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08212015 Alert August 21, 2015

Posted by easterntiger in economic history, economy, financial, markets, stocks.
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NO CHANGES FROM PREVIOUS ALLOCATION ANNOUNCEMENTS

This is the worst one week decline in the equity indexes since June of 2011.

The S&P500 is off approximately 4.2% from last Friday’s closing level.  Most indexes are now back to September and/or October levels. All major indexes are now negative year-to-date.

SPX08212015

While the financial news is using the backdrop of under-performance of the Chinese economy as an excuse, many signs were already being ignored.

  •  The Dow Theory, which compares the level of the Dow Industrials to the Dow Transportation index, had already issued a sell signal, due to divergence between the two;
  • The ‘death cross’ moving average pattern(s), where the 50-day moving average crosses from above to below the 200-day moving average, has already emerged on numerous markets, including, Dow Jones Industrial average, New York Stock Exchange composite average, Dow Jones Transportation index, the semiconductor sector, the London FTSE indexes, and is pending on several other major indexes;
  • The Dow Jones Industrial average is under it’s 320-day moving average
  • 27 stock markets around the world are already in severe declines
  • Divergences between high prices and very low actual trading volume had reached historic levels
  • Reports of isolated bright spots in the economy failed to provide enough perspective for good decisions; example – this week’s ‘8-year high’ in housing starts ignores the fact that the last 7 years have represented the lowest 7-year levels in the past 32 years; this 8-year high brings us back to the point of the declining 2007 housing starts level, and, the rising 1993 housing starts level. (see chart below)
  • HousingStarts

As expected, demand for the safety of the bond market, our F fund, had already started to increase since early June, with prices once again approaching the highs of the year, reached in February and April .

A more detailed report will be developed and posted as soon as the dust clears from this weeks’ pivotal activity, allowing easier assessments for future recommendations.

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