Monday’s rally was fueled by speculation the Chinese government was ready and willing to do another round of stimulus to boost its economy. What we got was the Chinese government was another county entering the current currency wars. Devaluing the Yuan was a surprise move by the Chinese government and one that was not welcomed by the market. Stocks were sold hand over fist today, but a late day rally did soften the blow. One saving grace was the restructuring of GOOGL into Alphabet. We cannot predict whether or not this is a smart move, but the market’s initial reaction is positive. Today was not a good day for the stocks and one should tread carefully.
The Dow Jones Industrial average continues to act weak and now saw its 50 day cross under the 200 day. It is called the death cross and while it is not a perfect indicator (what is?) it is a sign of weakness. The last time we saw this weakness was in 2011 when the S&P 500 nearly corrected 20% on a closing basis. We are not predicting a 20% correction. However, we are certainly recognizing the possibility we can see further weakness from this market.
Caution is warrnted here. Price action is weak and there is no reason to be a hero. Keep to your stops.
More to come.
