It was another tough week for the global markets. The S&P, Dow, and the major European equity indices closed lower for a rare sixth week in a row. Next week could be historic as the S&P500 has initially closed lower seven straight weeks only three times in the past sixty years. The many Macro Swans we have been writing about are weighing on the markets, including the end of QE2, China, Japan and the European Debt Crisis, which are slowing global growth and adding to worries about the upcoming earnings season. All the major equity indices were down for the week, excluding Japan, with the Russell, Nasdaq, and Kospi more than 3 percent lower. The Nasdaq and Russell are now down for the year.
We find it interesting that Natural Gas is the star performing in the commodity space this year and copper, down almost 9 percent, the worst. At the beginning the year, analysts wouldn’t touch nattie and loved copper. George Soros’ dictum, “the markets are always wrong” is validated once again!
Though the markets are oversold, which could produce a nut crushing short squeeze, all signs are pointing red and we still sense a high level of complacency out there. A flush to at least the 200-day moving averages on the major U.S. indices seems likely, about 2 percent lower, before a decent bounce ensues. There are probably more than an enough algo programs written to buy at the 200-day that these levels should be respected.
The Hang Seng index closed down a rare seventh consecutive day on Friday. Anyone notice a pattern here? We’re watching for a possible break in the Hang Seng and Shanghai, which are about 1 ½ percent above critical support. If these give way, grab your helmets. Good luck next week!