Weekly Briefing 9/5/21 - The Forecast

Weekly Briefing 9/5/21

Weekly Briefing 9/5/21

The market continues to grind higher in the wedge pattern shown above. A break of SPX 4,444 on a closing basis would indicate an intermediate degree correction has begun. The next Federal Reserve meeting currently scheduled for September 22 is our next major trigger event. In the near future when the correction occurs, expect it to be fast and furious with the bulk of the decline coming over a 3-5 day period. A support shelf at 4,060 SPX should bring in dip buyers and a bounce back up to 4,250-4,300 will likely occur quickly.  At that point in time, the market will make a significant move which we are watching closely for our Gold Members.

Two defensive sectors which see buying during periods of turbulence are the health care and utility sectors. Since June, we have witnessed strong inflows into both sectors, an early warning signal. The market-leading semiconductors have also been unable to gain any strong traction in spite of both the recent tech rally and global chip shortage.  These are indicators which should not be ignored.

Market Recap:

A spark was lit for the major indexes after the Fed’s Jackson Hole event, with the reduced immediate  “taper” risk being the most important catalyst of recent returns. The tech sector led the way higher again as the Nasdaq confirmed its technical breakout above the 15,000 level with the help of the giants of the sector. The bounce in Chinese stocks also supported the rally, but both the pandemic and ongoing tech crackdown in China continue to pose threats to the current prolonged market rally since March 2020.

The week’s economic releases were mixed again, with positive and negative data confusing investors amidst the continued fight against the Delta variant. The consumer confidence number suffered the biggest hit due to the virus, and while the number of new jobless claims hit an 18-month low, the job market still has room for improvement as non-farm payrolls only increased by a mere 235,000 in August. The manufacturing sector sent mixed signals while the PMI, construction spending, and factory orders were all bullish.

Even though the Dow is still lagging its large-cap peers, the technical picture remains bullish short term, and even the recently weaker small-caps look ready to challenge recent highs. The Dow, S&P 500, and the Nasdaq are all above their 50-day moving averages, and 200-day moving averages.  The VIX also hit its lowest level in three weeks despite lingering COVID fears but remains above its recovery high.

Short interest declined in the wake of the dovish Fed surprise as tech investors removed hedges due to reduced interest rate risk, with the most-shorted issues outperforming the large-cap indexes as well.

While the upcoming holiday-shortened week will be relatively light on key economic releases, trading activity  and volume typically increase following Labor Day weekend. Thus, we could be in for a few volatile sessions in stocks this coming week. The job openings estimate will be the first significant economic report  on Wednesday. The weekly jobless claims report will be reported early in Thursday’s session along with a bond auction, while the Producer Price Index will be released Friday. This week’s positive technical developments are encouraging, but members should keep an eye on the Russell 2000 small cap index as it often peaks prior to major market declines. The entire tech sector is also overbought and capable of reversing at any moment. The second half of September should see a de-risking event occur.

Our next Nightly Briefing will be published tomorrow evening for Gold Members.

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