U.S. Equity Markets got battered on Friday, led by the 4.1% fall in the NASDAQ 100. This move lower drove the VIX higher by a huge 17%, closing at a price of 25.56. Markets got slammed as investors digested Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole Economic Symposium. Powell asserted that the central bank is fully committed to seeing its job (of quelling inflation via rate hikes) through to the end. Headline personal consumption expenditures for July dipped, signalling inflation could be easing. The bulk of the Federal Reserve’s rate hikes are behind us in my opinion despite Friday’s aggressive sell-off. At the start of last week, the S&P 500 Index took a nosedive. It dropped over 2.1% on Monday as investors were suddenly worried about central bank policy. The concern was the tone may grow more hawkish (inclined to raise rates) at this weekend’s annual Economic Outlook Symposium hosted by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming, which it did. Given the recent rebound in the stock market, the media has suggested Wall Street is out of tune with what the central bank is trying to accomplish. So, they have said Powell will talk up the interest-rate hike outlook in his speech. For anyone that listens to what the central bank has been messaging, they know it is not done with rate hikes. After all, inflation is nowhere near its 2% objective. So, Powell talking about more rate hikes should not be a surprise… It’s the pace at which those increases happen going forward that is the question. And based on what a number of the regional presidents said Thursday, that outlook is the same as when the Federal Open Market Committee (“FOMC”) raised rates by a combined 1.50% in June and July. Back then, it was guiding for a year-end rate target of 3.5% compared with the current level of 2.5%. A slowing pace of rate increases going forward should support a steady long-term rally in the S&P 500. But don’t take my word for it, look at what the regional governors said… Kansas City Fed President Esther George (FOMC voter) said she is worried about the current imbalances between demand and supply. She said the lack of businesses’ ability to keep up with the need for goods has pushed prices higher, creating inflation. So, the central bank needs to keep raising interest rates to cool demand. She said signs began to materialise in July of slowing inflation growth, but it is too soon to say the central bank has accomplished its objective. She would like to see several months’ worth of evidence that costs are easing before thinking about a change to monetary policy course. George believes interest rates need to go to 4% before the Fed considers pausing. Federal Reserve Bank of St. Louis President James Bullard (FOMC voter) struck a similar chord. He said the baseline expectation must be that inflation will remain more persistent for longer than originally anticipated. So, he favours front-loading rate hikes so that policy does not have to adjust faster down the road. The St. Louis Fed chief believes that based on current inflation metrics, interest rates still are not high enough. He said a level of 3.75% to 4% is his target for this year. He said the risk of a recession is possible before the rate tightening cycle is complete. Bullard’s comments are noteworthy because he has been the most prescient of all the policymakers. Federal Reserve Bank of Philadelphia President Patrick Harker (FOMC alternate) said monetary policy needs to become more restrictive. In other words, a level where it brings down inflation. He feels it should be to that point by the end of this year. Harker stated he would like to see interest rates get above the 3.4% level and then hold. Afterward, he would be in favour of holding off on additional increases to study the impact on the economy. He said he is worried the delay at the start of the rate increase cycle runs the risk of the central bank overreacting on the other side of this equation and hiking too far. There are three FOMC meetings left this year in September, November, and December. There should be no doubt that it intends to raise interest rates at each one of those meetings. But the question remains how aggressive it will be. And based on the recent colour from policymakers, there is room for the pace of rate hikes to slow and eventually pause. Powell has told us the central bank will need to slow overall economic growth in order to ease rising costs. The central bank started down that path in March by raising interest rates. The change in policy direction corresponds closely with recent shifts in prices paid and received. Longer term, this is a trend money managers who are investing for eight to 12 months down the road must see in order for them to grow more optimistic about risk assets like stocks. They realise the growth experienced during 2021 due to massive amounts of stimulus is unsustainable. Those big-money investors want to see economic activity revert back toward the mean. That way, they have less to worry about from a liquidity and Fed policy perspective. It took roughly 26 months for inflation to reach these levels, and it is going to take at least 12 months to notice a meaningful slowdown. This is a step in the right direction. A sustainable move lower will tell us the Fed can back off its aggressive rate hike path moving forward. And the commentary of these governors is telling us just that… Interest rates have already risen from 0% to 2.5%. Policymakers are seeking a range of 3.5% to 4%. So yes, there are more rate hikes still to come but the bulk of the change is behind us and the pace moving forward doesn’t have to be as aggressive as the last two FOMC meetings. This will support a longer-term rally in the S&P 500. Within the S&P 500, all 11 sectors finished lower. European Markets got slammed on Friday. Sources cited by Reuters say that the European Central Bank (“ECB”) is considering a 0.75% rate hike in September, even if a recession is the outcome. German Consumer Sentiment is set to hit a record low in September, as the cost of living amid the energy crisis surges higher. Equities dipped on Fed Chair Jerome Powell’s hawkish tone in his speech Friday, putting further pressure on the Euro and the ECB rate-setting policy. In Asia, China and the U.S. reached an agreement on audit inspection of Chinese companies listed on U.S. exchanges. Japan’s inflation pressures continue to mount as core Consumer Price Index measures rose 2.6% in August compared to the year prior. Reserve Bank of New Zealand Governor Adrian Orr indicated that the bank may start to slow the pace of rate hikes. Elsewhere, Oil closed 0.43% higher while Gold fell 1.21% on renewed Dollar strength.
To mark my 2600th issue of TraderNoble Daiy Commentary I am offering a special 2-Year Rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day to demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it lost 330 points on Friday and is now ahead by 956 points for August, having made 2660 points in July, following a gain of 3371 points in June. The Service made 3651 points in May, after making 762 points in April, following a gain of 5883 points in March. The Platinum Service made an impressive 5324 points in February, after ending January with a gain of 3878 points, more than making up for December’s 932 points loss. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 3.37% lower at a price of 4057.
The Dow Jones Industrial Average closed 1008 points lower for a 3.03% loss at a price of 32,283.
The NASDAQ 100 closed 4.1% lower at a price of 12,605.
The Stoxx Europe 600 Index closed 2.1% lower.
This morning, the MSCI Asia Pacific Index fell 1.4%.
This morning, the Nikkei closed 2.66% lower at a price of 27,878.
Currencies
The Bloomberg Dollar Spot Index closed 0.2% higher.
The Euro closed 0.1% lower at $0.9963.
The British Pound closed 0.6% lower at 1.1737.
The Japanese Yen fell 0.7% closing at $137.50.
Bonds
Germany’s 10-year yield closed 7 basis points higher at 1.39%.
Britain’s 10-year yield closed 1 basis points higher at 2.63%.
US 10 Year Treasury closed 1 basis points lower at 3.03%.
Commodities
West Texas Intermediate crude closed 0.43% higher at $92.87 a barrel.
Gold closed 1.21% lower at $1737.10 an ounce.
This morning on the Economic Front we have no data of note from the Euro-Zone. The London Markets are closed while the only U.S. release is the Dallas Fed Manufacturing Business Index at 3.30 pm and a speech from Fed Member Brainard at 7.15 pm.
Cash S&P 500
The S&P had one of its biggest falls of the year-to-date and that is saying something given everything that has happened so far in 2022. A modest rally attempt following Fed Chair’s Powell’s speech turned into a rout with the S&P falling over 200 Handles since Friday afternoon. The S&P is now down over 300 Handles since testing its 200 Day Moving Average two weeks ago. The S&P has support at the 50-Day Moving Average and this level of 3996 must hold or this rout could well accelerate to the test the June Lows at 3635. We saw a clear Bear Flag as all buyers expecting a dovish Powell got wiped out as one long position after another got slammed. All of a sudden the charts are looking ugly especially with the onset of QT next month. We now have a clear ‘’Head & Shoulders’’ pattern in the S&P with a target of 3830. This will not be straight forward as the oversold conditions now warrant an imminent rally. Lots of investment banks like Goldman Sachs and Wells Fargo were pushing dovish messages ahead of Powell’s speech. They were wrong leading to many investors mispositioned on Friday and this is one of the main reasons for Friday’s aggressive sell-off. Having made some nice points in other markets on Friday, my S&P plan did not work well as after buying the market at an average rate of 4138, I was stopped out of this position near the close at 4097 and I am now flat. The S&P has strong support from 3990/4010 where I will be an aggressive buyer with a 3973 stop. If I am taken long I will have a T/P level at 4035.
EUR/USD
The Euro followed the S&P higher on Friday, trading to a high above 1.0100, enabling me to cover this position at my 1.0060 T/P level. Unfortunately, I emailed my Platinum Members to buy the Euro again which I did at an average rate of .9980. There is still no change in my overall view of the Euro given how oversold the market is after suffering a peak- to- trough decline of over 20% from its 2021 peak highs to last month’s move lower through parity for the first time since the early 2000s. The Euro is now trading 1.5 Standard Deviations below its 200-Day Moving Average, implying there is a lot of negativity reflected in the price. If you are long Dollars I would certainly look to take your long-term gains at current prices. Given how oversold the Euro is trading I will continue to hold this latest .9980 long position with no stop. I will have a T/P level at 1.0040 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
March Dollar Index
No Change. Although the Dollar traded to a low of 107.45 post Powell on Friday, the Dollar subsequently got slammed and is trading higher at 109.10 this morning. My overall view on the Dollar has not changed: The last time the Dollar was this overvalued, at the end of 2016, we quickly saw a 10% decline in the Dollar over the following 12 Months. I am expecting a similar outcome, I just do not know what the catalyst will be. Based on a longer-term outlook, the risk/reward is skewed to the downside. In my view, a key source of prior support has disappeared (strong economic growth) and another is fully discounted and may be on the verge of reversing which of course is a divergence in Central Bank rate hike expectations. I am still short the Dollar at an average rate of 107.50. Given how overbought the Dollar is trading I will have no stop on this position, fully believing that we are close to a reversal in the Greenback. I will continue to leave my T/P level unchanged at 106.80.
Cash DAX
My DAX plan worked well with the market trading lower to my initial 13160 buy level before thankfully rallying to my 13220 revised T/P level and I am still flat. This morning, the DAX is trading much lower at 12800, within touching distance of the March low at 12300. The DAX is oversold, has support from 12620/12700 where I will be a small buyer with a 12545 stop.
Cash FTSE
Friday’s initial sell-off saw the FTSE traded lower to my 7455 buy level before also rallying to my revised 7489 T/P level and I am now flat. Given the price action over the past few weeks I would not chase the FTSE lower especially with Sterling so weak. The CASH FTSE market is closed today for the U.K. August Bank Holiday. As a result, I will stay flat until tomorrow with the same strategy of buying the dip.
Dow Rolling Contract
The Dow got slammed for 1000 points on Friday and is now down almost 2300 points in the past two weeks when it briefly broke above its 200-Day MA. Overnight, the Dow tested its 50 Day MA at 32034 before having a brief rally in the last 20 minutes. Friday’s move lower saw me buy the market at 32880 before getting stopped at 32645 and I am still flat. The Dow has support from 31750/31950 where I will be a buyer with a 31585 stop. If I am taken long I will have a T/P level at 32180.
Cash NASDAQ 100
The NDX led Friday’s rout lower closing with a loss of over 4% for one of its largest Daily declines in many months. The NDX was the one Index that failed to reach its 200 Day MA, which in hindsight was a major flag for lower prices. Technology stocks are particularly vulnerable to the recent upturn in Treasury Yields and the prospect of higher Interest Rates ahead. The fact that the 50-Day Averages remain well below its 200-Day MAs is also consistent with an ongoing Bear Market. In contrast to the S&P and Dow above, my NDX plan worked well with the market trading lower to my 12990 buy level before rallying to my 13130 T/P level and I am now flat. Subsequently, the NDX got slammed and is trading lower at 12500 this morning. The NDX has support from 12200/12400 where I will be a small buyer with a 11995 wider Stop.
September BUND
The Bund followed 10 Year Treasuries lower, trading the whole of my buy range for a now 149.80 average long position. I will leave my 148.55 ‘’Closing Stop’’ unchanged while lowering my T/P level to 150.30.
Gold Rolling Contract
Gold got hit hard on Friday and again overnight, trading into my buy range. I am now long at 1728. I will add to this position at 1710 with a now lower 1699 stop. My T/P level will be 1743 and if any of the above levels are hit I will be back with a new update for my Platinum Members.
Silver Rolling Contract
Silver rallied to my 19.40 T/P level on my latest 19.10 long position. I emailed my Platinum Members to buy Silver again and I am now long at an average price of 18.80. Given how oversold Silver is trading, I will have no stop on this position while my T/P level is at 19.25.
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