In a post of few days ago I told you to pay attention as this rally has been sustained by just 5 stocks.
Yesterday Netflix got killed (-7.8%) and a few weeks ago Apple got seriously injured. Like a Game of Throne…they are falling (like apples!).
The big start is China and Emerging Markets in general and people are starting to recall the Asian Tiger Crisis.
Some other development.
Tsipras (Greek PM) resigned and called for snap election as early as 20 September.
Market response was muted. This was the end game of Merkel, so to elect a more pro European Government.
The vote has been called so fast in order not to let the Syriza party rebels or golden Dawn to organize themselves.
It is too early to call on anything – but reading Vouruvakis blog you can understand that the July Greek referendum did not go according to plan. It is now clear that the referendum should have said YES to Europe for an easy way out to Tsipras.
It did not work.
Around the globe there has been a rockets exchange between North and South Korea and Israel/ Syria…but that is “quite normal”.
The big headline battle is on China and to see if the Government can hold the A -Shares at 3,500 (my projections…not. the target is 3,000/3,150 in an extremely fast move).
The other more subtle, but more dangerous battle is in the US Corporate Bond. US Corporate Bond have seen massive losses augmented by the easy tradable ETFs.
The issues are two and quite complex.
US Corporate junk bond (eg energy bond) are required to demand the highest premium…but are held back by the fact that the FED has still the rates set at the lowest levels*
A big part of this stock rally has been the share buybacks. Most of the US companies used these “buybacks” to create high yield (junk) bond. And now we have an issue on some of those bonds.
The behaviour of the market is consistent with the De Mark signal I gave in October 2014. In essence The De Mark signals happened 3 times in history and the market got busted or went sideways for several years (my main theory – range SP500 1,800 -2,200)
*This scarily reflects a problem that I highlighted in a post in November 2014, that this was one of the risk of Yellen as Chairman nominee. That she would hold off rising interest rates for too long.
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