USA: Don't Trust the Market's Big Up Days (Wall Street does not represent the US Economy) - by Barry Ritholtz

The market professionals are returning from their long holiday vacations. That may explain why futures were looking so strong Tuesday morning and the market surged at the open, or it may be Shanghai’s late rally that accounts for the brighter outlook. As we have seen, futes can tell us how the markets may open, but not how they are going to close. Regardless, this upswing is noteworthy.

Last month, I said my “greatest concern was the long-term trend break.” Perhaps it's time to revisit the discussion of "How Badly Was the Stock Market Damaged?" As I said last time, that trend break caused significant technical damage. That alone isn't fatal to a bull market, but it does mean that some heavy lifting will be needed to re-establish the uptrend.

Given all of the green on the screen, this could be a good time to think about what big up days usually mean. I am not a big fan.

Why? For several reasons. Typically, they occur when the market has already run into trouble, and are often technical in nature. An analysis by Michael Batnick at The Irrelevant Investor, showed that 22 of the 25 best days since 1970 occurred under the 200-day moving average. That implies they were oversold rallies with some element of short covering. Traders may like them, but long-term investors would much rather see three 100-point days than one 300-point day. The more gradual gains reflect a healthier accumulation and not a reflexive reaction.

Salil Mehta at Statistical Ideas offers further research into the phenomenon. He looked at the number of trading days with greater than 2 percent moves up or down over the past nine years. That period included the 2008-09 bear market, as well as the subsequent recovery rally to new highs. According to Mehta, “extreme up-days (e.g., >2 percent) are generally far more rare than equal magnitude swings to the downside.” The +2 percent sessions accounted for only 4 percent of all trading days since 2006; trading days that were down more than 2 percent over the same period accounted for almost 6 percent of the total.

In other words, almost 1 of 10 trading days over the past 9 years featured an outsize move up or down. Of those outsize trading days, 100 were up and 129 were down. Or to put it another way, more than 4 percent of all trading days in that period were positive and almost 6 percent were negative.

Read more: Don't Trust the Market's Big Up Days - Bloomberg View

Wall Street Crash--As U.S. And China Blame Each Other "while brokers smile all the way to the bank" - by George Chen

In China, the benchmark Shanghai index sank over 8.5% on Monday, the biggest drop in eight years. Chinese state media quick jumped to their easy conclusion: Let’s blame the global market environment, particularly, the United States and its monetary policy uncertainty following the Federal Reserve’s most recent (and perhaps most confusing) statements on whether it will raise interest rates anytime soon.

Mainstream U.S. media quickly joined the blaming game as well. From Bloomberg to the Wall Street Journal, they faulted China for the today’s stock market panic. Dow Jones Industrial Index lost over 1,000 points at today’s opening, the worst since the collapse of Lehman Brothers during the 2008 financial crisis.

In other words, as global markets sank from east to west, the Chinese and American media tried to hold the other responsible for the frenzy. Childish? I say it is also a fair reflection of lack of mutual trust on both sides.
Many financial analysts believed Beijing’s recent decision to devalue its currency should be considered an advanced action in response to possible rate hike approved by the U.S. Fed. What China’s top leaders like least is uncertainty, so they wanted to act before the Fed forced anything upon them.

Note EU-Digest: the Wall Street Casino is alive and well and brokers are in for huge profits  playing "the margins game" as small jittery investors are selling stock on a large scale to recuperate their losses and who later will probably buy them back,  when the stocks start rising again. 


Read more: Stock Markets Crash--And The U.S. And China Blame Each Other - Forbes

Global Economy: China's Casino Moment - by Holger Schmieding

First boom, now bust: The Chinese equity market may soon serve as a standard case of what can go wrong in the financial sphere.

But seen from afar, do we have to worry? Not much, at least not about China. The Chinese equity market does not have much to do with the real economy. It plays no major role in financing Chinese investment.
China’s equity market is also not a leading indicator for the country’s business cycle. It follows its own dynamics driven by liquidity, regulation and the usual panics and manias to which young financial markets are even more prone than established ones.

The 150% surge which the Shanghai Composite Index registered from mid-2014 to its peak on June 12, 2015 did not lead to a major surge in business investment and Chinese GDP growth.

The fact that the market erased roughly half of these gains until yesterday will not herald a major decline in Chinese investment. However, there will be some impact on corners of the private sector — especially on consumption of luxury goods.

Read more: China's Casino Moment - The Globalist