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NYSE and the status of world markets

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I’m starting this thread because my main interest is all things NYSE and the state of world markets and I hope that others share my interest. I don’t want this thread to be a place to copy and dump news stories from the internet but rather a place for opinions and evidence and questions. To be clear, often a news story is part of the evidence and that’s fine, politics and business decisions do influence the markets.

I’ll start by posting this link to a free resource that shows a point & figure chart of the NYSE Bullish Percent Index. If you’re looking at the S&P500 or any other part of the NYSE it’s relevant to have some context and that is what the NYSE BPI can give you.

The web link is: https://www.truemarketinsiders.com/bpi
 
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The NYSE BPI is in a sell signal but that alone does not mean that the S&P500 is going to have a big pullback or crash any time soon. When the NYSE BPI is over 70 the stock market as a whole is over bought but the market can stay at these levels and even go further for some time. A sell signal in the BPI at these levels though is a first piece of evidence in building a case for a major pullback that may be coming for the S&P500.

Another piece of evidence to add to the case is to look at what the real big money guys are doing. I’m talking about the buyers of High Yield Bonds, I’ve heard these guys are referred to as not just the smart money but the really smart money. To see what they are doing we can look at HYG.

So first we’ll take a look at the weekly chart;

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We have a rising wedge in the price action which is a bearish pattern and recently price has broken sideways out of the pattern. Is this a bearish sign for the market ahead or just a Covid pause?

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Zooming in to the daily chart, price is moving sideways and currently trading below the 50day moving average. Topping patterns typically take longer than bottoming patterns so this is a bit of a wait-and-see but for me the odds are not in favour of this being bullish. Another piece of evidence adding weight to the bearish side. Confirmation would come if it broke down through the 19 July low.
 
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I’ve had a few people viewing this thread and some of those have indicated that they like it so I’ll keep going further with this. Time to take a look at the S&P500 itself. Below is a weekly chart showing that the S&P has been powering up since the Feb/Mar Covid crash and it still looks strong. I’ll get to that vertical line in a minute.

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Now look at a weekly chart of the same market but this time the equally weighted S&P500.

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The two charts moved very similar to each other up until recently, after the 10th of May the EW S&P started to move sideways while the weighted revision that we commonly see on the news continued higher. I can draw the analogy of the S&P500 being a car running up a long covid hill with the engine losing power. Maybe the FED will send out one of it’s big trucks to get behind and give the car a push.

Looking at the daily charts below, the S&P is breaking out of a tight one week sideways range and looks to be going higher. The EW chart is also breaking out but it’s waffling around, not being very decisive about it.

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I’m waiting to see what happens this week but I’m sceptical of just how far this breakout will go. We need lift the bonnet and look inside the S&P500 to see want’s happening.
 
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Looking at the sectors of the S&P500, the industrials sector shows the same sideways movement since the 10th of May, but at this time it’s showing no sign breaking out.
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Another sector that has an association with industrials is the materials sector;
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Materials has bounced off a minor support zone and come back strongly to the 50day moving average, that’s a good sign. If The S&P breaks up from here and these sectors don’t go with it then the car would have lost a couple of cylinders.

The strongest sectors are health care and services. Technology, finance, consumer discretionary, utilities and real estate still moving up but real estate looks to be softening.

The enery sector has been weak for a while now but it’s showing possible signs of a turn up. I monitor all these and more daily and some of the sectors that are moving up look like they are going to have a minor pullback before continuing up.

For the 2020 covid crash I didn’t know when it would happen until a day or two before it started. I did have help from someone on the internet to be on the lookout. I went to cash in my super and my wife’s super and avoided the loss, my brother lost $130,000 in his super. When the market fell I doubled my small trading account in 2-3 weeks and at that point all I knew about options was how to buy a call or put.

The time put into maintaining a situational awareness does pay off and don’t forget about politics.
 
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Senate Passes $1 Trillion Infrastructure Bill, Handing Biden a Bipartisan Win​

The approval came after months of negotiations and despite deficit concerns, reflecting an appetite in both parties for the long-awaited spending package.
 
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All markets around the world look like they are starting to pull back or moving sideways, Russia and India look to be strongest. High Yield Corporate Bonds are heading down and I'll be looking to see if they blow through support tonight. There is so much government money in the world markets at the moment that I'm not as confident with what I'm seeing compared to Feb 2020. Give me some help guys.
 
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Most commodities are down to support levels, VIX up, but within range, for now.
Gold continues up, giving it's own indications.
Was it any surprise to have a blow off?
As you say Dave, it's about whether certain supports hold or blow out.

AUD down against the USD, I've got no idea what to think about that though?

VIX (US) hitting upper ranges

Screenshot_20210819-214112.png


WTI (a commodity example)
hitting support, but if it blows under 60, it may get pushed as low as 53
I don't see any reason why it's dropping, apart from covid fears, which the data isn't really replicating, going by US crude figures (and related data)

Screenshot_20210819-212244.png
 
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All markets around the world look like they are starting to pull back or moving sideways, Russia and India look to be strongest. High Yield Corporate Bonds are heading down and I'll be looking to see if they blow through support tonight. There is so much government money in the world markets at the moment that I'm not as confident with what I'm seeing compared to Feb 2020. Give me some help guys.
sorry i don't have a printing press ( cheap Fed joke )

possibilities

1. a taper tantrum ala 2018

2. a new variant of QE ( since the latest attempts , no longer boost sentiments )


KEISER REPORT | CHINA BURNING THEIR TREASURE FLEET AGAIN? | E 1738​




maybe this article will give you other ideas

cheers
 
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Looks like the world markets are in a holding pattern so I'll just wait and see which direction each aircraft flies off too.

Re China, my read of them is they are well aware of why they lost the title of 'world power' and they are not going to make the same mistake again. I don't know the details of their plan but I think they have a long term plan to be the 'world power' again. It's interesting to see what they do and a bit scary at the same time.
 
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I'm short term bullish (cautiously bullish) at the moment but this article from Bill Poulos explains very well an upcoming bump in the road that I'll watch very carefully. Another thing to watch is what comes out of Afghanistan. Anyway see the article below;

How the Debt Ceiling Could Crash Stocks

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Another day, another new all-time high.

Stocks gained this morning as Big Tech led the way. Amazon (NASDAQ: AMZN) and Google-parent Alphabet (NASDAQ: GOOG) were among the top performers on the day.

Rising Chinese stocks helped lift shares, too, following last week’s major regulatory crackdown by Beijing. Ark Investment Management announced that it bought shares of JD.com (NASDAQ: JD), China’s largest first-party e-commerce company. JD shares surged at the open as the Hang Seng Index (located in Hong Kong) rose as well.

The question now is whether the general market can keep climbing after notching yet another record high. MKM Partners chief economist Michael Darda thinks it’s not only possible but probable for three main reasons.

“The first one, that's extremely low discount rates. The 10-year Treasury yield is barely off the August lows," he said.

“So, all things equal, if interest rates are low, if discount rates are low, valuations will tend to be higher because of a lack of competition."

Darda continued, adding:

“In addition to that, we have a very high liquidity environment [...] and earnings have been incredibly strong. Typically when long-term interest rates are falling, earnings or the economy is faltering. In this case, the earnings have been quite robust, really historic. So, we're really going to need to see one of those three pillars disturbed in some fashion for a big decline in equity prices.”

Yields aren’t expected to erupt higher in the coming months. And with earnings more or less locked in until the next batch of quarterly results, Darda’s second “pillar” shouldn’t crumble any time soon, either.

That leaves the “very high liquidity environment” being provided by the Fed through its bond-buying programs, otherwise known as quantitative easing (QE). The tapering of QE would very much disturb this last (and certainly most important) economic “pillar” Darda identified. That’s part of the reason why whenever the Fed or Treasury hints at quantitative tightening (QT), stocks dip rapidly.

And that’s also why investors are anxiously awaiting Fed Chairman Jerome Powell’s speech this Friday at the Jackson Hole conference in Wyoming. If Powell engages in bearish taper talk, expect the market to react poorly.

But even without an official declaration from Powell, QT is still very much on its way. It’s just that it will start to happen under the surface. More importantly, it won’t be announced in a post-FOMC meeting press conference like a taper warning would be.

Here’s why:

Congress needs to raise the US debt ceiling, which hit its limit back on July 31st.

For those that aren’t acquainted with the US debt ceiling, it’s the maximum limit to how much the US government can borrow to pay its debts and obligations. Whenever that limit is reached, the US Treasury can’t issue any more notes, bonds, or bills. What it can do, however, is pay for debts and obligations with tax revenue or the Treasury’s saved-up cash balance.

As of July 31st, that cash balance was just $442 billion. That’s a low number historically speaking. From June to July, it plummeted by $398 billion. It now sits somewhere around $309 billion.

Typically, the US Treasury never needs to draw from its cash balance to pay the bills. It just issues new debt to meet its financial obligations.

For the US economy, the practice of issuing new debt usually doesn’t have any significant impact. The amount of money the Treasury spends (which adds cash to the economy) is offset by the debt issued (which removes cash from the economy).

As a result, no liquidity is added nor removed.

But more recently, the Treasury has run into a bit of a problem with this model due to the debt ceiling. It ended up slowing down debt issuance as the debt ceiling rapidly approached, which forced the Treasury to draw from its cash balance to pay for things instead.

And because less debt was being issued (while the cash balance was being spent), this acted as QE. Cash was effectively being injected directly into the economy by the Treasury without the issuance of debt to soak it back up. This has applied serious pressure to short-term rates and is to blame for the negative rates in the repo market.

In October or November of this year, Congress is expected to raise the US debt ceiling. And when it does, the Treasury will issue hundreds of billions of dollars in new debt (which sucks liquidity out of the economy), almost certainly outpacing spending (which injects liquidity into the economy) by a wide margin.

This will result in a significant source of QT, right around the same time corporate earnings hit and just one or two months after Powell is expected to make his taper warning on September 22nd, following September’s FOMC meeting.

So, even if Powell says that tapering isn’t coming until Q1 2022, the truth is that the raising of the debt ceiling will induce QT several months before that. This would completely obliterate Darda’s liquidity “pillar” holding up the bull market. And, if corporate earnings miss analyst estimates, that second “pillar” could simultaneously crumble as well.

That means while the going seems good at the moment, everything could come crashing down when the debt ceiling is raised later this year. Buy and hold investors need to be wary of this as they approach the holiday season, which has historically been a good time to be a bull.

This year, however, it could be a bloodbath as the market’s worst nightmare – QT – becomes a reality via the raising of the debt ceiling.
 
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i expect a LOT of theatrics and crocodile tears ( there is a 2022 mid term election coming )

probably a government shut-down to help force vaccine uptake in Government employees

but expect the can will get kicked as long as there is a leg attached to a torso

( it is basically the end of life as you know it if they don't )

BTW i STILL have a plan B if i am wrong about this

good luck
 

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Genuinely hoping the inevitable regression toward mean for the important markets is triggered by something like debt ceiling argy-bargy. Even better would be a general cynicism about sky high share price valuation, even with all the extra cash around, enveloping world markets. A nightmare bubble-burster would be something along the lines of about 100k Chinese troops spilling onto streets of Taiwan, a frantic call for help made by Taiwan's president to USA's, call from the latter to our PM for coalition support, much "hilarity" ensues...

The very best we can hope for is a nice generalised market slowdown, basically trading sideways for a few years. Historically that's not how it normally goes down; it literally normally "goes down" :p
 
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The time put into maintaining a situational awareness does pay off and don’t forget about politics.
I've taken this line from a previous post to highlight it for the newbi's that may be reading. The article below is a part of situational awareness;

Kabul Bombings Rocks Stocks, but Will They Fall Further?

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Stocks opened slightly lower today before quickly plunging in intraday trading. Initially, investors seemed ready to drag their feet in anticipation of tomorrow’s speech from Fed Chairman Jerome Powell.

But then suicide bombers attacked Kabul airport around 10:20 am EST, causing stocks to fall in a near-instant. US officials reported multiple US and civilian casualties as a result of two separate explosions. One occurred at the Kabul airport gate, and another came from a car bomb. 3 US Marines were injured while 12 civilians were confirmed dead, some of which were children. More accurate casualty information is forthcoming as first responders scramble to save victims.

ISIS-K, the Afghan affiliate of the terrorist group ISIS, claimed responsibility.

“Every day we’re on the ground is another day we know that ISIS-K is seeking to target the airport and attack both U.S. and allied forces and innocent civilians,” warned President Biden yesterday.

And though the bombings had little to do with equities, the uncertainty they caused was enough to provoke some knee-jerk selling. The CBOE Volatility Index (NYSE: VIX) spiked alongside gold prices. Bitcoin, on the other hand, slid with US stocks.

The dip likely confirms what investors already know by now:

This is a market that’s unable to handle bad news.

For much of the current year, negative headlines have contributed to sudden, short-lived corrections. Stocks always came charging back in the days that followed, but in general, it’s been a gut-wrenching affair.

Today’s attack was certainly abhorrent. There’s no doubt about it.

But should it really impact share prices? And will it prevent another recovery rally?

The answer to both questions is a resounding “no.”

Biden says the US will be out of Afghanistan completely by August 31st – a date imposed upon US forces by the Taliban. Critics have argued that it’s a nearly impossible timeline to follow. Instead, some experts believe a full withdrawal could happen by mid-September.

Regardless of what happens, will either outcome hurt or help stocks? There may be some intraday selling or buying like we witnessed this morning.

Overall, though, the situation in Afghanistan is unlikely to have a profound impact on stocks. What we’re seeing today stems from how tightly wound the market currently is as Powell’s speech on the economy approaches.

“Expect investors to keep an eye on the Fed’s symposium the rest of this week for any comments about tapering or timing for interest rate hikes,” said Leuthold Group strategist Jim Paulsen.

“Either unexpected commentary from the Fed or a failure or success in scaling 4,500 could bring additional volatility to the stock and bond markets.”

St. Louis Fed President Jim Bullard, meanwhile, did little to help calm investor fears in an interview this morning.

“I think we want to get going on the taper. Get the taper finished by the end of the first quarter next year,” Bullard said.

“And then we can evaluate what the situation is and we’ll be able to see at that point whether inflation has moderated and if that’s the case we’ll be in great shape. If it hasn’t moderated, we’re going to have to be more aggressive to contain inflation.”

If the tapering’s going to end by Q1 2022, it may have to start sooner than many economists predicted. Bullard has pushed for aggressive tapering over the last few months. He also doesn’t have Fed voting rights, which makes his opinion significantly less potent.

Voting Fed members maintain a far more dovish stance by comparison. When Powell speaks tomorrow, he’s expected to take a “best of both worlds” approach, acknowledging economic progress while still explaining that the US has further to go before making a full recovery.

That could ultimately help stocks and even launch them to new highs. Alternatively, a hawkish tone could lead to additional selling.

No matter what happens, though, it’s become abundantly clear that the taper is coming. It’s just a matter of when, and more importantly, how far stocks will fall when the reduction in bond-buying hits.
 
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Will the Fed Crash Stocks in September?

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The market hit yet another new all-time high this morning as Friday’s bullish enthusiasm carried over through the weekend. The S&P, Dow, and Nasdaq Composite all enjoyed significant early gains, led by surging tech shares.

And today’s strong morning session was largely driven by Fed Chairman Jerome Powell’s recent speech. Last Friday, Powell went unexpectedly dovish with his remarks on the US economy. A meltdown from the dollar and a meltup in assets resulted.

“The fact that the Fed did not give a definitive timetable for tapering on Friday gives stock and bond ‘bulls’ a needed boost of confidence,” wrote Bankhaus Metzler analyst Sebastian Sachs in a note.

“As long as accommodative monetary policy remains in place, investors’ fear of missing out is greater than their fear of losing money.”

It’s been said that all markets are motivated by two things, and two things alone:

Fear and greed.

In this case, Metzler correctly identified that the fear of missing out (FOMO) has protected bulls. The Fed put an ever-rising floor under the market via its bond-buying programs, which meant it's never been safer to add equity exposure to portfolios. Both Wall Street and Main Street traders took advantage of this over the last 18 months.

Powell’s excuse for his persistent dovishness has been a sluggish US labor market. Earlier this month, investors anticipated a far stronger than expected July jobs report. That contributed to a rapid one-day dip, as traders assumed the report would accelerate the Fed’s taper timeline. Thankfully for bulls, July provided a “Goldilocks” set of data. Payrolls beat analyst estimates while wage growth wasn’t as hot as expected.

And with the August jobs report approaching on Friday (September 3rd), the market may be gearing up for a similar move. Don’t be surprised to see a quick but temporary dip sometime this week in response.

"A strong payrolls print could instigate a debate for a September tapering start," said Rodrigo Catril, senior FX strategist at NAB.

Most Wall Street analysts believe a taper warning will emerge from the September FOMC meeting, set to wrap up on the 22nd. Catril (and a few other strategists) are starting to wonder if the tapering will instead begin in September without any formal warning.

“The Fed is going to have to taper sooner rather than later,” said Ironsides Macroeconomics’ Barry Knapp in an interview this morning.

“I think they’ll do it in September after a stronger than expected employment report. And, again, another round of very strong house prices […] which is one of the real reasons they should be tapering.”

Knapp raised a very good point that’s been lost in the “taper talk” shuffle:

The US housing market could be headed for a grim conclusion.

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The National Association of Realtors reported this morning that pending home sales fell 1.8% month-over-month (MoM), missing the +0.3% MoM estimate badly.

Frenzied buyers filtered out of the housing market as prices climbed to prohibitively high levels.

Tapering sooner would help in this regard.

And though analysts are starting to join “team September taper,” the market has yet to react. The majority of investors believe there won't be any actual tapering until October or November at the earliest.

Regardless, even a September 22nd warning would likely gouge equities. It would also hit just a few trading sessions after September’s monthly options expiration date (9/17). Options expiration dates have provided traders with major dip-buying opportunities over the last year.

Will another one arise in the coming weeks? It seems likely, especially with a much-feared FOMC pow-wow approaching.

And no matter what Powell decides to announce in his post-meeting press conference.
 
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I’d like to outline my big view at this time because it’s important to be aware of the environment in which you’re trading. Afghanistan, Iran, China, Russia and Nth Korea don’t pose any near term risk in my opinion but long term, into next year and beyond, these should be watched. Between now and the end of the year, the Covid effect on world markets is the background environment and the pimple on the tip of the S&P500’s nose is Quantitative Tightening (QT). So to stay up-to-date with this I post another article from Bill Poulos and follow that with a read on the current S&P500 market;

Will a Jobs Report “Miss” Cause a Crash?

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Stocks climbed slightly higher this morning despite a major private payroll “miss.” The ADP employment report, which is released several days before the jobs report each month, revealed that the US economy only added 374,000 jobs in August.

And while that’s an improvement over July’s 326,000 payrolls add, it’s also well short of the 638,000 job consensus estimate.

“Our data, which represents all workers on a company’s payroll, has highlighted a downshift in the labor market recovery. We have seen a decline in new hires, following significant job growth from the first half of the year,” said ADP chief economist Nela Richardson.

“Despite the slowdown, job gains are approaching 4 million this year, yet still 7 million jobs short of pre-COVID-19 levels. Service providers continue to lead growth, although the Delta variant creates uncertainty for this sector. Job gains across company sizes grew in lockstep, with small businesses trailing a bit more than usual.”

It shouldn’t surprise economists to see that small businesses struggled to hire new workers. Strong government stimulus and unemployment programs have caused a major US labor shortage.

Businesses with less than 50 employees were the most affected over the last few months.

In August, most of the jobs added came by way of the leisure and hospitality industries (+201,000), which made up for more than half of the total monthly payroll gain. Education and health services trailed at a distant second (+59,000) while construction was third (+30,000).

“The delta variant of COVID-19 appears to have dented the job market recovery,” explained Mark Zandi, chief economist at Moody’s Analytics.

“Job growth remains strong, but well off the pace of recent months. Job growth remains inextricably tied to the path of the pandemic.”

For what it’s worth, ADP has underestimated the monthly nonfarm jobs report five out of the last seven months. If ADP's findings from August are accurate, though, the Fed will be faced with a far more complex situation in terms of tapering.

Fed Governor Christopher Waller said in early August that the Fed should taper in October if the next two jobs reports showed employment rising by 800,000 to 1,000,000.

"We should go early and go fast, in order to make sure we're in position to raise rates in 2022 if we have to," Waller said in an interview.

"There's no reason you'd want to go slow on the taper, to prolong it. You want to get it done and get it over."

Again, if ADP’s estimate is close to the Bureau of Labor Statistics’ (BLS) official tally, that means the US economy will have to add 426,000 jobs in September to hit the low end of Waller’s range at 800,000 payrolls.

But what if both the August and September jobs reports come up short? That would put the Fed in a very difficult position. A deceleration in the labor market alongside persistently high inflation might mean the US is headed for a “stagflationary” finish to the year.

If that’s the case, the Fed may decide to taper, regardless of how the employment situation looks. And if Fed Chairman Jerome Powell chickens out? Inflation would undoubtedly run rampant, potentially squashing demand further while prices remain elevated.

That means investors are approaching a “bad news is bad news” scenario should the jobs report fall short of analyst estimates. Hopefully, for bulls, ADP underestimated the BLS’s official data.

Because the alternative could result in dire consequences for the economy in the coming months. And, by proxy, the never-ending bull market.


Now a look at the current market. The S&P500 is currently moving up but it is weak and this bull run is extended. QT or news related to QT will most likely be the thing that starts a pullback, hopefully a 10-20% pullback and not a crash. I’d like to show you an interesting correlation that’s playing out between HYG and the S&P500 since the HYG broke out of it’s up sloping wedge and started moving sideways. Note the vertical lines marking the lows in the S&P500.
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Does the August Jobs Report Even Matter?

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Stocks jumped to a new all-time high this morning following slightly better than expected weekly jobless data. First-time unemployment filings tallied 340,000 for the week ending August 28th, beating the consensus estimate of 345,000 by a slim margin.

Apparently, that’s all it takes these days to nudge the market higher. Some analysts called it an overreaction, but really, it had less to do with the actual jobless claims than it did the upcoming August jobs report.

“With jobless claims hitting a pandemic low, there’s definitely some optimism as we look ahead to the full jobs picture tomorrow,” explained Mike Loewengart, managing director of investment strategy at E-Trade.

“We could experience a bit of a tug and a pull — on one hand a solid jobs report is a positive indication of economic recovery, and on the other it backs up the Fed’s case to begin tapering.”

Loewengart continued:

"The private payrolls numbers have been all over the map during the pandemic," he added.

"But with so much pressure on improvement on the labor market front coming from the Fed, this could send a signal that jobs growth is stagnating. That’s likely a good thing for the markets, though, as it means easy money policy continues."

Alternatively, a bad jobs report could put the Fed in a tough situation as “stickier” sources of inflation – home values, rents – continue to rise. ADP’s private payroll data suggests that a major “miss” is coming (374,000 jobs reported vs. 638,000 expected).

If that’s the case, the bull market may react poorly when investors realize that the US could be headed for “stagflation” by year’s end.

An ideal August jobs report would be “not too hot, not too cold,” complete with a strong payrolls number that falls somewhere near the consensus estimate. The July jobs report provided this in early August and helped the bull market rip to new heights in the weeks that followed.

Credit Suisse believes bulls will get a repeat performance, regardless of how US labor looked last month.

“The relentless march higher on low volatility in U.S. equities continues and with breadth, volume positioning and sentiment measures all positive in our view we look for the rally to extend further into new highs yet,” wrote Credit Suisse analysts in a note.

Elsewhere on Wall Street, banks have slashed their Q3 GDP forecasts. Goldman shocked investors two weeks ago when it cut its Q3 growth projection to 5.5%, down from the bank’s initial 8.5% estimate. Today, Morgan Stanley joined Goldman by slashing its own Q3 forecast as well.

Morgan Stanley now believes the US economy will only grow by 2.9% in Q3. Several weeks ago, the bank projected 6.5% quarterly growth by comparison.

If both Goldman and Morgan Stanley are correct, Q3 earnings could very easily dent market valuations. And though that may seem like bad news for investors, Morgan Stanley argues that Q4 would see a major rebound.

“We have anticipated slower growth in 2H21, but it has been greater-than-expected, concentrated in the third quarter. August is the month when we think broad activity slowed the most, which will be reflected in data reported throughout the month of September,” wrote analysts from the Wall Street bank.

“We expect momentum to then rise again heading into 4Q with a more supportive base effect.”

Ultimately, this could materialize into yet another significant buying opportunity for traders. The data could also hit when the market’s most vulnerable as the Fed contemplates tapering its monthly bond purchases.

So, even though stocks seem to be in a precarious spot at the moment, the truth is that bulls simply do not care. They assume that equities will never stop rising. Tomorrow’s jobs report release, weak or strong, is unlikely to matter two weeks from now as bulls attempt to push the broader indexes to higher highs.

Until, of course, the Fed spoils the party with a taper warning later this month. Or worse, an official taper announcement.
 
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Can the Market Recover From This Shocking Report?

Goodbye taper. Hello inflation.

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Stocks opened lower this morning after a downright grim August jobs report was revealed pre-market. ADP predicted a paltry 374,000 job gain (vs. 638,000 expected) with its August private payroll data, released Wednesday.

And though ADP underestimated the Bureau of Labor Statistics’ (BLS) official tally five out of the last seven months, this time around, the data analysis firm actually overshot the real jobs report total.

Only 235,000 jobs were added last month according to the BLS, falling well short of the 725,000-payroll consensus estimate. It was the weakest jobs report since January and represented a massive drop in hiring compared to July’s upwardly-revised gain of 1 million jobs.

Both Wall Street and the mainstream financial media were quick to blame the Delta variant for the major nonfarm payrolls “miss.” Most surprising of all was that no jobs were added in the leisure and hospitality category, which most analysts assumed would see a continued bounce back following the industry’s impressive hiring blitz in July.

And though the Delta variant may have impacted the August jobs data in some capacity, two much larger issues likely had a far greater influence:

A slowing US economy, coupled with a full-blown labor shortage.

Small businesses are still struggling to find help amid strong unemployment programs and a consistent stream of government stimulus, the latter of which has finally tailed off. Businesses with less than 50 employees have lagged larger companies in terms of hiring for months. If nothing changes, this trend could only intensify heading into Q4 if the economy slows.

Wall Street banks are also coming around to the idea that US GDP growth will decelerate in Q3. Just yesterday, Morgan Stanley revised its Q3 GDP growth projection to just 2.9%, down from its original 6.5% quarterly estimate. Morgan Stanley joins Goldman Sachs, which shocked investors with its own downward Q3 GDP revision from 8.5% to 5.5% two weeks ago.

In the grand scheme of things, Delta hasn’t really dented the US economy. Most states remain fully open, which has allowed businesses to operate unimpeded.

What has changed, however, is inflation. Surging input costs skewered earnings for American manufacturers last quarter. Consumer sentiment has plunged, too, while inflation expectations skyrocketed.

This is the kind of thing that can be solved by fighting inflation head-on through tapering and the raising of rates.

But following the release of a disastrous August jobs report, the Fed’s initial plan of attack may no longer apply.

“A surprisingly low jobs number this morning clouds the tapering outlook considerably as only 235k jobs were added in August, likely giving the Fed pause and pushing out their plans to announce their bond taper plans,” explained Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in a note.

“Many people believed that the Fed would announce their taper plans at this month’s FOMC meeting and that is no longer likely.”

We suggested over the last few days that a bad jobs report would be met with some selling from investors. Throughout most of the pandemic, that wasn’t the case. Bad news was good news, as it allowed the Fed to keep monetary policy dovish.

Now, though, bad news is most certainly bad news, simply because the Fed is running out of time. Back in June, we warned that the US could be headed for a “stagflationary” collapse (stagnating demand, high inflation) by year’s end.

The August jobs report may have just sealed the economy’s fate in that regard if the Fed uses it as an excuse to delay a much-needed taper.
 
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I've talked about being aware of the environment in which your trading before and there are a number of ways to do that but a picture is worth more than a thousand words. Just look and compare the normal rate that the $SPX moves up to what has been happening recently;

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