Look out below! Stocks tank without a catalyst dragging Aussie off its highs

You need to be very careful when markets fall out of bed for no reason as they did in the US last night. Without a catalyst traders naturally search for a reason to justify the selling which psychologically feeds on the fear that people naturally feel when they are losing money.

So there is a chance that this move feeds on itself and becomes worse in the days and weeks ahead.

Indeed it is exactly the inability to explain the move that potentially makes it all the more scary and troubling to traders because there is no obvious catalyst. Historically this is often the start of something much bigger. BI US Chief Henry Blodget writesthis morning not to be surprised if there is a crash coming.

It wasn’t the data that knocked stocks with jobless claims down to 300,000 last week, a 7 year low, but stocks fell nonetheless. At the close the the Dow fell 1.63% to 16,170, the S&P 500 lost 39 points or 2.09% to 1,833 – right on the level that many traders are watching as a sign of a technical break lower. But the Nasdaq is where the real selling is with recent darlings of the market getting hammered. The Nasdaq fell 130 points, 3.10% to 16,170.

1830 is the key level and its GONE

I would hate to trade European hours if I was a stock trader – they always seem to catching up and it’s likely Europe stocks are going to have some catch up to do when they open this afternoon. The FTSE actually finished in the black – up 0.1% to 6,642 while on the continent stocks in Paris and Frankfurt were only down 0.54% and 0.67% respectively. In Milan and Madrid though stocks were off a more significant amount dropping 1.33% and 1,42% respectively.

Which suggests that Asia is going to have a bad day today. yesterday the Nikkei was flat even though the data was disappointing yesterday with machinery orders down 8.8%. Key of course is USDJPY which is sitting at 101.55 this morning and any further weakness – which would be expected if risk continues to go off – will doubly hurt the Nikkei. In Shanghai stocks are likely to struggle after yesterday’s big 1.37% but traders will be watching the CPI and PPI data very closely. New Loans are also out.

Locally on the ASX the market is at a very important juncture technically and it was an ugly night with the ASX under pressure causing the June SPI 200 contract losing 58 points overnight to 5418 bid.

A significant break coming?

On Currency markets the Aussie’s strength yesterday after the employment numbers was built on in early London trade but the risk off element of overnight trade has dragged it off its highs at 0.9461 sitting at 0.9413. The Euro is also higher at 1.3884 almost 200 points off the lows of this week while the Pound is largely unchanged. USDJPY is down 0.43% to 101.52.

On commodity markets gold is roughly 1% higher at $1,318 oz, copper is at $3.06 and Nymex crude sits at $103.38. On the Ags corn fell 0.35% but wheat lost 1.01% and soybeans fell 1.02%

On the data front Chinese and German inflation data is very important for markets over the next 24 hours.

Have a great day and good hunting.


NB: Please note all references to rates above are approximate

To learn more about Greg McKenna, read on here.