Roll out those lazy, hazy, crazy days of summer
those days of soda and pretzels and beer
roll out those lazy, hazy, crazy days of summer
Dust off the sun and moon and sing a song of cheer

-Nat King Cole

It was another tough session, but a walk in the park compared with the previous week. Investors are entering September musing about those lazy, hazy days of summer that never materialized last month.  The month of August saw the Dow Jones Industrial Average down 4%, its worst month since 2012. So, we enter a new month with a glass jaw and lots of confusion. For all the hoopla that’s accompanied news coming out of China, investors need to focus on the domestic economy.

As for China, its purchasing managers’ index (PMI) numbers show the fastest pace of contraction in three years, although there was a sigh of relief when its manufacturing number came in at 49.7, in line with consensus. However, the non-manufacturing number of 53.4 points to an expansion in the service sector.

There’s a lot of data to sift through for American investors this week, including the jobs report on Friday.  Reactions to news will be swift as yesterday’s reversal in oil that sent shares in sector soaring. I like a lot of the names in that space.

Summer isn’t officially over, but the days are numbered. There’s still a chance that investors will be able to “Dust off the sun and moon and sing a song of cheer,” but get used to wild gyrations until most questions are answered.

Today’s Session

So, China is down, but there’s a chance we could see our equity market take a larger hit. That said, it’s inconceivable those in charge in China will allow its market to stay down ahead of Thursday’s massive celebration of the 70^th anniversary of China’s victory over Japan in WWII (I think Japan and America might have a different version of history). Moreover, back in November 2013, China announced it would allow the stock market to play a “decisive” role in its economy. The Shanghai market was trading around 2,150 at the time of the announcement and mostly moved sideways until gold fever broke out.

For now, look for support on the Shanghai to hold around 2,900.

The bull market is long in the tooth and breaking down. Now there’s one lever of the bull market that's official dead- positive rationalization.

Consider the manufacturing data that sent China’s market lower and is spooking markets around the globe actually was in-line with consensus estimates and probably would have pointed to expansion if many factories weren’t taken off line ahead of this week’s military parade. It wasn’t long ago that rationalization would have seen China’s market higher on the news and the rest of the world riding their coattails.

Of course this has been developing for a while in our stock market where stocks were able to rally despite slumping top line growth for more than a year. That’s not happening anymore. In fact, this morning Dollar Tree (DLTR) posted financial results that blew away the street on earnings, but missed on revenue- down the stock goes!

In many ways, this is a good development as it will make price discovery a purer mechanism, but also makes it more painful. The flip side of this development is good news has been ignored as I’ve seen numerous companies blow them away on the top and bottom lines and offer strong guidance only to see negative rationalization take the stock lower.

For today here are the key support numbers:

Dow Jones Industrial Average

• 16,000
• 15,666 (re-test last week’s low)
• 15,500

NASDAQ

• 4,726
• 4,676
• 4,500 (re-test last week’s low)

Not forcing the issue here, but once dust settles, there will be huge money making opportunities. Now is a great time to review that special report I offered on August 21- every single stock rallied HUGE off the lows, many more than 20%. This is a buy and hold service, but some subscribers traded several of those ideas.