The 3 Month Rout As People Fear New Asian Crisis

 

This three-month rout in equities is scaring the hell out of everyone and changed the view that the Fed will not raise rates sending the dollar lower in which appears to be completing the bubble in government, particularly in Europe. The bells are ringing across world markets on Monday with a 9% nosedive in Chinese shares that has sent the major commodities into a panicked tailspin and a sharp drop in the dollar as investors try to figure out where to run now.

 

 

European stocks opened more than 3% down following nosedive in Asian as equities there dropped to new 3-year lows as a three month-long rout in Chinese equities has sent a panic wave around the globe. The typical flight to quality we have warn was necessary is underway. Safe-haven government bonds have been pushed higher as widespread fears now grip the headlines touting a China-led global economic slowdown/meltdown.

 

The headlines have been portraying China as if it were in a bull market if not some sort of bullish Phase Transition instead of a reaction rally that was merely steep because it fell so sharply in just one year. The major high has always remained 2007 so it is hard to see where people thought China was somehow holding up the world economy. We are seeing a dollar decline in Japan and Europe, which is precisely the two places we need the dollar to drop the most furthering deflation in those economies to push them over the edge.

Markets are indeed panicking since they seem to have been surprised obviously for they never looked at the charts to begin with. Had they been objective just once, they would have seen there was no new high in Shanghai – merely a reaction rally.

 

Nonetheless, things are starting look like the Asian financial crisis of 1997 with emerging markets tumbling. Speculators are selling assets that seem the most vulnerable which is the commodity based world in this deflationary trend. Tokyo has plummeted for there too the fallout from a China slowdown become the Asian Flu in Japan.

 

With serious doubts now emerging about the likelihood of a U.S. interest rate rise this year, the dollar has dropped against primarily against the yen and the euro. The Australian dollar also tanked to six-year lows and many emerging market currencies also plunged. The Australian share market is seen as tied to China and thus is being treated as a commodity based currency sending European capital fleeing Downunder and rushing back to the euro. We can see the All Ords has turned negative on our Energy models ahead of most other markets.

 

Everything still suggests that we have a Directional Change this week and today could be the intraday low. So pay attention.

 

 

The S&P500 Cash has critical support at the 195559 and 195137 levels. Beneath that, sipport is scaled in at 194465, 192825, 1980600 and then a gap is big down to 181435. We need a weekly closing below 195137 to keep the market under pressure.

Commodity markets are imploding as Brent and U.S. crude oil futures hit 6-1/2-year lows as concerns about a global supply glut added to worries over potentially weaker demand from China. With Iran coming back on line, we are still expecting oil to fall to test the key support in the $31-$35 range. The base metals are also getting hit with copper down 2.5% on the LME (London Metal Exchange) hitting a six-year low of $4,920 a tonne. Nickel as well has fallen by 4.5% to its lowest since 2009 at $9,730 a tonne. All of this seems to be lining up for the turn in the ECM.