OK , now it's getting serious......even for the US

Friday 21st August 2015

OK , now it's getting serious......even for the US

  

China's stock markets have now given back virtually all the gains seen since the authorities began their massive intervention policy. Shanghai's Composite Index fell again today, down over 4% to close just above the significant 3,500 level ..... significant because it is thought to represent a level that the authorities would wish to defend. We shall see, but the latest bout of selling followed the release of July's manufacturing Purchasing Managers' Index at 47.1, the lowest level since March 2009. Anything under 50 represents a contraction.

The overspill from China's stock market woes, its implications for the state of the economy and its currency devaluation has naturally damaged other markets in the region, and emerging markets have been particularly under the cosh. European and UK markets have also come under pressure but the US has been relatively unaffected ..... until now perhaps.

Last night's fall of over 2% in the S&P 500 Index may come to be seen as the start of a new chapter, and not an enjoyable one. Technical analysts have been pointing out that a break down through the lower end of a 5-month trading range has been in sight for some time, and that the market was also in danger of trading down through important "moving average" lines. This has now come to pass and for chartists at least, things are looking decidedly BEARISH.

Newcomers to the markets are often surprised by the weight given by traders to technical chart analysis, instinctively feeling that what had happened in the past is surely much less relevant than the fundamental factors of the present. But technical analysis is hugely influential, and because so many traders and trading programmes are governed by it , it can to a certain degree become self-fulfilling. Of course, the clearest trading signals occur when both fundamentals and technicals point the same way, and one can't ignore the suspicion that stock markets may be a case in point.

 Greece Update ......

 Very briefly, PM Alex Tsipras has reacted to the number of rebels within his own Syriza party voting against the acceptance of the lenders conditions for the latest bailout by calling a snap election, almost certainly for September 20th. The hard-left rebels will form a new party, Popular Unity, and as a matter of course the other two main parties have been given a 3-day window to try to form a coalition government, which will be unsuccessful.

The move was expected, although the speed with which Mr Tsipras has acted is something of a surprise and is surely designed to give his opponents as little time as possible to organize themselves.

The markets are calm about developments, largely because the lenders are too. In fact, they have cautiously welcomed the move in the hope that a stronger mandate for Mr Tsipras would increase the chances of the conditions being implemented. The dangers are that an election and the formation of a new government might severely delay reforms, and indeed the lenders ability to monitor their progress. Theoretically, there is always the chance of an electoral upset (we've seen it before) but on a personal level Mr Tsipras remains popular in Greece.

So the saga goes on.... but on this occasion last night's news is not in itself A BAD THING....