4 Clues That Will Determine If The Sell-Off Will Grow Worse

At this point, the selling in the equity market has been held to just the US. A failure to maintain strength in critical markets like China, South Korea, and Germany could give us some clue as to how much more downside may exist here in the US. 

South Korea (EWY)

For example, the S&P 500 has underperformed the Kospi since the beginning of September. These two markets have been positively correlated since early February. 

Germany (EWG)

Also, the German DAX has underperformed the S&P 500 for some time. It could indicate that the S&P 500 needs to play catch-down to the DAX, or that the DAX is still telling us there is something different taking place between the two markets.

These global markets must be monitored. At this point, the global markets suggest that the selling pressure has been contained strictly to the US and it doesn’t have a broad international feel to it. A global move lower in equity prices would suggest something more profound taking place to the downside here in the US.

At this point, we can’t say that we have a global sell-off, which depending on the outcome you want, can be good or bad. Good, if you are bull and searching for a bottom in the market, and bad if you are hoping for a deeper correction. 

Again, at this point, we haven’t seen fear levels spike here in the US in a meaningful way, and that suggests that the selling pressure still has to build more. But, we would also look for confirmation of global selling pressure. The bottom line is that gauging this current correction is not easy. 

US 10-Year (TLT)

Additionally, there has been very little, if any, flight to safety witnessed in the bond market, with yields on the US 10-year hardly budging all week. 

Dollar (UUP)

Additionally, the dollar has been stuck below 93.50 and, to this point, has been unable to break out. Typically, in a risk-off environment, we would expect to see the dollar strengthen and 10-year yields fall.

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Disclosure: Mott Capital Management, LLC is a registered investment adviser. Information ...

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