Morning Market Update August 22

Providing Market Insights and Returns

Happy Monday! Futures are deeply in the red today, DOW FUT down 1.1%, S&P down 1.2%, NAS down 1.6%, Oil slightly down 0.5%, and the US 10yr down 2bps @2.97%. The 10yr rose to 2.9997% in premarket trading as investors are thinking about an environment with higher rates. We see the next stop for the 10yr @3.5%. Asian markets are mostly lower and EURO markets are all in the red as investors fear more rate hikes and the euro again hits parity with the USD.

Last week ended the 4-week winning streak. Markets took a hard hit, with the NAS down over 2%. The rally lost steam at significant resistance, turning back from the 200dma, downtrend resistance line, and over-bought conditions. Interestingly, while tech has been the leader in this rally the QQQs never made it to their 200dma and turned back at the downtrend resistance line. The month winners (info tech and financials) were the losers on Friday. The breadth is slowing, new lows again higher than new highs and the number of stocks above 50dma is deteriorating.

SPX turned at resistance
QQQ turned before it even made it to the 200dma

Staples at looking firmer. Bounced off critical level relative to the SPX and the discretionary relative to staples rally has lost momentum. It appears that the YTD winners who lagged in the recent rally, are gaining strength again.

Equal staples bounced relative to equal SPX
Equal Dis vs Equal Staples couldn’t continue their rally

Looking ahead this week we have some economic data coming out but the big thing that investors are waiting for is the Jackson Hole Synopsys. The first time since 2019 that they will be returning to Jackson Hole in person. Powell is to give a speech on Friday, and we will get the scoop on if he is willing to put the US into a recession in order to squash inflation. He has been fairly neutral, giving out both hawkish and dovish thoughts. We doubt that he has liked this market rally and Meme stock frenzy over the past few months, but we will see if he reveals his thoughts more on Friday. We will note that the options market is not expecting anything crazy to come from Friday, however, the week is still young.

Market news – The Nord Stream 1 has gone down for some unscheduled maintenance sending euro nat gas futures higher this morning as investors worry that it may not be turned on. Goldman called that this rally was sparked by massive short covering and is now over. Citi is estimating that UK inflation will reach 18%. At one of the UKs largest ports, a strike of around 2000 people began on Sunday, as workers are demanding higher wages. Metal Smelters in Europe are slowing production because of high energy prices. Biden is trying so hard to get a deal done with Iran that he is softening up on the demands to get more oil, some saying that his less strict demands will make some US Arab allies rather upset. Musk is raising the price of driver assist technology by 25%. Ned Davis Research has reversed its earlier call this year and has become bullish on global equities. OPEC+ reportedly missed their July output targets by 2.9mbpd, another indicator that the market is lacking the supply needed. Finally, as we track hurricanes this season around the US: the storm in the Gulf has subsided, and there is a storm off Baja that has a 40% chance of becoming a Cyclone.

We continue to be cautious heading into Friday, not fighting the fed, selling quickly and buying what is working. WHC TOP 5 PCTY, NET, CEG, TTD, ESTY.