What Happens Next

The rout in global markets hit a crescendo into Friday's close and traders around the world are on edge wondering about what happens next. Early returns are generally benign but a touch of risk-averse CHF strength and NZD weakness is the first market move. Continued murmurs about market-supporting action are circling in China. Thursday's Premium short in USDJPY entry at 123.40 just hit its final 121.30 target 2 hrs ago. USDCAD long is nearing its 1.3250 target from 1.2930 entry in mid July and the latet Friday. The Jul 31 entry in EURUSD long at 1.1020 hit its final 1.1320 target on Friday. A new EURUSD trade has been issued on Friday.

Friday was the worst day in the S&P 500 since 2011 and the market closed on the lows in a sign of a washout with little support. But almost nothing falls in a straight line forever and the four-day decline in the S&P 500 has it 6.3%.

The key will be the first minutes of trading in China, Europe and the United States. There are bound to be margin calls and liquidation.

China QE starts UNofficially

One hope was that China would provide some type of stimulus but officials there are contentious of  appearing panicky by cutting rates. Instead, a story was floating the WSJ saying the PBOC is preparing to flood the banking system with liquidity before the end of the month or early next month. Xinhua also reported that China will soon allow state pension funds to invest in the stock market for the first time.

Combined, that's a powerful signal that help is on the way. Ultimately, there are no signs the US or global economy is crumbling. We anticipated a round of risk aversion but there is no reason for continued panic selling. Expect it to ebb at some point Monday but the best trade in an emotional market is to go with moves in sentiment rather picking tops or bottoms.

Keep a close eye on bonds, the Swiss franc and yen but at the moment it's the stock market that's leading the way.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -93K vs -115K prior JPY -90K vs -105K prior GBP -4K vs -10K prior AUD -50K vs -51K prior CAD -67K vs -67K prior CHF -10K vs -7K  prior