Weekly Briefing 7/25/21 - The Forecast

Weekly Briefing 7/25/21

Weekly Briefing 7/25/21

The week’s economic data was disappointing for investors with poor readings from the housing market and weekly jobless claims report.  New jobless claims surged back above 400,000, coming in well above the consensus estimate.  Meanwhile, the Housing Market Index confirmed the ongoing slowdown in home sales.

While Monday’s sharp drop inflicted damage to the short-term technical indicators, the bullish long-term picture remain unchanged.  The common pattern of strength into Fed meetings which we have seen and pointed out to members for over a year is presently unfolding with the major indexes approaching their all-time highs yet again. The S&P 500, the Dow, and the Nasdaq are all back above their 50-day moving averages and are also well north of their 200-day moving averages.  The Volatility Index (VIX) spiked briefly above the 25 level hitting a more than two-month high, but it finished the week only slightly higher right at its 50-day moving average.

Market internals continue to show a bearish divergence despite the broad market bounce. Patterns like this eventually end up with a multi-week correction at some point in the near future.  Short interest increased again this week, but the total amount of bearish bets remains extremely low on Wall Street in wake of the Fed-induced rally over the past 16 months.

Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG), Facebook (FB), and Tesla (TSLA) will all release their quarterly numbers this week. The earnings of Mastercard (MA), Visa (V), and PayPal (PYPL) are also highly anticipated.  Economic releases for the week are Tuesday’s Consumer Confidence number, Thursday’s GDP report, and Friday’s Core Price Index reading which will likely impact precious metals and currencies significantly.  Wednesday’s Fed meeting is expected to lead to more volatile swings in the bond market as well.

As fear spiked to new highs on Monday, July 19th, we closed out our volatility trade for a 29% profit in little over one week. Sentiment and crowd psychology are valuable tools for any trader looking to identify near-term bottoms and swings in capital markets.
In closing, we remain highly confident of an intermediate degree correction set to occur in the third quarter of 2021. A Minimum decline of 10% this quarter is expected with our system telling us to expect 18-20% by the end of September. Initial declines in the market are bought back up as excessive prolonged bullish sentiment will pounce on a potential dip-buying opportunity.  However, half of the month of August should see bearish trading action as equities produce an intermediate low into September.