Weekly Briefing 8/8/21 - The Forecast

Weekly Briefing 8/8/21

Weekly Briefing 8/8/21

We forecasted a peak for most stocks near the end of the second quarter, June 30, 2021. We exited most long positions, including our heavily weighted energy positions.  Since May, we have seen a pattern typical of market tops where most stocks peak before certain major indexes, which are led by just a handful of mega-tech names. Unless you were holding some of these mega-tech names or an outlier position in your portfolio, it has likely dropped or remained stagnant even as major index ETF’s like QQQ, SPY, and DIA have continued to rise behind this small group of tech giants. Corrections in the stock market have evolved in recent years with a pattern of mini multi-day crash events and quick recoveries. The reasons for this are twofold: First, algorithmic trading has increased the speed of the market’s movements. Second, with an economic recovery built on fragile ground and an excessive amount of debt, the Fed does not want the optics of a prolonged sell-off where consumers get worried and sentiment drops, causing spending to stop dead in its tracks. Hence, the Fed has been able to increase its Repo activities and bond purchases, injecting large amounts of liquidity to stop major profit-taking events. Eventually, this will cause another crash event when their efforts fail. At The Forecast, we have successfully identified periods of market vulnerability since our inception. Forecasting exact levels of price declines remains wide and varied due to the Fed. We will continue to hedge markets and protect our Gold Members as we identify these upcoming periods of time.

Market Overview:

 The Dow, the Nasdaq, and the S&P 500 are currently trading above their 50-day and 200-day moving averages. Other indexes representing a large portion of the market like small-caps had another volatile week with the Russell 2000 still trading below its 50-day moving average. The Volatility Index (VIX) spiked briefly above the key s20 level once again this week, but continues to hover around its 50-day moving average, closing slightly lower on Friday near the 17 level. Short interest continued to edge higher for the third week in a row, but the total amount of bearish bets is still well below its long-term average.

We have several critical inflationary indicators which could impact many asset classes in the wake of the recent surge in prices. The Job Openings estimate will be published on Monday while the Consumer Price Index (CPI) and the Producer Price Index (PPI) will be released on Wednesday and Thursday. The Michigan Consumer Sentiment number will be reported Friday to end the week. Finally, investors should keep an eye on the latest stimulus deal set to be reached before congress exits for a multi-week summer break. This could be a turning point in many markets.