Daily Market Update – August 26, 2015 (Close)
It’s hard to describe the disappointment that accompanied yesterday’s trading, but being entirely surprised should probably not have been one of the things felt during the course of the day.
The final hour, though, was surprising, as you did have to wonder where the selling originated.
The “why” part of the question isn’t too hard to understand, as some may have seen the gain as an opportunity to get just a little more before getting out.
Deep down I thought that there still might be a wave of selling related to the need for mutual funds and ETFs to honor redemption orders. There’s no stated rule that says that they have to do that by flooding the order desks with those market depressing orders all at once and first thing in the morning.
This morning the Chinese stock market, the one that really matters, in Shanghai was again lower, but this time by less than 2%. That’s the same as a rally.
I’ve definitely lost track of how much that market has lost in the past 2 weeks or so, but after looking it up, it’s an astonishing 28%, while our own S&P 500 is down about 8% in the same time period heading into today’s session.
I guess in a world where everything is relative that should leave you feeling warm and fuzzy, but it didn’t really feel like that this morning, even as the futures were suggesting that they may just go and erase yesterday’s loss.
Even though last week we finished higher than the averages and even though this week is on that same path for now, it’s one of those mixed blessings, as overall performance for these two weeks past is still showing a loss. While comparative results are important, it’s still the bottom line that really matters.
When you look at today’s performance, would you ever think that you would see a day that the S&P rose 4%, yet the index was still down 1.4% for the week and with still 2 days to go?
It’s still hard to believe that we can talk about yesterday as having been a loss, even though there’s plenty of precedence for this sort of thing after very large losses and early reversals the following morning.
With no positions set to expire this week, partially by design, I’m still looking at any opportunities to roll over any contracts expiring in subsequent weeks, but despite some increases in volatility, the volume has been exceptionally light on both calls and puts.
That just shows that there is absolutely no sense of confidence about what may come next. Not by speculators, not by portfolio hedgers.
It didn’t change too much even as the bulls started to stampede in the latter half of the afternoon.
With some surprisingly good earnings from beaten down retailers Abercrombie and Fitch, both of which also go ex-dividend very soon, there was some opportunity to get rollovers done into price strength.
Yesterday’s early trading would have been a nice time to try and sell some new option contracts or even consider doing some rollovers, but the liquidity just wasn’t there, as the market’s decline has just been to sudden to get very many to re-align their strategies and implement them.
The sell-off during yesterday’s final hour should do very much to bolster option trader’s confidence today, even as the market was pointing higher. In fact, that early move higher may just send more confusion through the system.
As expected, the options market wasn’t very busy today, either as by mid-morning the big gains were cut by nearly 75%f and gave little reason to feel assured of anything other than continuing confusion and the very real possibility of re-testing lows.
With those kind of expectations the next wave of confusion hit as the market found a way to bounce right back from that mid-day slide and started approaching and then exceeding its highs for the day as the final hour began its countdown.
I hope that the Federal Reserve Governors who convene their meeting in Jackson Hole are less confused that we deserve to be as the week is coming to its end.
I don’t expect to be doing much for the rest of the week other than to see what else the Chinese government and the People’s Bank of China will attempt to do to calm their markets and control their currency.
For now, whatever they do, we are going to be held captive, although maybe tomorrow’s GDP Report and Jobless Claims will give us reason to focus within for a few brief moments and remember that there’s nothing in our economy that remotely warrants the kind of reaction we have seen in our markets, even though they’ve been comparatively muted compared to a half world away.