not see a massive decline. That being said, I am holding on to what I have. I think we just need to adjust to higher interest rates, and get the weak investors out. Once we see a sustained break above 2,023, then 2,060, will become more bullish.

China: Bonds

China has not had the big effect on the bond market, like it has the stock market. The main event driving the bond market is the Fed. Last month, the Fed raised rates. Since that point in time, the key 10 year rate has bounced between 2.2-2.3%! When the Fed raised rates, the prevailing thoughts were the Fed would raise an additional 4 times in 2016. Today, the prevailing thought is maybe one more time, if at all! This is a big shift in thought. Should the bond market return to the thought they they will raise multiple times this year, then interest rates could break the 2.3% range, and move to possibly 2.5-2.8% area! Since growth seems to have been slowing on a global scale, I am more thinking that the Fed will not be rasing rates too much this year.

Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information, and expert advice on portfolio construction, and helping client’s navigate news, like that coming from China!

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