Daily Summary – September 3, 2021 - Jobs Letdown

Daily Summary – September 3, 2021 - Jobs Letdown

Please excuse typos. Reminder US markets closed on Monday. I'll do an update on what happened most likely though.

After a much weaker than expected employment report, US equities took on a much more defensive tone, which aided large cap growth stocks and saw some selling in financials, both despite a tick up in 10 year yields to their highs of the week (although it was far from dramatic as we'll get to). Regarding the former, this has been going on for the last couple of months as the correlation between yields and large cap tech performance has moved back into positive territory (where it spent most of the last two decades).

So the result was a decent gain for NDX up three tenths, Naz was up two tenths, while SPX was flat and RUT lost a half percent. All closed higher for the week.

Much more red style box today with bias to large caps and growth.

Major Market Technicals

ATH's in NDX and Naz. RUT fell below that uptrend line I drew in yesterday, but that was a pretty steep ascent that was going to prove unsustainable. Will be interesting to see where it goes on Tuesday.

SPX Sector Flag

Weaker SPX sector flag which went from eight green sectors yesterday to just four today and none up over four tenths. No sector down more than eight tenths though with utes taking that bottom spot today followed by our four core cyclicals.

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. ATH.

XLRE - Real Estate - MACD go long, RSI neutral, overbought, above all moving averages. ATH. Extended. Might be peaking?

XLP - Staples - MACD go long, RSI neutral, above all moving averages. Upgraded today

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

XLY - Discretionary - MACD go long, RSI neutral, above all moving averages.

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.

XLI - Industrials - MACD go long, RSI neutral, back above all resistance. On watch for upgrade.

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

- 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).

XLF - Financials - MACD sell longs, RSI neutral. Fell below 20-DMA. Downgraded but might not be for long.

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)

After a big run XBI hit resistance at the 200-DMA and pulled back almost 2% today. IBB was down a tenth. Transp also down 1%, homebuilders two thirds of a percent and retail half of that. Semi's up half percent.

Breadth

I was hoping breadth would be solid today to give us a full week of better breadth but it was not to be. Only 37% positive volume and 39% of issues on NYSE and 46% positive volume, 40% of issues on Naz. That's really poor considering that Naz numbers were significantly better yesterday with less of a point gain, and SPX same thing when compared to Wednesday. We'll see what Tuesday brings.

Commodities/Currencies/Bonds

Bonds - 10-year yields like equities fell on the jobs release but almost immediately recovered and yields ended up trading to the highs of the week just under the 200-DMA, up just under four basis points at 1.322%. 2-year yield ended flat at 0.208%.

The 5/30 curve did steepen a bit though.

Dollar (DXY) - Did end up testing the $92 level we called for earlier this week. I remain dubious it holds, but it did on its first test today as it finished a bit above at $92.117 after briefly pushing below. Technicals remain firmly negative (on daily chart, weekly still positive but turning).

VIX - Finished flat at 16.41.

Crude (/CL) - After once again pushing through the 50-DMA and $70, it again fell below and ended up red down over 1%, closing at $69.10. Technicals remain positive (on daily chart, weekly still negative) but this is proving formidable resistance.

As US oil rigs fall by 16 this week which is a bit of a surprise. Nat gas rigs were up by 5.

International rigs tick up 14.

As 93% of Gulf oil productions still shut in. Cumulative losses now over 13mb.

Nat Gas (/NG) - Up another 1% today to finish just under the highs of the week at $4.697. It is now up over 20% since last Thursday. Technicals remain firmly positive with just a slight RSI divergence but also overbought (although it's been more overbought in the past). I had said it seemed like it was perhaps peaking yesterday, but I guess not yet.

As more potential winter supply issues highlighted, this time from Russia. BBG.

Gold (/GC) - Just when I start to have my doubts, it gets moving, closing up a little over one percent at its highest levels of the week at $1829.9 as it ran out of steam at the July highs ($1837). Technicals remain positive. Has some room to run if it can clear that level. Also weekly chart got a MACD "cover shorts" crossover and has an RSI positive divergence.

Copper (/HG) - Green again today as it found its footing now above the 50-DMA. Some strong overhead resistance though. Technicals remain favorable (on daily chart, weekly still negative).

U.S. Data

Reported on employment reports and services PMIs. Links below.

US Change In Nonfarm Payrolls Aug: 235K (est 733K; prevR 1053K; prev 943K) - Pause in service job gains causes big miss on headline (h/h report was better), wages up strongly - details

US Change In Nonfarm Payrolls Aug: 235K (Est 733K; prevR 1053K; Prev 943K) - Pause In Service Job Gains Causes Big Miss On Headline (H/H Report Was Better), Wages Up Strongly - Details

US ISM Non-Mfg PMI Aug: 61.7 (est 61.5; prev 64.1) - ISM Services decelerates but remains very strong

US ISM Non-Mfg PMI Aug: 61.7 (Est 61.5; Prev 64.1) - ISM Services Decelerates But Remains Very Strong

US Markit Services PMI Aug F: 55.1 (est 55.2; prev 55.2) - Markit comes in slightly under flash read but still firmly above 50 with backlogs hitting a record high

US Markit Services PMI Aug F: 55.1 (Est 55.2; Prev 55.2) - Markit Comes In Slightly Under Flash Read But Still Firmly Above 50 With Backlogs Hitting A Record High

On that jobs report here was some reaction. BBG.

Next Week

After a very heavy domestic data week we get a very light one next week with likely no market moving reports and only half dozen or so notable ones.

Internationally we'll get Chinese trade data, German ZEW, UK July GDP, Canadian jobs report, and rate decisions from BoC, RBA, and ECB. That last one will be heavily watched.

And earnings season continues to wind down. Only about 100 reports again next week including ADR's. Highlights are LULU and RH on Wednesday, ORCL and ZS on Thursday, and KR on Friday.

Overall

Last Friday's prediction for this week being a choppy drift up was accurate. Next week is much harder to call as everyone comes back from vacations. Volumes should be heavier, which isn't necessarily a bad thing. We're a bit extended on the big cap indices so wouldn't be surprised to see some weakness but nothing I'd put a trade on regarding.

And today is the final day for posting SPX progress versus our 3Q20 roadmap. It was useful at the beginning, less so at the end. But we are once again seeing the "liftoff" we saw at the end of 3Q20 earnings season. If you want a chart of the "liftoff" look at Monday's wrap up, but the idea is we've seen continued gains for 3-5% following the end of every earnings season the past three. What about the fourth? Well that was the September 2020 peak (which was almost exactly one year ago today). That was an old-fashioned correction. I vaguely remember those. That selloff started the week before Labor Day and continued through the 24th. We had a big rally then retested then moved higher starting just before the election. Hopefully we don't see a reprise of that. Chart below though as a reminder.

3Q20 Earnings Season

This Earnings Season

Here's last Sep through Nov 10th.

And you know the "late summer playbook" by now (which I guess now has to be updated to a "Fall playbook"?) - Expect choppiness with lots of ups and downs, but basically ending up 2Q earnings season (which is roughly 9/12) around where we started. That said, it's starting to look like we're going to end up a bit higher than where we started (we're currently 3.5% 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 could also be an overly aggressive Fed statement). But I'm starting to question those numbers and thinking it may be more like 7-12%.

Misc.

Some other random stuff.

As repos remain under $1.1T.

Also just a reminder that pandemic unemployment benefits expire this weekend. I'll have a lot more on that as we move through the month.

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.