FTSE ALL WORLD INDEX FALLS BELOW SUPPORT TO DEEPEN CORRECTION -- U.S. SUFFERS MORE TECHNICAL DAMAGE AS SEVERAL STOCK INDEXES FALL TO SIX-MONTH LOWS -- THE S&P 500 FALLS BELOW 200-DAY AVERAGE
FTSE ALL WORLD INDEX FALLS TO SEVEN-MONTH LOW... Global stock selling is intensifying. Big losses are seen in developed and emerging markets in Asia, Europe, and the Americas. And more technical damage is being done. Chart 1 shows the FTSE All World Index (which includes the U.S.) falling below its July trough to the lowest level since January. The FAW includes stocks in 47 countries, both developed and emerging. There seems little doubt at this point that global stocks have entered a downside correction. The next potential support level is the January low. Most of the recent global selling came from foreign markets. Since mid-May when the FAW peaked, foreign stocks have lost -11% versus a much smaller drop of -3% in the S&P 500. The problem is that global stocks become more tightly correlated when they're falling. That being the case, it was just a matter of time before U.S. stocks started falling as well. Which they're now doing.
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Chart 1
STOCK INDEXES FALL TO SIX-MONTH LOWS... Charts 2 through 4 show the technical damage being done to stocks in the states. Charts 2, 3, and 4, show the Dow Industrials, the NYSE Composite Index, and the Russell 2000 Small Cap Index falling to six-month lows. All are trading well below their 200-day moving averages. In addition, the blue 50-day line has crossed below the red 200-day line (the death cross) in Charts 2 and 3. As usually happens, the plunge in small caps is pulling large caps in the S&P 500 lower as well.
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Chart 2
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Chart 3
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Chart 4
S&P 500 FALLS BELOW ITS 200-DAY AVERAGE... Chart 5 shows the S&P 500 Large Cap Index plunging below its (red) 200-day moving average. And it's doing so by the largest margin since last October. A downside violation of its July low now appears likely. All major market sectors are in the red today. Utilities are being supported by rising bond prices. In addition, the defensive consumer staples are also holding up better than the others which usually occurs during a market downturn. The biggest sector losers are cyclicals (Disney and Netflix), technology (chip and Internet stocks), financials (banks and insurance), and healthcare (biotechs). Weakness in the dollar, however, is giving a boost to precious metals. I suggested yesterday that the plunge in semiconductors was bad for the technology sector. Chart 6 shows the Technology Sector SPDR (XLK) falling below its 200-day line today. That's not good for it or the tech-dominated Nasdaq market. Chart 7 shows the Nasdaq Composite Index threatening its 200-day line and its July low. A breakdown there seems likely. The Nasdaq would be the last major stock index to fall below its 200-day line.
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Chart 5
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Chart 6
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Chart 7
HIGH YIELD BONDS TUMBLE AS TREASURIES RISE... An ominous message is also being given by the bond market. Yesterday, I showed bond yields falling back to their 200-day average on deflationary concerns and fears of global weakness. [The 10-Year Yield fell below its 200-day line today]. The green bars in Chart 8 show the Barclays 20+Year T Bond iShares (TLT) climbing to a four-month high today in a flight to safety. By contrast, the red bars show the High Yield Corporate Bond iShares (HYG) tumbling to the lowest level since January. High yields bonds are more closely tied to stocks than to bonds. The fact that high yield bonds are falling along with stocks, while Treasury bond prices are rising, shows that fixed income investors have also turned defensive.
