GLOBAL STOCKS TUMBLE ON GREEK CRISIS -- EUROPE AND ASIA LEAD FOREIGN MARKETS LOWER -- TECHNICAL DAMAGE IS DONE TO U.S. MARKET -- DOW INDUSTRIALS FALL BELOW 200-DAY AVERAGE -- S&P 500 FALLS TO THREE-MONTH LOW
FOREIGN SHARES TUMBLE... Global stocks tumbled today. Chart 1 shows EAFE iShares (EFA) falling 3% to the lowest level in nearly three months, and in very heavy trading. European stocks lost 4% on average, with Germany falling 3.5%. Asian stocks tumbled as well, including Japan (-2.8%) and China (-3.3%). Chart 2 shows Emerging Markets iShares (EEM) falling more than 2% to the lowest level since March. That set a gloomy tone for U.S. stock which followed foreign stocks lower. The dollar lost ground which gave a boost to gold. Crude oil prices fell sharply. Treasury bond yields fell as a flight-to-safety boosted bond prices. All U.S. market sectors ended in the red (the bond bounce kept utility losses small). Although the main catalyst for today's selloff is Greece, negative divergences in the U.S. stock market (like downtrends in transports and utilities) left it vulnerable to a downside correction. Arthur Hill also pointed out that stocks are in a seasonally weak summer period. For whatever the reason, technical damage was done to U.S. stock indexes.
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Chart 1
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Chart 2
MARKET INDEXES BREAK DOWN... Stocks had their worst day of the year. Chart 1 shows the Dow Industrials losing 350 points (-1.9%) and ending the day below its 200-day moving average. That's the first drop below that long term support line since last October. Chart 2 shows the S&P 500 losing -2% and falling to the lowest level in three months. That puts the SPX in position threaten its 200-day line. Chart 5 shows the Nasdaq Composite knifing below its 50-day line in heavy trading. Small caps also fell sharply. All in all, a very bad chart day for stocks.
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Chart 3
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Chart 4
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Chart 5
FTSE ALL WORLD INDEX TURNS DOWN... Today's downturn in global stocks is obviously cause for concern. Chart 6 shows the FTSE All-World Index closing at the lowest level in nearly three months. It has also fallen below a rising support line extending back to last October. The FAW is now heading for a test of its 200-day moving average. I find it hard to believe that Greece is the sole reason for today's selling. It may just be that global stocks were in need of a correction, and Greece provided the catalyst. The collapse in Chinese stocks (which had been the world's strongest market) may also be contributing to global gloom. A more defensive posture is warranted until the dust settles.
