- The markets plunge
- Our trading expert Greg Guenthner analyzes the significance of yesterday’s action
- Another rollicking day in the markets
- North and South Korea trade artillery fire… a new use for Venezuelan currency… readers weigh in on the future of America… and more!
Is it panic time?
No way around it. Yesterday was uglier than a monkey’s armpit — all the major indexes got walloped.
The S&P, off 2%. The Nasdaq, off 3%. And the Dow plunged 358 points to close the day at 16,690. Again, ugly.
And we take especial note of the Dow today…
The Dow crashed through a key resistance level yesterday, according to our trading expert Greg Guenthner.
For weeks, Greg has been warning his Rude Awakening readers that the important number to look out for was Dow 17,170. Here’s what he had to say last Thursday, referencing a so-called “death cross” in the Dow that was in the news:
“It doesn’t sound nearly as scary as a death cross. But I’m much more interested in the 17,170 level on the Dow than any death cross (it briefly broke below that mark early yesterday before its afternoon comeback). That’s the Dow’s February low — and where a potential Dow theory sell signal would occur.
“A death cross won’t kill the Dow. But a big break below 17,170 just might. If we lose it, it’ll be time to start planning for a graceful exit.
“So forget about the death cross. And start thinking about Dow 17,170…”
Obviously, the Dow broke that threshold yesterday.
Greg was talking about a bit of inside baseball called the Dow theory sell signal.
Care to elaborate, big guy?
“Dow theory says U.S. markets are in an uptrend if either the Dow Jones industrial average or the transportation average breaks out to a new high — and the move is confirmed by the other average. If both the DJIA and the transports are moving higher, the market’s strong.
“Well, guess what: The industrials are crashing through their February lows. That’s a sell signal.”
Then he puts his readers on pins and needles: “So is it time to head for the exits, gracefully or otherwise?”
This morning comes the answer — or at least a partial answer. Time to go to DEFCON 1?
“Before you run around like a chicken with its head cut off, please understand that Dow theory doesn’t tell us which individual stocks are going to beat the market or anything like that. It only spits out one of two ‘big picture’ signals: buy or sell. And now that it’s flashing ‘sell,’ it’s time to get a lot more cautious. But it doesn’t mean we drop everything and run.”
Ever the measured voice of (cough) “reason,” Greg counsels his readers against rash, emotional trading decisions:
“It’s days like yesterday that test your ability to trade with a clear mind. But that’s exactly when you need to keep your wits about you the most. Otherwise you make boneheaded decisions that cost you money.
“We could be in for a lot of panic moves over the next several trading days. Let’s not make any ourselves.
“We’ll be exiting some positions, to be sure, but it’ll be more of a fighting withdrawal to more defensible terrain than a panicked flight to the hills.”
In other words, keep your head while those about you are losing theirs. Stay tuned…
On a more cheery note, let’s look at the markets!
The boards are flashing like a pinball machine gone bonkers. Here’s where we stand at writing:
The S&P’s down another 34 points after yesterday’s contretemps. The Nasdaq’s off a cool 98.
And the aforesaid Dow? Down another 314, to 16,603. Dow 17,170, we hardly knew ye…
But it’s early…
Continued poor news out of China seems to be the reason for today’s sell-off. The Shanghai Composite slid 4.3% Friday, furthering concerns about the world’s second-largest economy.
Oil slipped a bit today. West Texas Intermediate’s down a notch, to $40.08. Gold’s up $6.70 for the moment, to $1,159.40.
Meanwhile, the predictable flight to safety is driving skittish investors into Treasuries. Yields on 10-year bonds slipped below 2.1% Thursday, the lowest level since April 30. Bloomberg expects this to be the biggest week for Treasuries in two months.
Following up on Wednesday’s South Korean theme…
U.S. troops stationed in South Korea mobilized for action after North Korean leader Kim Jong Un declared a “quasi-state of war.”
Kim ordered his troops to assume a “war footing” following an exchange of artillery fire with South Korean troops yesterday. According to The Associated Press:
“North Korea on Thursday afternoon first fired a single round believed to be from an anti-aircraft gun, which landed near a South Korean border town, Seoul said. About 20 minutes later, three North Korean artillery shells fell on the southern side of the Demilitarized Zone dividing the two Koreas. South Korea responded with dozens of 155-millimeter artillery rounds, according to South Korean defense officials.”
U.S. troops on the move in the South Korean town of Paju bordering North Korea.
It’s not the first time something like this has happened. A few years ago, the two sides lobbed shells at one another after a South Korean warship was sunk, most likely by a Norky sub. There have been other incidents as well.
Technically, North and South Korea are still at war, having merely reached a truce to end the Korean War in 1953. A pretty long truce, but a truce nonetheless.
If you think your dollars aren’t worth the paper they’re printed on…
Try buying your daily bread with the Venezuelan bolivar.
This week comes a photo of a 2-bolivar note doing double duty as a napkin. A man can be seen using it to hold his empanada.
Doesn’t help when your primary source of income, oil, has fallen from over $100 to $40 in a year or so. It’s easy to write those welfare checks when the good times are rolling. Afterward, not so much.
According to CNN Money, “Venezuela’s economy is in shambles and basic goods like napkins are hard to come by. Earlier this year, officials from Trinidad and Tobago allegedly offered to send tissue paper to Venezuela in exchange for oil.”
Again, if you’re concerned that a dollar doesn’t buy you much these days, you may want to pause to reflect that one bolivar isn’t even worth an American penny. That’s how bad it is.
Inflation ran to 68% last year in Venezuela. Some economists think it could cross into triple-digit territory this year.
And to think our big, bad Federal Reserve can’t even squeak out a measly 2% inflation rate. Is that too much to ask?
Off to the mailbag we go…
Further reflecting on the state of the American Union, one reader reacts to another’s comments on teachers:
“As a teacher, I take exception to the contributor who made the gratuitous whack at teachers as all being liberals/progressives. Many, myself included, are not. But that is far from the point and also irrelevant.
“The lack of history/civic education in this country is indeed a disgrace and potentially a disaster for us as a free and independent people. The writer’s suggestion that politicians should take the same test as those applying for citizenship is an excellent idea, but it should also be a mandatory requirement for high school graduation in every school district in the country.
“The idea of national school standards (Common Core) is a very hot topic right now, but can’t we all agree that every high school graduate knows as much about this country as our newest citizens?”
Writes another reader:
“Seeing yesterday’s 5, I would like to tell you about my ideas regarding the minimum qualifications for running for public office in the United States.
“The individual should be of proper age and should have no felonies on their record. They should have a proven minimum IQ of at least 130, and before their name goes on the ballot, they should be required to be interviewed by three different psychologists to confirm that they are reasonably well-adjusted individuals, and the findings should be made public.
“There should also be a new agency formed to act as an ombudsman to make sure that the congressman, senator or president doesn’t violate the Constitution, the agency should be given broad powers to investigate criminal activity. The only person that I can think of who would be capable of taking on such a job as head of the organization would be former congressman Ron Paul, who just turned 80. Doesn’t say much about our country that there is only one man really qualified, does it?”
The 5: We’re afraid your list of qualifications would immediately disqualify most in office. Let’s adopt them at once!
Regarding yesterday’s piece on oil and gasoline prices…
One reader ponders, “With oil at such low prices and so much available, seems like it would be a smart move for the government to add to the Strategic Petroleum Reserve. Or maybe it is already full.”
The 5: Gee, you don’t hear much about the Strategic Petroleum Reserve these days. Not only are they not adding to it, but some members of Congress are proposing that 101 million barrels be sold from it to raise $9 billion for the Highway Fund. Better than raising taxes, right?
Another reader, a Canadian, suggests we should be grateful we don’t have to pay Canadian prices:
“If you think gas prices have not fallen enough in USA at $2.60, try Kelowna, British Columbia, Canada.
“A year ago, we were at approximately C$1.289 per liter, or $4.88 USD per gallon. Today, we are at C$1.329 per liter, or $5.03 USD per gallon.
“Then add 25-28% exchange to convert Canadian dollars to U.S. dollars.”
The 5: We feel your pain.
Still another reader feels we miss the point entirely:
“Missing the mark. Price is the mechanism for allocating scarce resources.
“Gasoline is (relatively) scarce because of government limitations on increasing refining capacity.
“So it really doesn’t matter that crude prices are off 60%.”
The 5: Absolutely correct. Government regulations have severely limited the number of U.S. refineries. The point still stands, though. Gasoline prices haven’t fallen nearly as much as oil prices.
Best regards,
Brian Maher
The 5 Min. Forecast
P.S. You’ve seen the news about China’s devaluation and the effects it’s already having on South Korea. For example…
Glenn Beck believes the recent devaluation of China’s currency should “send a chill down your spine” and could mean China has begun “all-out economic warfare” against the West.
Newspapers like the Financial Times are calling China’s moves “predatory and dangerous.”
Jim Rickards, a best-selling author and financial expert, likens China’s actions to a “Pearl Harbor-style attack.”
If you’re worried about your risk exposure, here’s what I suggest:
- Go to this special Web page we’ve set up. (**Don’t worry; it’s not one of those long promotional videos.)
- Check out a very special type of trade you can make to hedge against any fallout from China.
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Best part… you can get important highlights of this situation in a quick two-minute video.
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