Another week of market volatility with no real ground gained. Interestingly, that is just how I started last Friday's missive.

As I said then, the recent market volatility has been enough to give you indigestion and this week has been much of the same due to China's recent currency moves. But, despite the back and forth action this past week, the markets have held longer-term bullish trend support which keeps the bulls in charge for now.

However, this certainly does not suggest that investors remain complacent. The ongoing deterioration in fundamentals, economics and technicals suggest that risk currently outweighs the potential reward for now. With respect to the technical front, the ongoing deterioration in relative strength, momentum, and breadth, combined with a compression of price action, have only been witnessed at more important market peaks in the past.

"Bull markets" do not die on their own. Their death is generally dictated by the onset of an unexpected catalyst that creates enough "panic selling" to spark a liquidation cycle. Does the current situation in China rise to such a level? Maybe. It is an issue I began discussing this past June, and there may be a danger in dismissing the issue too quickly. 

There are many questions that remain to be answered. What does China's devaluation really say about their economy? Could this be the start of a bigger issue with the worlds 2nd largest economy? Does China pose a bigger threat to the US economy than currently believed? Does the uncertainly in the markets due to China keep the Federal Reserve rate hikes on hold in September? 

These are the questions we will try and answer this weekend. For now, "Keep Calm and Eat Chinese Food."

1) Is The Global Economy Sinking Into Recession by Ed Yardeni via Dr. Ed's Blog

"China's July trade figures remained on the soft side. On a seasonally adjusted basis, imports fell 2.1% m/m and 8.1% y/y. Some of that weakness reflected the drop in oil prices. However, imports excluding petroleum still fell 3.4% y/y during June, suggesting weak domestic demand. Exports declined 4.9% m/m last month and 8.3% y/y, suggesting weak global demand. Exports have been essentially flat now since early 2013."

Read Also: Yuan And You, How China's Currency Affects US Consumers by Kim Hjelmgaard via USA Today

2) Making Sense Of China's Currency Move by Mohamed El-Erian via Bloomberg

"With this move, China explicitly joins other nations trying to capture economic activity outside their borders, and it is doing so as the global economy is struggling to generate sufficient growth. The decision therefore provides many signals about what ails China and the global economy, and has implications for financial markets.

But by heeding this advice now, China has done more than devalue its currency by almost 2 percent, the largest single-day move in two decades. By choosing this particular moment to alter its currency system, it is also attempting to respond -- via foreign-exchange policy -- to one of the biggest challenges facing the global economy, that of generating growth."

Read Also: China Can't Risk Global Chaos Of Currency Devaluation by Ambrose Evans-Pritchard via The Telegraph

3) 5-Things You Need To Know About China's Move  by Carlos Tejada via WSJ

"Here are the 5-things you need to know

• What did they do?
• Why did they do it?
• What does this mean for the rest of the world?
• What does this mean for the markets?
• What's next?"

Read Also: China's Currency Move Could Spark A Wave Of Deflation by Heather Stewart via The Guardian

4) Currency War? How China Devaluation May Impact Fed by Matthew Belvedere via CNBC

Read Also: China Devaluation Brings Stocks To A Death Cross by Anthony Mirhaydari via The Fiscal Times

5) China's Troubling Lurch Back To Socialism by Weifeng Zhong via Real Clear Markets

"China reminds us of what Hayek calls "The Fatal Conceit," the belief that the government is better than markets in setting prices, that it can manage a form of "Capitalism Light." But interventions such as these will surely be counterproductive, and will rightly concern both domestic and international investors who rely heavily on economic freedoms. This means that the economic damage from the Chinese government's piecemeal attempts to be more responsive to its citizenry will be significant. We should be glad that the Chinese people are enjoying greater freedom to express their views and influence public policy. However, piecemeal pacification is no substitute for genuine political freedom, and it is in clear conflict with China's transition to a market economy. Hayek would have predicted that the process can only end in two ways: either socialism with totalitarianism, or capitalism with democracy. From today's vantage point, that means we can expect far more turmoil in the Chinese economy in the coming months."

Read Also: Until It Makes Reforms, China's Markets Will Struggle by Doug Elliott via Real Clear Markets

Fortune Cookies

The Warren Buffett Way To Avoid Major Bear Markets by Jesse Felder via The Felder Report

The New TVA - New Thoughts About Old Ideas by Dr. Ben Hunt via Epsilon Theory

Drop In Withholding Tax Receipts Suggests Something Amiss With Employment by Lee Adler via David Stockman's ContraCorner

Even The Fed Admits Recession Looms: Q3 GDP Slashed To 0.7% by Tyler Durden via ZeroHedge

"In the midst of chaos, there is also opportunity" - Sun Tzu

Have a great weekend.