Risk OFF seems back!
Last night, bubbly US stocks got clobbered across the broad as seen by the table from stockcharts.com. Such dour sentiment may have diffused into the Asian region.
About a few days back, the steep fall of Asian currencies vis-a-vis the US dollar, which ironically left high flying Asian stocks unscathed, prompted me to ask, “This hasn't been a one day event, though yesterday punctuated on the firming US dollar-falling Asian currencies dynamic which in tradition highlighted a risk OFF environment…Yet will the region’s high flyers, India’s Sensex, Indonesia’s JCI, the Philippine Phisix,Thailand’s SET and the New Zealand 50 be immune to a seeming transition towards a risk OFF environment?”
I guess today’s market action provides a clue; the contagion dynamic has still been alive and kicking, although its character exhibits some subtle differences..
Indonesia’s JCI, which tanked by 2.73% led the region’s losers today. The Nikkei 225 plummeted 420 points or 2.61% took second spot. Thailand’s SET dropped 1.11% after a last minute push. Singapore’s STI fell 1.08%
Meanwhile the Philippine “G-R-O-W-T-H” Phisix slipped by only .99%
Most of the region closed the day in the red except for Vietnam, Pakistan, Sri Lanka and Laos
Bourses closed due to holidays are India (Gandhi‘s Birthday), China (national Day) and Hong Kong (Chung Yeung Festival)
The difference of the rising US dollar in the June 2013 due to the taper tantrum has been of the swift adverse market response. Today, the impact to stocks has been gradual or incremental
Among the three ASEAN bourses aspiring to exceed the May 2013 highs, Indonesia’s JCI has been the first to make landmark crossover early September.
The Philippine Phisix was next to top 7,400. Thailand has yet to make such an attempt.
Apparently since, Indonesia's JCI has been struggling to hold that hallowed ground and today has faltered big. I drew a blue line on the chart of the JCI to show where it closed today.
The weakness in Asian stocks appears to be spreading and intensifying.
And it's a wonder how Asian markets would respond to Hong Kong's deteriorating political climate.
Additionally in the US markets, remember the brewing divergence in the performances of small, mid and large caps which looks like signs of progressing market internal decay (see chart here)? And which I noted as a probable sign of the periphery to core dynamic?
Well it appears that divergence has been transformed into convergence where all three have been falling. Small caps have indeed contaminated the large caps or signs of periphery to the core.
Among the US major benchmarks, the small cap Russell 2000 appears to be the first to have broken its long term trend line (chart from zero hedge). Will the rest follow?
The Gavekal Team sees yesterday’s US small cap Russell 2000 ‘head and shoulder” breakdown as portentous sign “look out below”: “With another weak performance by the Russell 2000 today (it was down 1.48%), the small cap proxy index has just completed a bearish pattern known by market technicians as a Head & Shoulders pattern. The pattern is formed when the price of an asset makes a high, retraces to some nearby support level, rebounds from support to make a new higher high, retreats again to that same support level, attempts to make a new higher high but fails, and finally retraces all the way back to and through the old support level. In simpler words, the price action goes out of it's way to define support and resistance levels and support is eventually broken to the downside, portending further losses. It is said that the longer the pattern takes to develop the more meaningful it becomes. The Head & Shoulders pattern for the Russell 2000 has been under construction for most of the year, so it's completion is definitely something to watch.”
Have current events merely signified a “correction”? Or could these be signs that spreading decay in the periphery has now reached the core? If the latter is true, then a big event should not be discounted.
Very interesting developments. Caveat emptor.
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