It has been a wild few days in equity markets. As we have been outlining going into this “sell off”, many divergences had been appearing. Eventually equities gave in and we saw some rather big moves in various assets yesterday. If this is a new big bear nobody knows, but let´s review a few of the main equity indices.
SPX never had the “steam” to hold above the magical 2800 level. It reversed and is now down to the 200-day average again at 2750. Should we close below this level, the next big support is at 2700. Do note the current set up looks very similar to the previous few times SPX decided to reverse on the 2800 level.
We pointed out the relative weakness in Trannies several days ago. This index has since then been in free fall pretty much. At these levels it is hard to have much view, but 10k is a big level to watch.
Mighty DAX turned right on the negative trend line. It is currently trading below the huge 11500 level which is a must watch level. The channel from lows is so far intact.
Looking at the chart of Shanghai only one thing comes to our minds, irrational exuberance. The stock market has gone parabolically retarded, accompanied with huge volume. As we have been pointing out for months, before the bull in China started, is the fact Chinese equities go higher only when speculators join the party.
Eventually, they did join the bull party, after the PBOC already flooded the system with liquidity. The many times non-informed speculator has piled all in, waiting for further gains, but by now many are facing losses. Take the Chinese equities lower by another 5% and things can once again get ugly for the Chinese retail speculator, as well for the rest of global equities.
The chart showing the China margin debt.
Source, charts by Bloomberg