The dust settles on Wall Street’s latest Black Monday

The dust settles on Wall Street’s latest Black Monday

China, oil and a Tim Cook email keep panicked stock markets crazy. Monday’s close recaptures at least half the morning’s massive losses, still leaving averages deeply oversold. Expect more chaos on Tuesday, but maybe on the upside.

Poster for 1895 Broadway melodrama "War of Wealth," based on the hugely damaging Panic of 1893 that hit the second administration of Grover Cleveland hard almost from the moment he was inaugurated. (Vintage poster, part of the Library of Congress collection)

WASHINGTON, Aug. 24, 2015 – At this morning’s opening bell, Wall Street went into instant crash mode, as the Dow Jones Industrials quickly shredded the record books by dropping over 1000 points in a New York second. In the back of your mind, you could just hear one of those old-time carney barkers spinning his (rigged) wheel of chance and shouting “Round and round and round she goes, and where she stops, nobody knows.”

Indeed, nobody did know where things would end up on this widely feared Black Monday, the worst single market dive we’ve seen since, well, the very bottom was reached the last time in the horrendous trading that took place in early March 2009. This was the kind of day that leaves even seasoned veteran traders bleeding from the eyeballs.

Up and down and up and down, all averages quickly recovered over half the spectacular initial dive before stalling out and going back down again. The bulls feebly contested the overwhelmingly negative trading from time to time before throwing in the towel at 4 p.m. EDT, with the Dow closing down a horrendous 588.40 points. The broader based S&P 500 closed down a depressing 76.68 points, and the tech-and small company-heavy NASDAQ was hammered to the tune of a sickening minus 179.79 points.

The reliable McLellan NYSE Oscillator ($NYMO), which tends to draw clear, directional, bull or bear indications for the broader market, continued to tank today. The current chart provides clear proof that today’s action drove Friday’s already oversold condition down even further, as per the following annotated chart, available to the general public via Dave Fry’s invaluable ETF Digest online service:

When the NYSE McClellan Oscillator looks this bad, either a dead cat bounce or Armageddon will likely be right around the corner. (Screen grab via ETF Digest)
When the NYSE McClellan Oscillator looks this bad, either a dead cat bounce or Armageddon will likely be right around the corner. (Screen grab via ETF Digest)

The classic market volatility measure known as the VIX spiked spectacularly up, well into horror-movie fear mode, indicating an epic ramp in selling that extended through Monday from Friday’s awful numbers, again as per Dave’s chart below. (More information, including proprietary buy-sell ETF recommendations are available at this site by subscription only. This is not an advertisement, but the Maven is a subscriber.)

Essentially a graphic indication of the market's "Fear Factor" on a given trading day, Monday's closing VIX chart is horrible enough to strike terror into even the ice-cold hearts of Jason and Michael Myers. (Via ETF Digest screen grab)
Essentially a graphic indication of the market’s “Fear Factor” on a given trading day, Monday’s closing VIX chart is horrible enough to strike terror into even the ice-cold hearts of Jason and Michael Myers. (Via ETF Digest screen grab)

Circuit breakers and rules kicked in all day to keep the anarchy mildly within bounds, but virtually nothing escaped the path of Monday’s selling tsunami, which started—as usual these days—in China, then spread to Europe As The World Turned, before pancaking the averages in New York to end a truly miserable day.

Villains were the usual suspects: China; the plunging price of oil (West Texas Intermediate dropped below $38 per barrel briefly before recovering that handle, although you wouldn’t know it at the pump); the recent tendency of the Fed to speak in many tongues when opining on interest rates; the renewed specter of random terrorism, this time on Eurotrains; and a general sense among market pros, remaining hedge funds, and those few individual investors who remain in the game that their politicians and financial experts simply don’t have a clue. (They’re exactly right on that one.)

CNBC’s sagging viewership has been experiencing major renewal over the last few hideous trading days as viewers flocked to the financial channel to gaze in wide-eyed horror at the latest market catastrophe reports.

Respected banking analyst Dick Bove was reported to have written a cautionary note to his clients, stating in part that if a counter-buying “surge” were not to develop after Monday’s predictably disastrous open, “there is nothing to stop a massive move to the downside solely due to lack of liquidity in the markets… At this moment, I would strongly caution to remain on the sidelines until a definable source of new funding is determined to maintain or bolster stock prices.”

According to CNBC, “Bove puts the blame in two places: technology and high-frequency trading, whose ‘participants may now control overall market activity in the short run’ as well as government, which has eliminated ‘any possibility of either private sector firms or the Federal Reserve providing liquidity to the markets.

“‘At its base, the key problem is that the historic protections that once existed in the markets to prevent massive downslides have been removed,’ he said. ‘This country’s claim that it has deep and liquid markets is being put to the test.’”

In other words, the absurdly overreactive and restrictive rules created and imposed by unelected bureaucrats under Dodd-Frank found big banks and large insurance companies sitting, as usual, on their mandatory cash stash rather than executing their former role in helping provide liquidity to restore order in the markets. In 2015, all that liquidity just has to sit there doing precisely nothing but making the balance sheets of “too big to fail” financial institutions look attractive and safe to the capricious Federal Reserve stress testers. It’s overkill. But our ruling class always knows best.

This is also a major reason why the so-called U.S. recovery has never gained any real traction, administration and media cheerleading to the contrary. All the trillions of dollars the Fed printed and gave away to large institutions is still just sitting there making politicians and regulators feel good about themselves. All that vast horde of borrowed money we’re paying interest on has never found its way to the American people who work and run small businesses. In economic terms, those trillions of dollars have no “velocity.” They do nothing.

But that’s what you get when the country is run by an administration and a do-nothing Congress, neither of which knows anything at all about how business and the economy are supposed to work. Third party, anyone? Is it any wonder why The Donald is drawing massive crowds?

The immediate upshot of Washington’s bureaucratic overreaction: very little buying power to halt and perhaps reverse today’s market crash. Getting half of the morning’s colossal losses back was a pyrrhic victory in the end.

Then there was today’s notorious piece of very good very bad news, namely, Apple CEO Tim Cook’s controversial email to CNBC’s Mad Money madman Jim Cramer. Cook’s missive assured the latter that in spite of taking recent, massive hits in the market and in the financial press, Apple and its stock were, well, as good as gold in spite of rumored lower sales in the faltering People’s Republic. Jim, of course, couldn’t wait to go public with this one.

Tim Cook does a no-no, pulling market averages, and Apple stock, back from the brink. (Screen grab from CNBC's website)
Tim Cook does a no-no, pulling market averages, and Apple stock, back from the brink. (Screen grab from CNBC’s website)

“As you know,” Cook wrote in his email, “we don’t give mid-quarter updates and we rarely comment on moves in Apple stock. But I know your question is on the minds of many investors.

“I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks.”

“Obviously,” Cook continued, “I can’t predict the future, but our performance so far this quarter is reassuring. Additionally, I continue to believe that China represents an unprecedented opportunity over the long term as LTE penetration is very low and most importantly the growth of the middle class over the next several years will be huge.”

Equally obvious, Tim and Jim, was the fact that Cook’s email and Cramer’s immediate promotion of it on CNBC did, in fact, violate SEC information dissemination fairness rules. That amusing two-step became the talk of the town as the day developed, since Apple’s stock (symbol: AAPL), which had earlier attempted to disappear down the abyss, trading as low as $92 per share at one point, miraculously caught a bid,. AAPL promptly blasted up as high as $106 per share before closing at $103.12, off only $2.64 on the day.

But whether engineered or not, by instantly restoring a measure of health to AAPL − now a widely held, widely traded component of the Dow − Cook’s email and its disclosure gave a big boost to the decimated Industrials just when that average needed it most.

Illegal? More than likely. But, given the importance of this missive in blunting the market’s slide, along with  the fact that Cook is also a gay activist and a major supporter of left-wing Democrats, his slyly helpful email almost certainly give him a big, fat Get Out of Jail Free card at worst. Maybe several.

Or else the incident will simply disappear down the media memory hole. After all, the players here are all on the same team, right? That’s how the world works in these heady days of crony capitalism, Silicon Valley style. (Disclosure: luckily or unluckily, the Maven does hold a small current position in AAPL.)

Looking back this evening as we put the finishing touches on this market wrap-up, we have to say that this has been one exhausting trading day. But we and our portfolio, while sustaining some damage, did indeed survive and begin to turn the picture around via some selectively timed selling and even a tiny bit of buying − notably Florida-based utility Next Era Energy (NEE) and a few more shares of healthcare provider Molina (MOH). We’ll see how smart these moves were over the next few days.

Over all, August 2015 is proving to be the worst single month we’ve experienced since the terror-filled days of 2008. It’s what we get for not selling absolutely everything in May.

We could go on about the many currents and crosscurrents in this confusing and increasingly inscrutable market. But Tuesday’s trading action could flip today’s observations and opinions into the dustbin of history. So we’ll check out for now, consume one or several adult beverages, and call it a night. See you tomorrow.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17