Daily Summary – September 1, 2021 - The "Choppy Drift Up" Continues

Daily Summary – September 1, 2021 - The "Choppy Drift Up" Continues

Please excuse typos.

US equity markets started out September on a generally positive note at the index level although there were certainly several pockets of weakness (a return of the "either/or" market), particularly in cyclical sectors. But all of our four major indices finished in the green led by the RUT which ended up just under six tenths followed by Naz up a third, NDX up two tenths and SPX just over unchanged.

Style box favoring small caps and growth today.

Major Market Technicals

Nothing really to report on today other than ATH's in Naz and NDX. Both have now broken above their trendlines from end of April They're also starting to edge into overbought territory. Here's Naz

SPX Sector Flag

Improved SPX sector flag which went from four green sectors yesterday to six today with just the "core" four cyclicals ending down, with energy leading to the downside, the only sector down more than 1%.

SPX Sector Technicals Rankings

These are NOT necessarily in the order that I like them for investment but how their underlying technical fundamentals stack up. Going to keep playing with the groupings so bear with me. Started to bold changes.

- Sectors with good/ok technicals not stretched/overbought, above most resistance.

XLV - Health care - MACD sell longs, RSI negative, above all moving averages. Needs to hold 20-DMA.

XLRE - Real Estate - MACD go long, RSI neutral, back over 20-DMA. ATH. Getting extended.

XLF - Financials - MACD sell longs, RSI neutral.Above all moving averages. Needs to hold 20-DMA or will be downgrading.

XLB - Materials - MACD go long, RSI neutral, above all moving averages.

XLY - Discretionary - MACD go long, RSI neutral, just beneath 20 DMA now.

XLC - Communications - MACD go long, RSI positive but overbought, above all moving averages. ATH. Starting to get overbought.

XLK - Tech - MACD go long, RSI neutral, above all moving averages.

- Sectors with mediocre to poor technicals but above all/most resistance.

XLP - Staples - MACD sell longs, RSI neutral, back over 20-DMA. On watch for upgrade.

XLI - Industrials - MACD go long, RSI neutral, back above all resistance.

XLU - Utes - MACD sell longs, RSI negative, above all moving averages. On watch for upgrade.

- Sectors with good technicals but extended (significantly overbought).

- Sectors that look to have bottomed with positive technicals but below significant resistance.

None.

- Sectors regrouping (negative technicals, short-term downtrend, long-term still positive/uptrend).

XLE - Energy - MACD cover shorts, RSI neutral, under multiple MA's but got over intermediate term trendline and shorter term RSI positive divergence. Will upgrade if it can get over $51 level (around 50 DMA), but that is a long ways off from where it is now.

- Sectors in poor shape (and in intermediate or long term downtrends (so expect further weakness for a while)).

None.

Key Subsectors - SOX (semis), IYT (transp), XBI/IBB (bios), XHB (homebuilders), XRT (retail)

XBI and IBB green again today both up over 1%. Also green were homebuilders, transp, and retail. Semi's were red down a half percent.

Breadth

After a very good day yesterday, breadth positive but not quite as good today. NYSE had 54% positive volume (was 59% yesterday) and 59% of issues (was 53% yesterday). While that's basically just a flip flop as I look more at volume I look at that as a step back. Naz had 60% positive volume (65% yesterday), 56% of issues (was 58%). So on Naz both were worse even though Naz was much better up a third of a percent today as opposed to slightly down yesterday). Still I'll take it.

Commodities/Currencies/Bonds

Bonds - Long bond yields which had started up as they followed European yields retraced those gains on the weak ADP report finishing right around unchanged levels. 10-year yield finished at 1.302%. It remains in a congested area with all kinds of minor support and resistance. 2-year yield up one basis point at 0.21%.

Dollar (DXY) - Fell beneath both the uptrend line from May and 50-DMA again today but did not recover with a lower low as well finishing at $92.51. Looking very shaky. Technicals remain bearish. I'd say it's better than 50-50 that we see $92.

VIX - Down a bit to 16.11.

Crude (/CL) - At one point was down over 1% as it become more clear that OPEC+ wasn't going to adjust the schedule increase for October, but cut those losses by more than half on a very solid inventory report which is linked in "US Data" below. Finished at $68.11 WTI, just holding the 100-DMA. But remains below significant resistance (50-DMA and $70). Technicals remain positive.

On the OPEC+ meeting, it was the quickest in years (23 minutes) with no change to the scheduled 400kbd increase for October. Next meeting will be October 4th. This also means they punted any decisions about baselines that a few countries wanted to get revised. They did extend the compensation period for overproducers to December. They also did note compliance remains high (at 110%) as producers can't even bring their scheduled barrels to the market due to production issues, etc. I think that perhaps some of those "baseline" levels aren't so achievable after an extended period of lower production.

But Iran looks to increase oil exports, sanctions or no sanctions.

And as so far cumulative crude production losses have been over 9mb from Ida.

As European toll road use is now fully back to 2019 levels in Italy, Spain, and France.

Nat Gas (/NG) - Popped again today up another almost 6%. It's now up 18% in a week. Wow. At $4.635 currently. Technicals now firmly positive with just a slight RSI divergence but also back to overbought (although it's been much more overbought in the past). We get nat gas storage report tomorrow.

And while nat gas has been quite hot in the U.S. it's nothing compared to the rest of the world.

And those high LNG prices have some countries pausing imports, likely meaning less clean fuels will be substituted (including oil based products which could support crude). BBG.

Gold (/GC) - Continues to consolidate just above the 200-DMA but keeping uptrend. Finished just below flat levels at $1816. Technicals remain positive.

Copper (/HG) - Pulled back again today over 2% (Chinese PMI?) breaking its uptrend and both the 50 and 20 DMA's. Technicals remain favorable but they'll turn quickly if it can't find its footing.

U.S. Data

Reported on mortgage apps in the morning summary. Did reports on ADP, construction spending, PMI's and weekly EIA reports during the day. Links below.

US ADP Employment Change Aug: 374K (est 638K; prevR 326K; prev 300K) - ADP big miss again this month

US ADP Employment Change Aug: 374K (Est 638K; prevR 326K; Prev 300K) - ADP Big Miss Again This Month

US Markit Manufacturing PMI Aug F: 61.1 (est 61.2; prev 61.2) - small tick down from flash reading but remaining near all time highs

US Markit Manufacturing PMI Aug F: 61.1 (Est 61.2; Prev 61.2) - Small Tick Down From Flash Reading But Remaining Near All Time Highs

US ISM Manufacturing Aug: 59.9 (est 58.5; prev 59.5) - U.S. manufacturing remains on fire held back only by supply issues

US ISM Manufacturing Aug: 59.9 (Est 58.5; Prev 59.5) - U.S. Manufacturing Remains On Fire Held Back Only By Supply Issues

US Construction Spending (M/M) Jul: 0.3% (est 0.2%; prev R 0.0%) - Construction spending improves in July

US Construction Spending (M/M) Jul: 0.3% (Est 0.2%; Prev R 0.0%) - Construction Spending Improves In July

US DoE Crude Oil Inventories (W/W) 27-Aug: -7169K (est -2500K; prev -2980K) - much bigger than expected crude draw as demand hits a record high

US DoE Crude Oil Inventories (W/W) 27-Aug: -7169K (Est -2500K; Prev -2980K) - Much Bigger Than Expected Crude Draw As Demand Hits A Record High

Next 24

Economic data keeps coming. Domestically, we'll weekly jobless claims, the Trade Balance for July, Factory Orders for July, and the revised Productivity and Unit Labor Costs for the second quarter.

Internationally we'll also get S Korean Aug CPI, Australian trade data for July, and EU PPI among other miscellaneous data.

And earnings season continues to wind down. Only about 100 reports this week again including ADR's. From Seeking Alpha

Overall

Been thinking today about something Michael Purves, CEO of Tallbacken Capital mentioned on BBG regarding the outsized demand for protective put contracts that we've seen of late (Charlie McElligott says funds are "stuffed" with them). His point was that instead of it being a negative tell on sentiment, instead it makes "the market ... better hedged... That should ultimately mean less market drama than might otherwise be the case." I think that's a great point, and it might explain why we haven't seen anything greater than a few percent pullback this year. With a "net" beneath them, investors can take more risk and not feel they have to deleverage as aggressively? Just a thought.

But the Friday prediction for this week being a choppy drift up has continued to be accurate. No reason at this point to change the thinking. And I'll continue to track SPX progress versus our 3Q20 roadmap for now as we're not "in the clear" from that 5-7% pullback until we get through this week, but it's starting to look like that little dip we had might be all we're going to get until after Labor Day as this looks a lot like the "liftoff" we had at the end of that earnings season. If you want a chart of the "liftoff" look at Monday's wrap up.

3Q20 Earnings Season

This Earnings Season

And you know the "late summer playbook" by now - Expect choppiness with lots of ups and downs, but basically ending up 2Q earnings season (which is roughly 9/12) around where we started. It's starting to look like we're going to end up at least a bit higher than where we started this time though (we're currently 3.2% above those levels). I continue to expect a big drawdown (10-15%) in the next several months (somehow I feel like Congress will be involved (debt ceiling? shutdown?)). But I'm starting to question those numbers and thinking it may be more like 7-12%. Also our "roadmap" says we should see 5-7% this week but that's looking increasingly unlikely.

Misc.

Some other random stuff.

As repos fall back under $1.1T.

And more evidence emerges that we've seen the peak in the most recent Covid wave. BBG.

And a WSJ analysis finds that states which ended UI "extra" benefits early didn't see outsized job gains compared with those that didn't.

And while we noted this morning negative 2QGDP in Brazil and Canada, both had solid manufacturing PMI's today with Canada improving m/m.

And saw a new phrase today. "Above the keyboard". From Investopedia.

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to Cbus Neil's Blog Posts for more recent or Sethi Associates for the full history.