Eric King: “Art,when I asked you last Thursday if the early signs of selling could develop into some more serious you issued what turned out to be an astonishingly accurate warning:
“We are heading toward a potential retest of the area around 1,925 on the S&P. We stopped in that approximate area last Thursday, and again before the most recent bounce yesterday. So if we get down there and we
test it and fails, we run the risk of a kind of cascade effect (of selling) at that point.”
Eric King continues: “Sure enough, Art, the stock market began to hemorrhage to the downside after 1,925 broke on the S&P. That break is what has led to a series of down days where all hell seems to be breaking loose. Is there another major level you are now watching?”
Cashin: “If 1,790 - 1,800 gives way on the S&P, that could create another cascade of selling to the downside. That area giving way would be the equivalent of the 1,925 break on the S&P and that would bring in more waves of selling.
It's a very, very nervous market. This morning (Wednesday) you had ISIS and Ebola, and you had Greece suddenly back in the center stage as the weak man of Europe. The Greek market lost the equivalent of 1,000 points on the Dow. And then at 8:30 you ended up getting all kinds of weak data here in the United States and that created some major selling that the market was ill-prepared for.
And interestingly, one of the other things that has been a negative is that oil has been in near free fall now, but by 9:45 in the morning oil made it back to the plus side. So the market tried to rally but then late in the day Texas West Intermediate Crude looked like it was going to break below $80 and that took the Dow down to the low of the day. We bounced back because oil has now stabilized.”
Eric King: “Art, when you see the kind of panic that was happening earlier today, were those some forced liquidations that were taking place, or was that aggressive short selling? What caused that massive tumble in stocks earlier today?”
Cashin: “The rumors around were that some of the hedge funds had to liquidate some positions. Some hedge funds had positions that were oil-related. That caused a problem. But some of them were on the wrong side of the trade in the bond market and so you had a panic by traders and investors to get to safety. The 10-Year bond traded below 2 percent in one of the more stunning moves I've ever seen. I've been doing this for over 50 years and that was truly one of the more stunning moves I've seen in my career.”
Eric King: “Art, I don't remember anything like that in the bond market. You said it was one of the more stunning moves. Have you ever seen anything like that before in the bond market?”
Cashin: “Borderline, but not quite exactly.”
Eric King: “What was your take as the only two safe havens seemed to be the bond market and gold? In 2008 we saw the gold market tumble as the global stock markets plunged, but now the new idea appears to be that maybe it's not such a good idea to be short gold.”
Cashin: “Gold is a natural safe haven in times of crisis. When there is panic people tend to move toward gold and the dollar but the flight to the dollar certainly did not happen today. But they sort of made that move by going into U.S. Treasuries.”
Eric King: “Have we seen the top in the stock market or do we have to wait a little bit?”
Cashin: “You have to wait a little bit. Tops are an evolving process, so we'll have to see. Stocks came back from the abyss earlier today, so we will have to wait and see. If they take out today's lows over the next several days you could get a cascade effect (of selling). I would advise the (KWN) readers to keep their eyes and ears on the oil price. If West Texas breaks $80, we might have some problem
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