Weekly Briefing 8/22/21 - The Forecast

Weekly Briefing 8/22/21

Weekly Briefing 8/22/21

The Russell 2000, shown above, often signals impending trouble for the major indexes. The Russell rolled over in early July and has declined approximately 10%.  A short term spike bottom in the Russell can be seen into the end of August and the opening days of September. We expect support to break as price has continually tested the 2,100 level.
Market Recap:
Speculation regarding the Fed’s next move this past week caused large swings in bonds and currencies with the dollar hitting multi-month highs – a warning sign. The Dow and the S&P managed to reach marginal new all-time highs at the beginning of the week before following the Nasdaq and small-caps lower as stocks suffered their biggest loss in a month.  The week’s economic releases leaned bearish both in U.S. and global markets.  In particular, the dismal Chinese retail sales and industrial production reports weighed heavily on investor sentiment in the first half of the week. 

The short-term technical picture deteriorated due to this week’s pullback and the spike in volatility, but the major indexes continue to trade in healthy long-term trends, with only the Russell 2000 showing major weakness. The S&P 500, the Dow, and the Nasdaq are back above their 50-day moving averages, and the benchmarks are also above their 200-day moving averages.  The Volatility Index (VIX) spiked to a one-month high above its 50 and 200-day moving averages this week, but it closed below the 20 level on Friday. Finally, short interest increased substantially this week as investors moved to hedge positions and open bearish trades.

The last full week of the summer will likely see an uptick in trading activity, especially on Thursday and Friday, as a batch of important economic releases and a critical Fed event, the Jackson Hole Symposium, will increase volatility across all asset classes. The manufacturing and services PMI’s will be released on Monday while existing and new home sales will be out on Tuesday.  The durable goods report will come out on Wednesday and the week will finish with the Core Price Index and personal spending on Friday. The Fed’s Jackson Hole Symposium will start on Thursday and last until Saturday, and while a lot of market pundits expect a tapering announcement, the recent developments in the U.S. economy and Asia could mean that the Fed remains cautious and delays the start of the tapering process.