The crisis in Japan has worsened in the last 24 hours as the fear of a nuclear power plant catastrophe grips the East. Overnight, the Nikkei was down 14 percent at its lows, but closed down 10.6 percent, according to the NY Times.
This adds to the 6 percent loss seen on Monday.
Other exchanges – which had remained stable on Monday, were also down overnight as well. On a somewhat more positive note, the markets in South Korea, Taiwan, Hong Kong, Singapore and Australia were down less than Japan: 2-4 percent. Thus far in the US, the overnight S&Ps market is also down about 3 percent to near the 1250.00 level, basis the June contract.
Governments are beginning to step in with interventions. Arbitrage trading in Japan has been halted. The Bank of Japan announced it will purchase government and corporate bonds to add liquidity to its system. Today in the US, we have an FOMC meeting, which usually makes its announcements at 2:15 ET, though it has been known to make announcements at other times during crises, usually before the US markets open. There may be additional volatility over any announcement the Fed makes today.
Be mindful of how news can roil the markets either way over the next several days.
As volatility increases, we want to be particularly attentive to market structure.
The 1250 level is the ½-way point from the rally off the November-December lows. Wyckoff used this “tape-reading” reference as a marker that represented a normal reaction. You can see on the daily chart that there had been some trading around this level earlier. It was a point from which the market rallied in late January. Will this level hold? At this point, I doubt anyone really knows. Given the volatility, it wouldn’t surprise me to see this level penetrated at some point.
But that is longer term.
In the immediate trend as represented by the 9,000 tick chart, the market is oversold.
We can thus expect some kind of rally. How it rallies can offer a clue to the next move in the market. I always remember Wyckoff’s words at important areas in the market structure:
“The study of responses is an almost unerring guide to the technical position of the market.”
Watch how the market responds to this structural level.
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