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Shanghai Drops More Than 5% Sending World Markets Lower

|Includes:DIA, iShares China Large-Cap ETF (FXI), FXP, IWM, QQQ, SPY, UVXY, VIIX, VIXY, VXX, YANG, YINN

Despite an impressive move off the lows just after the lunch hour the final hour of trading was won by sellers. Closing off the highs of the session major markets with the exception of the Dow were down more than one percent on the day. Volume simply could not compete with Friday's level due to quadruple witching. VIX enjoyed a volatility day closing up 6.5% to 20.12. Summer time trading has arrived and we expect the volatility to continue and given the increase in volatility we will adjust.

Shanghai dove more than 5% as the liquidity issues continue to evolve in China. One thing is for certain the Shanghai Composite is in a severe downtrend and trying to catch a falling knife is not something one should attempt. Perhaps the index will get a bounce this evening, but it will likely continue to the downside over the longer-term.

(click to enlarge)Click to enlarge

The one saving grace perhaps for our markets will be the 200 day moving average will likely serve as a reasonable spot for the markets to bounce. It is anyone's guess whether or not it will lead to new market highs, but a logical spot for the market to bounce nonetheless. Volume will be an important key in determining whether or not institutions will come out and support stocks. Today, it was a mix bag with the final hour selling really putting the damper on a sustainable bounce.

A few other items will certainly help give a lift to the markets. Both the RSI and McClellan indicators are near areas where the market has bounced historically. It isn't a given a market bounce will occur, but if one were to occur it would not come as a surprise to us. We'll be paying attention to our stocks and will act accordingly if and when signals come our way. Everything else is just noise.

Economic data today was light, but an uptick in the Dallas Manufacturing Survey was better than expected. Tomorrow we'll get a read on Durable Goods and Wednesday we'll get a read on GDP.

Not the start to the week bulls wanted even with the intraday rally. Make it a great week. Join the Big Wave Trading team.

Disclosure: I am long UVXY, FAZ, SQQQ.

Stocks: FXI, FXP, YINN, YANG, VIXY, UVXY, VXX, VIIX, QQQ, DIA, SPY, IWM