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Market Lab Report – Premarket Pulse 1/8/16

Major averages continued their free fall on higher, above average volume. Volatility levels remain elevated but be mindful of a sharp bounce. The put-call ratio spiked higher on Thursday which, while not at all perfect in calling market lows to the day, adds to the odds that today’s bounce, though seemingly weak for now on the basis of where global markets are trading at the time of this writing, may strengthen. The closely watched Chinese Shanghai Composite finished higher though the bounce was anemic relative to the correction it has had over the last several days as it finished up just shy of 2%. The ban on selling by large stakeholders was lifted after a 6 month trading restriction, according to news items on Bloomberg. Analysts estimated the ban, one of the many bailout measures introduced during the summer stock crash in China, could cause large shareholders to sell as much as $152.96 billion in stock. While it contributed to Monday’s steep sell-off on the Shanghai, concerns about the devaluing yuan caused the Shanghai to hit its 7% circuit breaker both on 1/4 and 1/7. That said, China has suspended its circuit-breaker rule as it has been suggested that it contributes to more, not less, volatility in their markets. Thus the Shanghai Composite, if it wishes, is free to free fall. Its downtrend remains intact though the bounce could continue in the coming days. US futures are currently up more than 1% at the time of this writing after the Bureau of Labor Statistics announced a stronger-than-expected 292,000 jobs in December vs. expectations of 200,000. European markets are trading slightly higher, a further indication the bounce may be weaker than expected.

Market Lab Report – Premarket Pulse 1/7/16

Major averages gapped down, closing lower on higher volume, though they managed a rally late in the day. Oil fell more than 5% and is once again flirting with lows not seen since 2004. Last night, the Chinese Shanghai Composite Index hit its 7% circuit-breaker about 30 minutes after it opened for trade. All trading was consequently suspended for the rest of the day making it the shortest trading day in its 25 year history. This marks the second time this year its market hit the 7% circuit breaker. China’s markets fell sharply due to China’s move to further devalue its yuan currency which dropped to levels not seen since 2011. Futures are down more than 2% at the time of this writing. Presumably most of you are in cash which is a good place to be when markets are tumbling. Those of you who took the VIX Volatility Model’s signals should be up nicely for the year. The model is awaiting a new entry point where the odds are in its favor at least on a short-term basis. Our favored short-sale targets, AAPL and TSLA, have broken down sharply, with AAPL remaining a short-sale target since it was unable to clear its 200-day moving average. This morning the stock is set to open below the $100 “Century Mark,” as it continues to prove all the pundits who insisted that the stock was a “sure-thing must-own” stock that was “innocent until proven guilty,” a ludicrous statement at best considering the technical deficiencies in AAPL’s chart since its last failed breakout attempt in July of last year. That said, chaos reigns for the moment with the volatility ETFs such as UVXY and XIV gapping higher and lower each day at aggravated levels due primarily to news out of China which in turn causes the price of oil to slide further since the year began. The model’s fail-safes amply mitigate risk but always understand your risk tolerance levels so you can suitably position size these volatile instruments accordingly.

Market Lab Report – Premarket Pulse 1/6/16

Major averages finished mixed yesterday on lower volume. It is a red flag that markets could not stage even a modest rally after the drubbing they took on Monday. It is a double red flag that markets had the worst start to the year since 1932 and the worst first day close since 2001. Minutes from the Federal Reserveâs December meeting will be released at 2 PM EST. Futures are off almost 2% at the time of this writing on news that North Korea has successfully tested its hydrogen bomb, capable of mass destruction. Oil and junk bonds are also trading lower.