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Daily Summary – September 9, 2021 - Post-Labor Day Sluggishness Part III

Sep. 09, 2021 5:55 PM ET
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Daily Summary – September 9, 2021 - Post-Labor Day Sluggishness Part III

Please excuse typos. As a side note, after talking with some followers, I'm going to try to make this a little more digestible for those who are not as familiar with the markets, lingo, etc. Feel free to leave your thoughts in the comments section, they are appreciated.

Will start a small glossary at the start also.

SPX = S&P 500 Naz = Nasdaq CompositeNDX = Nasdaq 100 (100 largest stocks in the Naz)RUT = Russell 2000 (smaller stocks) DMA = Daily Moving Average (the moving average over the given time period (20, 50, 100, 200 days normally)).

MACD = Moving Average Convergence Divergence (basically a trend indicator)

RSI = Relative Strength Index (basically what it sounds like)


Equity markets continued their post-holiday sluggishness again today reversing from early gains, again leaving the green to other markets. In that regard natural gas was up again today closing over $5/MBTU for the first time since 2014. In equities, some outperformance to small caps with the RUT finishing around flat levels. Naz was down quarter of a percent and NDX and SPX more like four tenths. First time SPX has been down four straight days since June.

Lots of red in the style box again today with growth and small caps holding in a little better. Interesting that every day this week there's been one green box but it's been different every day. Yesterday was core mid-caps, today small growth.

And Charlie McElligott out with an update on gamma exposure. As a reminder, next week will end with a triple witching day and it's a "whopper" (his words). Via Heisenberg Report:

“The upcoming quarterly Index / ETF options expiration next week is set to be a whopper, because nearly 70% of the S&P options Delta and Gamma is front-month for the serial Op-Ex which, despite [a] modest pullback from all-time highs, remains ‘mongo,'” he wrote.

As was the case last month, it’s conceivable that equities will melt-up into one of the strikes with the most “gravity” into expiration, “but the risk,” Charlie said, “is that you ‘unclench’ after that.”

That said, this warning of a gamma "unclench" as he puts it has been there month after month but it's been a while since we saw it happen (it should be noted that it used to happen with some regularity before this year). Will this time be different? Could be, but for now I'm going with the 2021 trend which has been that we see weakness ahead of the options expiry. As I've noted previously the week of options expiration has been down pretty consistently this year. Don't see any reason to expect next week to be different. FWIW 4500 SPX currently has the greatest "gamma on the board" so that's where any "pin" should be.

Major Market Technicals

I missed noting that SPX had a "sell longs" daily chart MACD signal this week. The other three are getting close. SPX, NDX, and Naz also have RSI negative divergences. So technicals starting to turn south on the index level, but lots of support.

SPX Sector Flag

SPX sector flag deteriorated to just three green sectors (all cyclicals) from five yesterday. Interestingly the top two were fins and energy despite long rates and crude both falling. Go figure. Neither was up more than around a third of a percent though. Defensives were at the bottom today. Led by RE which was down over 2% (which likes low rates, again, go figure). Health care the other sector down over 1% (on the day that Biden announces a 6-point health plan (again... ok, you get it)).

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.

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

XLC - Communications - MACD go long, RSI negative, above all moving averages.

XLK - Tech - MACD sell longs, RSI negative, above all moving averages. On watch for downgrade if it falls below 20-DMA.

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

XLRE - Real Estate - MACD go long, RSI negative, above all moving averages. On watch for downgrade.

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

XLU - Utes - MACD sell longs, RSI negative, back over all resistance.

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


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

XLF - Financials - MACD sell longs, RSI neutral. Below 20-DMA.

XLB - Materials - MACD sell longs, RSI negative, below multiple MA's. Downgraded today until it gets technicals in order.

XLV - Health care - MACD sell longs, RSI negative, fell below 20-DMA. Downgraded today.

XLI - Industrials - MACD sell longs, RSI neutral, fell below multiple MA's.

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 $50 level (around 50 DMA).

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


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

Retail bounced back nearly 1% after a few days of selling. Homebuilders, semi's and bios were also green while transp was down 1%.

Transp now at lowest close in a month around the place it bottomed then and right at 200-DMA. This would be a good place for a stand but technicals are poor.


One piece of good news is breadth improved particularly volume. 56% positive volume and 47% of issues on NYSE and 66% positive volume, 50% of issues on Naz. That's really good on down days for both SPX and Naz, particularly that that 66% positive volume on Naz on a down day. It's only one day but after yesterday's really poor breadth maybe glimmers of change?


Bonds - With another strong auction today (details below) yields fell further today with the 10-year falling by four points to 1.30%. Most of that fall came after the auction. This saw them testing the uptrend line and 50-DMA. They closed just above. 2-year yield finished around flat levels at 0.214%. So some yield flattening as noted above.

After strong 10-year auction yesterday with the large "trade through", 30-year auction today was even stronger. Here demand improved with much stronger bid/cover than previous (amount of bids over amount of offering) and more total bidders (with more indirect (foreign and central bank buying) and less direct (institutions)). Dealers took only 13% of the auction. This also traded through by over a basis point (actually by almost 2 basis points). Very strong.

Dollar (DXY) - Fell a bit as it has trouble getting over the 20-DMA. Technicals continue to turn positive (but not there yet). Finished at $92.508.

VIX - Volatile day which saw it end up at 18.80. Could see it going either way tomorrow.

Crude (/CL) - Fell by 2% as Chinese released details of their upcoming SPR release as it ignored the draws in the EIA report linked below. Keeps it in the same range from the past couple of weeks. Finished at $67.92 WTI. Technicals remain positive for now (on daily chart weekly remains negative).

As European oil inventories fell by 7.83mb in August.

Nat Gas (/NG) - Pushed up another 1% today to close over $5 for the first time since 2014 (by less than a penny) despite a larger than expected injection (below). It's up 28% since 8/26. Technicals remain very positive but also very overbought.

Gold (/GC) - After failing at resistance again today fell back down two tenths at $1796. We'll see what happens but not looking very solid from my vantage point. Technicals now tilt negative.

Copper (/HG) - Also failed at resistance to also finish down mildly. Technicals also have almost flipped negative.

U.S. Data

Did reports on jobless claims and the EIA weekly report today. Links below.

Initial Jobless Claims week ending Aug 28 seasonally adjusted: -35K to 310K vs. 344K consensus, 345K prior (revised from 340K) - New post-pandemic lows for claims - claims now in "normal" territory - will be a big change next week


US DoE Crude Oil Inventories (W/W) 03-Sep: -1528K (est -4750K; prev -7169K) - Another big draw in petroleum products this week - details


And one thing I came across about the jobless claims report that I didn't pick up on is it would have been even better if not for Hurricane Ida.

And we got the Dodge Momentum Index today which is sort of a leading index for CRE. It fell back 3% more from decade highs reached in May led by a fall in institutional. According to Dodge, this index leads "construction spending for nonresidential buildings by a full year". It remains above Jan 2020 levels.

From the report:

The Dodge Momentum Index dropped 3% in August to 148.7 (2000=100) from the revised July reading of 154.0. The Momentum Index, issued by Dodge Data & Analytics, is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year.

The commercial planning component lost 2% in August, while the institutional component fell by 6%.

Projects entering the earliest stages of planning have declined following the torrid pace set in the spring. The decline in August was the third consecutive drop in the Momentum Index, which is now off 14% from the most recent high in May, since May the commercial component is down 10% and the institutional component is 22% lower. This reversal comes as prices for materials used in nonresidential buildings increase in combination with a shortage of labor and a rising number of new COVID-19 cases from the Delta variant, all working in concert to undermine confidence in the fledgling construction recovery. There were some pockets of strength in August, however, as more data center, education and warehouse projects moved into planning relative to the prior month. Additionally, the overall level of the Momentum Index is 19% higher than one year ago; institutional planning was up 17% and commercial planning was 20% higher than last year.

Next 24

Tomorrow we'll get PPI for July in the US.

Internationally we'll get a some data out of Europe including UK IP, construction output, and GDP for July, and German CPI, in addition to other miscellaneous data.

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


Sentiment has definitely pulled back some this week similar to what we saw from the FinTwit polls from Monday. But it seems more like uncertainty as the neutral camp in AAII rose by double digits for the first time in three years.

That cautiousness is good to see, so I'll continue with this week's outlook - "a general upward choppy drift, but keeping an eye out for that big drawdown that I said would come Aug-Oct period. But instead of the 10-15% I had targeted I'm starting to think it might not be much more than 5-7%. And honestly we might not even get that if Congress can get the debt ceiling raised and budget passed without too much drama."


Some other random stuff.

As repos fall back but remain over $1.1T.

As WH levels up on vaccine requirements with a requirement for all federal workers and most government contractors as well as large employers (but large employers can do weekly testing instead). WSJ.

And more issues with European power with low winds exacerbating the already high prices. BBG.

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to https://seekingalpha.com/user/15085872/instablogs for more recent or https://sethiassociates.blogspot.com for the full history.

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