We will learn this week if the Fed will rescue markets into the upcoming Fed meeting on September 22. There is no Fed meeting in October which raises the odds of a new tapering statement and policy from the Fed in this next meeting. Goldman Sachs gives 70% odds to the Fed announcing a tapering schedule from November into July of 2022 during this upcoming meeting. Deutsche Bank warned in a private note to clients late last week of an imminent hard correction in the equity markets. More downside should be seen into the Fed meeting or immediately following it into early October. We will be watching certain support levels early this week to give Gold Members a roadmap of what to expect into late September.
If the market does not bounce this week, expect sentiment to embed in oversold and stay there for 7-10 days. We will find out by early this week if markets will be rescued or finally allowed to have a major profit-taking event.
Equities traded under the shadow of “taper” risk being the most important catalyst of returns even considering the impact of ongoing poor economic data. The mega-tech names led their sector higher again during the early part of the week as the Nasdaq broke out to new highs. Strict COVID measures being instated by the US government will continue to be a short term concern for investors in the coming weeks.
Even though the Dow is still lagging its large-cap peers, the technical picture still remains slightly bullish for the SPX and NDX, and even the recently stronger small-caps sold off into weeks end. The S&P 500 and the Nasdaq are all above their 50-day moving averages, and the benchmarks are still above their rising 200-day moving averages. Major indexes fell 5 trading days in a row, similar to what was seen prior to the 1987 crash. The Volatility Index (VIX) hit its highest level in three weeks, and the fear gauge remains above its recovery high, which is something to keep an eye on in the coming weeks. We will have our answer if big money attempts to lock in profits this coming week prior to the upcoming Fed meeting with the fear of a tapering statement from the Fed causing a sharp downdraft in the markets.