Update: S&P closed today (Jan 07) at 1943, well below 1967; thus opening the trap door. The index is heading lower to at least 1900. China has suspended ill-fated stock market circuit breakers; China A shares will open for trading in a few hours without this restriction. Will this open the flood date of selling, we shall see…
What a jaw-dropping way to welcome 2016! In only 3 trading sessions, S&P has lost 7%, wiping out all gain made in so called “Santa Claus rally” . Torpedoes keep charging at beleaguered U.S stock markets; the latest being weaker than expected Chinese services sector PMI (as shown below) and quick drop in Chinese Yuan against the US greenback. How much more damage can the S&P aircraft carrier take before it tanks?
S& P is sitting at 1990, previously a resistance level and now support of Oct/Nov rally. It is a technically speaking no man’s land. Chances are high that it may go down to test 1967, a 61.8% Fibonacci retracement of S&P move from 1900 to 2100. 1967 must hold, otherwise, S&P may go down to 1900 or even 2015 summer low of 1820.
Market sentiment has definitely changed from buying dip to selling rip. Key to riding out the volatility is to deleverage and to trade small positions either way.
FYI China Services PMI 2012-2016
Services PMI in China dropped to 50.2 in December of 2015 from 51.2 in November and below market consensus. It is the lowest reading since July 2014 and also the second lowest in survey history, largely due to softer client demand and greater competition. Services PMI in China averaged 52.36 Index Points from 2012 until 2015, reaching an all time high of 54.70 Index Points in May of 2012 and a record low of 50 Index Points in July of 2014. Services PMI in China is reported by Markit Economics.