Monday Markets: Picking up the pieces from Friday’s carnage

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This view of Midtown and Downtown Manhattan from Calvary Cemetery in Queens gives us some idea how traders and investors were feeling after last Friday's horrendous market crash. (Image via Wikipedia)

WASHINGTON, August 23, 2015 — Friday’s stock market close left individual investors and seasoned market professionals alike in a state of shock. Much of this weekend’s post-crash chatter has involved speculation focusing on just how nasty Monday morning’s follow-through action is likely to be.


Read also: What’s really spooking the Fed and stock markets in 2015?


Let’s check out last week’s damage.

For old timers and chartists who still follow the “Dow Theory” of investing, a major sell signal occurred last week when the direction of the long-declining Dow Jones Transportation Average was confirmed by a crash in the Down Jones Industrials.


First a chart of the “trannies,” which is a heck of a traditional nickname in this PC century for the Dow Jones Transports.**

Dow Jones Transportation Index as of the closing bell, August 21, 2015. (Chart courtesy of Stockcharts.com)
Dow Jones Transportation Index as of the closing bell, August 21, 2015. (Chart courtesy of Stockcharts.com)

When the trannies are in a confirmed downtrend as they are here, Dow Theorists get spooked. If transports (particularly rail) are doing less and less business, that means that fewer and fewer manufacturing industries are buying materials (confirmed by the dismal action in that sector). The idea is that maybe manufacturing is next on the “hit” parade. Once they work through raw material inventory, they may not be buying more and may start laying off workers

Now, here’s a chart of the Dow Jones Industrials.

The Dow Jones Industrials swiftly join the transports in bear market hell, confirming a major Dow Theory sell signal. (Chart courtesy Stockcharts.com)
The Dow Jones Industrials swiftly join the transports in bear market hell, confirming a major Dow Theory sell signal. (Chart courtesy Stockcharts.com)

For Dow Theorists, this week’s cliff dive, capped off by Friday’s disastrous trading results, confirms that markets are in big trouble. The transports provide the clue. The Industrials provide the confirmation. Big manufacturing is slowing down, people aren’t buying, and jobs are going to be lost.


Read also: Another Black Monday for Wall Street?


The crucial Dow Jones Industrials, however, only cover 30 of America’s biggest industrial (and now computer) companies. The broader-based S&P 500 adds 470 more big companies and today is regarded as a more representative average. Given the larger numbers of stocks in the index, it should move more moderately, right? Nope. Check out the chart below:

S&P 500 is in a world of hurt as well. Things don't look good for markets this week, although a dead cat bounce is not out of the question. (Chart courtesy Stockcharts.com)
S&P 500 is in a world of hurt as well. Things don’t look good for markets this week, although a dead cat bounce is not out of the question. (Chart courtesy Stockcharts.com)

The damage here is equally severe and, in fact, more widespread. None of this is good news for market bulls, and the violence of the recent moves might make even a few bears a bit nervous. Salvaging this mess on Monday might be too much to ask.

Next: Getting a big picture of the ongoing 2015 market madness might begin to lead us to a logical extraction strategy from this horrendous market.

 

**Note: Today’s charts are taken from the free pages of Stockcharts.com, an extensive and annotated technical and charting service of long standing to which we subscribe. We moved here from our longtime chart service Decisionpoint.com when the latter site made a decision to merge with Stockcharts in 2014.

Decisionpoint, to which we began subscribing back when it was hosted on the old AOL back in the 1990s, has been a lifesaver for us for years, and Stockcharts has even more information. Plus, the combination of both sites also offers plenty of valuable info on the wonderful world of technical analysis if you need to learn more about it.

While the public pages where we grabbed the above charts are available free, the valuable in-depth charts and services are available only by subscription. We’re not advertising anyone here, and we don’t get paid to mention the services we use. But if you’re interested in pursuing Stockcharts more closely and professionally, just click on the subscription link available via the public pages.

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