Waves from China

The trigger for the gap down today is the late day selloff in Hong Kong.  It is no coincidence that the last time we had meaningful sustained selling was on worries about China.  Hong Kong is basically a proxy market for foreigners to trade China.  We are just back to levels of last week, so this is nothing meaningful, but it does show you that the weak point for global equities markets remains in China, so that is where you have to look for signs of weakness. 

The top is a while away, and you will have these "scary" gap down days, this just happens to be on the 30th anniversary of the Oct 19 1987 crash.  So it puts a look of extra psychological pressure on stock holders today.  If we bounce right back within a couple of days, which I expect, then this down day only confirms future strength.  However, if we can sustain selling for more than a couple of days, then this market is giving us something to think about, which could be significant or not. 

The positive seasonality is hard to fight with the lack of volatility and persistent strength.  November is historically a strong month, and it is also the heaviest time for corporate stock buybacks, so definitely a tailwind for this market after earnings season is over. 

Not only is the stock volatility really low, so is bond volatility.  The MOVE index is hugging the lows for the year, even though rates have been trending higher over the past several weeks.  Usually, bond volatility tends to rise with rates.  It seems the bond market isn't too scared of a Fed determined to hike in December or a more hawkish Fed chairman.  That is basically the story of the year.  No fear and no action.