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Daily Market Update – August 26, 2015 (7:15 AM)
It’s hard to describe the disappointment that accompanied yesterday’s trading, but being entirely surprised should probably not have been one of the things felt during the course of the day. The final hour, though, was surprising, as you did have to wonder where the selling originated. The “why” part of the question isn’t too hard to understand, as some may have seen the gain as an opportunity to get just a little more before getting out. Deep down I thought that there still might be a wave of selling related to the need for mutual funds and ETFs to honor redemption orders. There’s no stated rule that says that they have to do that by flooding the order desks with those market depressing orders all at once and first thing in the morning. This morning the Chinese stock market, the one that really matters, in Shanghai is again lower, but this time by less than 2%. I’ve definitely lost track of how much that market has lost in the past 2 weeks or so, but after looking it up, it’s an astonishing 28%, while our own S&P 500 is down about 8% in the same time period. I guess in a world where everything is relative that should leave you feeling warm and fuzzy, but it doesn’t really feel like that this morning, even as the futures are suggesting that they may just go and erase yesterday’s loss. It’s still hard to believe that we can talk about yesterday as having been a loss, even though there’s plenty of precedence for this sort of thing after very large losses and early reversals the following morning. With no positions set to expire this week, partially by design, I’m still looking at any opportunities to roll over any contracts expiring in subsequent weeks, but despite some increases in volatility, the volume has been exceptionally light on both calls and puts. That just shows that there is absolutely no sense of confidence about what may come next. Not by speculators, not by portfolio hedgers. Yesterday’s early trading would have been a nice time to try and sell some new option contracts or even consider doing some rollovers, but the liquidity just wasn’t there, as the market’s decline has just been to sudden to get very many to re-align their strategies and implement them. The sell-off during yesterday’s final hour should do very much to bolster option trader’s confidence today, even as the market is pointing higher. In fact, that early move higher may just send more confusion through the system. I don’t expect to be doing much for the rest of the week other than to see what else the Chinese government and the People’s Bank of China will attempt to do to calm their markets and control their currency. For now, whatever they do, we are going to be held captive, although maybe tomorrow’s GDP Report and Jobless Claims will give us reason to focus within for a few brief moments and remember that there’s nothing in our economy that remotely warrants the kind of reaction we have seen in our markets, even though they’ve been comparatively muted compared to a half world away. |
