US markets opened down several percent yesterday in a capitulation-type move to the downside, then partially clawed their way back. The NASDAQ Composite closed lower, finishing roughly midbar with the highest volume since August 2011 while the S&P 500 closed in the lower half of its trading range, also on huge volume. Fears of a global slowdown as well as higher interest rates are weighing on the markets. Expect a continuation of elevated volatility as the market struggles to find its footing in this news driven market.
That said, China lowered interest rates and reserve requirements overnight as it struggles to rescue its crashing markets. The Shanghai Index still closed down -7.6%. The move by the People's Bank of China, however, sent U.S. futures higher on both the NASDAQ and S&P 500 by almost 4% at the time of this writing. Dow futures are up over 600 points. There is also talk that the Fed may have no choice but to start a new round of quantitative easing, a la QE4 should the global economy sink into recession. Of course, there is ample evidence that quantitative easing which began in late 2008 does little to jump start economies. QE is a band-aid over a deeply infected wound.
AS we discussed yesterday before the open, using the gap-down capitulation move at the open to cover short positions, namely in TSLA which reached a low of 195, nearly 30% below where we recommended the stock as a short in the 260 area early last week. The stock is now rallying up to its 200-day moving average, which brings it back into shortable range using the line as a guide for an upside stop.
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