I believe we had the best argument yesterday in the Daily Wrap:
"Internals...
Ironically in almost perfect opposition to Friday's oversold condition in P/V relationships and sector performance, today was near the EXACT opposite.
The Dominant Price/Volume Relationship once again hit extremes in all 4 major averages, but unlike Friday's solidly near term (1-day) oversold, today was the most bearish of the 4 relationships, Price Up /Volume Down. There were 21 Dow stocks, 82 of the NDX 100! 1018 of the Russell 2000 and a walloping 316 of the SPX 500 (of 4 possible relationships), this is extremely dominant.
While I'd normally say this is a 1-day overbought condition, it can also be interpreted as a VERY weak upside move that is failing, we still have that SPX trendline head fake area just above around $2115 which would make for an excellent set of trade set ups as mentioned in Friday's Daily Wrap, especially put positions."
Overnight bad news goes to worse, first:
Major Chinese Developer Says It Can’t Pay Dollar Debts
This time a 3rd publicly listed company that is also a subsidiary of a Chinese state-owned firm, misses a bond interest payment, Baoding Tianwei Group Co. The government through the parent company did not intervene and rescue the Electrical company. Until now only private sector companies have defaulted in the domestic Chinese bond market.
Kaisa Group Holdings Ltd. became China’s first real estate company to default on its U.S. currency debt, capping a month of distress in bond markets amid an anti-corruption probe and fueling concern that losses will spread.
Fears that more debt defaults would be on the way as Kaisa was the proverbial "Canary in the coal mine" were confirmed only hours later. Also the market learned that the Chinese government would allow a free market to work and not bail them so bad got worse only a few hours later when:
China Sees First Bond Default by State Firm With Tianwei
If Bond traders didn't think the first overnight default was the start of something worse, they certainly do now.
Exacerbating matters even further is news from Europe. Greece has initiated soft capital controls in a bid to centralize and collect as much money as possible by confiscating local government reserves and send them to their central bank in what looks to be an imminent default, it seems the European Central Bank feels the same and was looking at ways of cutting back Greek banks' access to Emergency Lending (ELA) funds, the only thing that has kept them afloat.
ECB Is Studying Curbs on Greek Bank Support
Right now Greek banks are seeing deposit outflows of approx. several hundred million Euro every week, thus any tightening of access to ELA funds would almost certainly create a self-fulfilling bank run event.
Yet futures are higher overnight, of course this could be the entire "Good news is bade news " theme, but this kind of bad news really can't be good. This all looks a lot more like our analysis of internals last night laid out above and should set up some great opportunities just about now as everything is in line and the market situation is deteriorating evidenced by numerous factors, not the least of which were last night's internals, so we'll be looking at these watchlist assets that we have been patiently waiting on to hit the right levels and more importantly as demonstrated yesterday, the right time.
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