The Turkish lira is bouncing for the second day, but that is being more than offset by weakness in China, pressure on metals and oil and the seasonal malaise of August.
Early indications show the indices giving back most of yesterday's bounce. While Turkey is taking action to prop up its currency by banning short selling, the consensus view is that the emerging market crisis is not yet over. In addition, China's struggles are picking up steam as the iShares Xinhau China 25 Index Fund ETF (FXI) is set to gap down substantially and hit levels last seen in July 2017.
News that Chinese regulators are freezing approvals of news game licenses coupled with a poor earnings report from Tencent Holdings Ltd. (TCEHY) is causing breakdowns in some of the bstt- performing China stocks during the past year. Trade issues also continue to weigh heavily on China and are pushing the indices there into bear market territory.
U.S. markets have been holding up relatively well, but as I discussed yesterday, they have not been able to generate sustained momentum. We will have a decent oversold bounce like we did yesterday, but it fizzles out and there is no follow through. The indices have held up better than most stocks due to sector rotation into groups such as retail yesterday, but it has been a tough trading market for a while.
The biggest issue facing the market right now is seasonality. We are in one of the slowest and most negative times of the year and there just isn't much of an appetite for aggressively buying weakness. On Monday we saw some routine dip buying on the poor open, but the buyers didn't stick around for long. They quickly sold into the strength and the indices closed weak.
The dip buyers have another opportunity this morning, but after the failure of the bounce on Monday it is likely they will not being feeling too confident. The market lately has been more chaotic and choppier than indicated by the indices, and that is taking a toll on the strength of the underlying support.
The mood of many market participants right now is that we might as well enjoy the last few weeks of summer and we'll worry about the market when we head back to work in September. China is a mess, emerging markets are terrible, currencies are being crushed by the dollar and commodities and oil are under pressure.
The good news is that the major indices are still in an uptrend, but that is negated to a great degree by the poor action in many individual stocks. It has been a tough trading market for a few weeks now and it isn't getting any easier. I am optimistic that this action will lead to some good setups into third-quarter earnings, but that is going to take some time.
This market is very tough right now and good defense is important. Keep an eye on favorite stocks, but don't be in a hurry to buy them.