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Market Update: Black Monday 2018

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Monday witnessed a selloff rarely seen in modern times, as the Dow Jones Industrial Average plunged more than 1,100 points and volatility surged by the most on record. The marked drop followed a Friday meltdown that quickly spread to Asia and Europe.

Stocks Record Biggest Drop in 6 1/2 Years

U.S. stocks are capping off their worst session in six-and-a-half years, with losses surpassing the Black Monday crash of 2015. The Dow Jones Industrial Average plunged 1,175.21 points, or 4.6%, to 24,345.75. Index members were down by at least 2.5%.

The broader S&P 500 Index collapsed 113.19 points, or 4.1%, to finish at 2,648.94. Six of 11 sectors recorded losses of 4% or more, with financials falling 5% as a whole.

Meanwhile, the technology-driven Nasdaq Composite Index closed off 3.8% at 6,967.53.

Stocks are down more than 6% over a chaotic two-day slump that was triggered by growing inflation risks. On Friday, the Department of Labor said U.S. average hourly earnings jumped 2.9% in the 12 months through January, the highest in over eight years.

The unexpected rise in sent a strong signal that inflation is making a comeback, leading investors to up their forecast for higher interest rates. Fed Fund futures prices imply a 66.2% likelihood the Federal Reserve will raise interest rates at its upcoming meeting in March. Although markets have largely shrugged off the Fed’s gradual tightening schedule, faster rate hikes are often viewed negatively from the standpoint of liquidity.

Expectations for higher interest rates are pushing up bond yields at the expense of equities. With fewer investors buying the dips, there’s growing concern that the bull market may be losing its luster.

Fear Index Surges to Recession-Like Levels

The CBOE VIX, Wall Street’s preferred measure of market anxiety, spiked 115.6% on Monday to close at 37.32. That was its biggest gain on record and highest settlement in two-and-a-half years.

For much of the Trump rally, the VIX has traded in the low double digits, indicative of underlying call in the markets.

Researchers normally associate a VIX reading above 30 with the onset of a recession. This relationship was noted by analysts at Goldman Sachs following the Black Monday 2015.

Since the VIX started trading in 1990, the U.S. economy has experienced three recessions. During the first two downturns in 1990 and 2001, the VIX averaged out to around 25-26. The financial crisis of 2008 brought about an average VIX reading of 34.

The VIX has exhibited an unusual trend in recent weeks. Rather than trade inversely with the S&P 500 Index, as it does roughly 80% of the time, it traded in the same direction. This was even true when stocks were setting record highs.

As the following chart illustrates, the VIX is in extremely overbought territory.

ETNs and futures contracts tied to volatility also spiked on Monday, with the VXX climbing more than 33%. The XIV, which trades inversely with the VXX and thus in the same direction as stocks, fell more than 14% on Monday.

Crypto Selloff Intensifies

Cryptocurrency traders were also on the receiving end of a large selloff Monday, with the total market cap falling to its lowest level in over two months. The market bottomed at $310 billion, as bitcoin and virtually every altcoin in the top-100 posted double-digit declines.

The crypto market is down more than $500 billion from its peak in early January. Unlike previous corrections, speculators have shown very little desire to buy the dips. Regulatory risks and reduced access to overseas exchanges in China have been cited as the major reasons behind the latest drop.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 743 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Market Overview

U.S. Stock Futures Fall on Brexit, China Growth Woes; Lifeless Crypto Market Drift Sideways

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U.S. stock futures declined on Monday, as concerns over Brexit and the health of China’s economy weighed on investors’ sentiment. Crypto markets were largely uneventful following a sudden correction early Sunday.

Stock Futures Falter

Futures tied to the Dow Jones, Nasdaq and S&P 500 Index finished lower in holiday trading. The Dow Jones mini futures contract fell 72.00 points to 24,615.00. The March contract for Nasdaq futures declined 31.25 points to 6,761.50. S&P 500 mini futures closed down 8.25 points at 2,663.25.

U.S. markets were closed on Monday for Martin Luther King Jr. Day. The New York Stock Exchange and Nasdaq will resume regular trading hours on Tuesday.

European equity markets were also down on Monday. The Euro Stoxx 50 Pr declined 0.3% to 3,125.07. Bourses in Frankfurt, Paris and Madrid declined by at least 0.2%. London’s FTSE 100 Index broke even in the final moments of Monday’s session.

China, Brexit in the Spotlight

Concerns about the global economy resurfaced Monday after China reported the slowest pace of annual growth in nearly three decades. Gross domestic product (GDP), the value of all goods and services produced in the economy, grew 6.6% annually, the slowest since 1990. In the fourth quarter, China’s annual growth rate slipped to 6.4%.

The International Monetary Fund (IMF) has once again revised down its estimate for global growth, warning that the synchronized global recovery was losing steam. The Washington-based lending institution now expects global GDP to grow 3.5% in 2019 and 3.6% in 2020. That’s down from the October estimate of 3.7% for both years.

Another form of instability comes from the United Kingdom, which is still grappling with how to proceed on the issue of Brexit. Prime Minister Theresa May on Monday unveiled a new Brexit plan after her initial bill was shot down by British Parliament last week. A vote on the so-called Brexit Plan B is scheduled for Jan. 29.

Crypto Markets Drift Aimlessly

The cryptocurrency market saw little movement on Monday, as a lack of conviction from the bulls and the bears kept price action subdued. Tron was the notably exception among the major cryptocurrencies, gaining 5.1% to $0.0250.

Bitcoin’s price was little changed over the 24-hour cycle and was last seen trading at $3,583.44. The largest cryptocurrency by market cap dropped 4% on Sunday after gaining nearly 3% during the previous session.

Altcoins and tokens traded in a similar fashion at the start of the week. XRP edged up 0.3% to $0.3196. Ethereum fell 1% to $117.79. Bitcoin cash, EOS and Stellar XLM were little changed during the session.

The combined crypto market cap held below $120 billion on Monday.

In terms of news, Ethereum’s developer communication has announced that the highly-anticipated Constantinople hard fork will take place Feb. 27. The rollout, which was originally scheduled last week, was delayed after developers identified a major security flaw in one of the Ethereum Improvement Proposals (EIP).

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 743 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Analysis

3 Things You Need to Know About the Market Today

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1, Chinese GDP Growth Slows to Multi-Decade Low

Shanghai Composite, 4-Hour Chart Analysis

When even the strongly PR-optimized Chinese economic releases are showing severe weakness, it’s not at all surprising that the local stock market is in a deep bear market, and even the explosive oversold rally on Wall Street combined with the trade optimism of last week is not enough to meaningfully change the technical setup.

While economic growth slowed to an almost 30-year low on a yearly basis, retail sales and industrial production beat the consensus estimates by a hair, but that wasn’t enough to cause a material rally in equities, with the global sentiment leaning slightly bearish. This week’s most important question will be how risk assets will hold on to their recent gains, with a special attention on China and Europe, which continue to lag behind the US from a technical perspective.

The Shanghai Composite is more than 30% below its bull market highs, while the main European benchmarks are also around 20% below their respective highs, and that’s following one of the strongest short squeezes in history on Wall Street, mind you. The next few days could be crucial for markets, and we now advise caution even for short-term bulls.

2, Stocks Retreat after Friday Ramp with Wall Street Closed

German DAX 30 Index, 4-Hour Chart Analysis

Looking at Europe, the major indices failed to extend their gains from Friday, while US stock futures are also modestly lower after the European close. With the US markets being closed in observance of the Martin Luther King Jr. Day, trading volumes and activity has been predictably low, and things will likely get heated tomorrow, as the earnings season will also continue.

Johnson & Johnson (JNJ) and IBM (IBM0 will report earnings tomorrow, and all eyes will be on their overseas numbers and guidance amid the global economic slowdown. We had some negative reports regarding the US-Chinese trade talks, concerning the sensitive issue of Intellectual Property, and we still think that even though an agreement is likely in the coming months, implementation and enforcement will be borderline impossible.

3, Oil Tests December High

WTI Crude Oil, 4-Hour Chart Analysis

While risk assets, in general, had a slightly bearish half-session crude oil kept on pushing higher following Friday’s move to new correction highs, with the WTI contract entering the resistance zone that capped the December consolidation. The crucial commodity, which has been slightly lagging US stocks from a technical perspective is still squeezing late shorts, but we expect a short-term top very soon, possibly after a stop hunting rally above the $55 per barrel level.

What’s sure, is that we wouldn’t be buyers at these levels, even in light of the OPEC production cut, since over-supply remains a major issue, and the increase in US output continues. That said, the short-term uptrend is intact and the topping process could take a while, but we will keep a close eye on the day-to-day price action following the 25% rally off the December lows.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 445 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Market Overview

European Stocks Decline as China’s Economic Growth Hits 28-Year Low

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European stocks traded lower on Monday amid news that China’s economic expansion reached its slowest pace in nearly three decades, casting a dark shadow over the health of the global economy.

Europe Sees Red

All of Europe’s major stock indexes traded lower in the afternoon session. The pan-European Stoxx 600 fell 0.3%, reflecting weakness across the continent.

Germany’s benchmark DAX Index fell 0.6%. In Paris, the CAC 40 Index languished 0.2%. Spain’s IBEX 35 Index also dropped 0.2%. The FTSE 100 Index in London pared losses to trade flat.

The weak European session followed strong gains in Asia, where traders remained optimistic about China’s new stimulus plan. Last week, the Chinese government pledged to lower taxes and increased federal expenditures in 2019 as a way to shore up economic growth. Meanwhile, the People’s Bank of China (PBOC) said it will make monetary policy easier to gauge moving forward.

Drama surrounding Brexit also weighed on European stocks as British Prime Minister Theresa May prepared to unveil a new plan to withdraw from the EU. May’s Brexit bill was shot down in British parliament last week. A parliamentary bloc tried to oust her from power by forcing a no-confidence vote that the prime minister subsequently survived.

British lawmakers will vote on May’s Plan B on Jan. 29. According to early reports, the new plan is unlikely to be much different than the previous bill tabled to parliament.

China’s Economic Headwinds

The Chinese economy is coming off its slowest year of growth since 1990, a warning sign for investors banking on continued global expansion. The world’s second-largest economy grew 6.6% in 2018, in line with expectations but a substantial drop compared with previous years.

China’s economic grew 6.4% annually in the fourth quarter, which is an extension of a downtrend that began to emerge roughly five years ago.

Retail sales grew 8.2% annually in December, slightly higher than the November rate. During the same month, industrial production picked up to 5.7% annually, up from 5.4% in November. Annual fixed asset investment was unchanged at 5.9%.

Beijing is prepared to make big concessions in its ongoing trade negotiations with the United States. As CCN reported Friday, China has offered to completely eliminate its trade surplus with Washington by purchasing an additional $1 trillion in American-made goods. The additional purchases will be made over a six-year period.

Last year, China’s trade surplus with Washington amounted to $323 billion.

Talks between the two superpowers are expected to continue over the next six weeks as negotiators look to get a deal done during the 90-day truce period. President Donald Trump and Chinese Xi Jinping agreed to de-escalate trade hostilities during a face-to-face meeting in Argentina in early December.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 743 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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