Following four consecutive down days for the S&P, the market finally stabilised yesterday as the S&P led the gains, closing higher by 0.29%. This move higher saw the VIX fall over 5% at a price of 22.82. Markets closed higher Wednesday as investors await Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole Economic Symposium tomorrow. July’s Durable Orders were flat against expectations of an increase for the fifth consecutive month. President Joe Biden unveiled his plan to forgive up to $20,000 in student loans to certain borrowers. In July, Pending Home Sales declined for the eighth time in the last nine months. Yesterday, I discussed how institutional money managers are increasingly uncertain of the tone Federal Reserve Chairman Jerome Powell will strike during an upcoming speech on Friday morning. They are worried he will take a hawkish (inclined to raise rates) stance and use the opportunity to recentre the central bank’s message on fighting inflation. That has led to cautious posturing ahead of the event. Institutional investors have been selling and shorting stocks and bonds while buying the U.S. Dollar. They are worried about getting caught flat-footed by Powell’s speech. But the event is likely to remove a near-term market overhang. That will allow those money managers to invest once more…And it should act as a long-term tailwind for the S&P 500 Index… As we have seen since the lows made in May of 2020, inflation has been on a steady move higher. Back then, COVID-19-related restrictions brought the domestic economy to a standstill. Gross Domestic Product shrank by 32.4% in the second quarter of that year. It will likely mark the worst contraction any of us will experience. As a result, the Bureau of Labour Statistics’ (“BLS”) Consumer Price Index (“CPI”) rose by just 0.1% on an annualised basis. Now, 26 months later, the July reading saw 8.5% growth compared with the recent peak in June of 9.1%. So, the central bank has been raising interest rates to drive the value of the Dollar higher. By doing so, it encourages investors to buy higher-yielding sovereign debt. U.S. Treasurys are considered one of the safest investments in the world. And as funds and individuals clamour for Dollars to invest, their scarcity increases, driving the value up. But rising borrowing costs also weigh on economic output and profitability. Households and businesses are less inclined to take out a loan because servicing costs rise. That means more money being spent on making debt payments… and less being spent on everything else. Fund managers will short the S&P 500 in anticipation of growth contracting and earnings estimates coming down. The data imply hedge funds are anticipating Powell will talk up rate hikes moving forward to try and bring down inflation growth. In other words, money managers are expecting the worst outcome during the event. But that really should not be a surprise. Central-bank policymakers have told us they anticipate rate hikes into next year. They have guided for a 3.4% interest rate by the end of this year or at least another 1% worth of hikes from the current level. And the biggest hawk at the Fed, St. Louis President James Bullard, recently suggested 3.75% to 4% may be more appropriate. Right now, that is the worst-case scenario. Given expectations for a 3.5% interest rate were set this past June, 3.75% to 4% does not really seem like a huge incremental move. After all, interest rates were at 0% to start the year. So, the bulk of the hikes is likely behind us. And considering CPI metrics fell from 9.1% in June to 8.5% in July, the inflation outlook appears to be improving. According to the American Automobile Association, the national average for a gallon of regular unleaded gasoline is down to $3.90 – the lowest price since the beginning of March. Month to date, the annualised increase for August is 27% compared with 44% in July and 60% in June.
The last four times short positioning in the S&P 500 got this extreme, the returns were as follows…
| Date | 3-month return | 6-month return | 12-month return | |
| 6/16/20 | 8.8% | 19.4% | 37.3% | |
| 10/06/15 | 1.1% | 5.5% | 11.6% | |
| 10/25/11 | 8.5% | 14.4% | 17.5% | |
| 9/11/07 | 1% | -9.2% | -13.2% | |
| Average: | 4.85% | 7.53% | 13.30% | |
So, if Powell fails to deliver anything less than the anticipated hawkish tone, the S&P 500 could be set up for another rally coming out of his speech Friday morning. And despite the rising short interest in the S&P 500, slowing economic activity right now is not nearly as bad as the 32% contraction we saw in the second quarter of 2020. It should point to better days ahead for investors with a long-term outlook. Within the S&P 500, all 11 sectors finished higher. European Markets closed mixed. Fears of a prolonged recession continue to increase with energy prices rising with little resistance. Day-ahead electricity prices in Europe are eye-watering, with Germany at €600 per megawatt hour. Top European Union officials described the bloc’s cohesiveness as “day to day” with rising inflation posing a threat to the region’s unity against Russia. The continued fall of the Euro has investors anticipating a tailwind for rising inflation in the region. In Asia, China’s economic challenges continue to mount as electricity generation is dampened with hydropower plants dealing with record-setting drought conditions. China’s real estate sector continues to draw down further than the overall market as real estate lending remains a major economic issue for the country. Japan announced it will not require COVID-19 testing upon entry, hoping to boost its tourism industry. The Bank of Korea is expected to hike rates and upgrade inflation forecasts Thursday. Elsewhere, Oil rose 1.67% while a weaker Dollar saw end yesterday’s session with a gain of 0.25%.
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 made 326 points yesterday and is now ahead by 904 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 0.29% higher at a price of 4140.
The Dow Jones Industrial Average closed 60 points higher for a 0.18% gain at a price of 32969.
The NASDAQ 100 closed 0.28% gain at a price of 12,917.
The Stoxx Europe 600 Index closed 0.4% higher.
This morning, the MSCI Asia Pacific Index rose 0.5%.
This morning, the Nikkei closed 0.67% higher at a price of 28,502.
Currencies
The Bloomberg Dollar Spot Index closed 0.2% lower.
The Euro closed 0.1% lower at $0.9970.
The British Pound closed 0.1% higher at 1.1810.
The Japanese Yen rose 0.1% closing at $136.72.
Bonds
Germany’s 10-year yield closed 5 basis points higher at 1.38%.
Britain’s 10-year yield closed 14 basis points higher at 2.70%.
US 10 Year Treasury closed 7 basis points lower at 3.11%.
Commodities
West Texas Intermediate crude closed 1.67% higher at $94.23 a barrel.
Gold closed 0.25% higher at $1756.10 an ounce.
This morning on the Economic Front we already had the release of German Final GDP for Q2 which rose 0.1% versus 0.00% expected. Next, we have the German IFO Survey at 9.00 am, followed by the Minutes from last month’s ECB Meeting at 12.30 pm. At 1.30 pm we have U.S. GDP and the Weekly Jobless Claims. Finally, at 3.30 pm we have the Kansas Fed Manufacturing Activity Index.
Cash S&P 500
The S&P has had a nice bounce off yesterday’s two-hour oversold conditions. The S&P hit a low at 4108 shortly after I posted yesterday morning before surging to sit at 4180 this morning. My S&P plan worked well with the market hitting my 4110 buy level before rallying to my 4127 revised T/P level and I am now flat. I talked at length about the S&P positioning above and this will help clarify why I have no interest in shorting the market at this time despite the awful economic data getting released on a daily basis. The S&P has support from 4130/4150 where I will again be a buyer with a 4107 wider ‘’Closing Stop’’ which is just below yesterday’s low print.
EUR/USD
The Euro looks to have made a nice Double bottom at the .9900 area having again tested this level yesterday afternoon before rallying to sit at 1.0020 this morning. With long Euro positions at multi-year lows, I am happy to be long the Euro at a price of 1.0009. The Euro has suffered 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 position with no stop. I will leave my T/P level at 1.0060. 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. 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. This morning, the Dollar is trading with a 107 Handle. I will continue to leave my T/P level unchanged at 106.80.
Cash DAX
Finally, we saw a long overdue rally in the DAX with the market trading higher to my 13338 revised T/P level as emailed to my Platinum Members this morning and I am now flat. The DAX has short-term support from 13140/13220 where I will again be a buyer with a 13075 ‘’Closing Stop’’.
Cash FTSE
Gilt Yields have risen over 100 basis points in the last week following the 10.1% U.K. CPI print. It took until yesterday for the FTSE to react to this Bond rise. As a result, the FTSE hit my second buy level at 7430 for a 7460 average long position. This morning the FTSE has rallied to my 7505 T/P level and I am now flat. Remember a market that cannot sustain losses on bad news has to be respected and is the main reason why I have no interest ins shorting the FTSE. Today, I will again be a buyer on any dip lower to 7400/7460 with a tight 7345 stop.
Dow Rolling Contract
Just like the NDX below, the Dow also missed my initial buy level by 8 points before surging nearly 500 points and I am still flat. I will now raise my buy level to 32780/33020 with a higher 32595 stop.
Cash NASDAQ 100
Frustratingly, the NDX missed my initial 12800 buy level with a 12808 low print before rallying to sit at 13050 this morning. I will now raise my buy level to 12750/12900 with a higher ‘’Closing Stop’’.
September BUND
No Change. I am still long from Tuesday at 150.70. I will leave my 149.75 ‘’Closing Stop’’ unchanged while lowering my T/P level to 151.35. If any of the above levels are hit I will be back with a new update for my Platinum Members.
Gold Rolling Contract
I am still flat Gold. Despite the market trading higher at 1760 I am reluctant to chase the price of Gold higher. Therefore, I will continue to be a buyer on any dip lower to 1720/1735 with the same 1709 ‘’Closing Stop’’. Members.
Silver Rolling Contract
Silver had a nice rally this morning and I have used this move higher to exit my 18.89 long position at 19.32 and I am now flat. Today, I will again be a buyer on any dip lower to 18.50/19.10 with the same 17.95 ‘’Closing Stop’’.
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