Daily Summary – September 24, 2021 - Buyers Take A Break

Daily Summary – September 24, 2021 - Buyers Take A Break

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. Also, don't discuss crypto much as I'm still not that familiar with it.

Also starting a small glossary to help.

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)

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Buyers took a breath this morning after a fierce two-day rally, as US equities started off the day in the red after hitting resistance yesterday (20-DMA on SPX, NDX, and Naz). That allowed volatility targeting flows which had not fully "caught up" with selling positions as the "realized" volatility of early in the week continued to feed through to volatility models to push stocks lower, but buyers got interested when stocks got to support (50-DMA's for the indices noted above, 100-DMA for RUT). From there stocks rebounded (at least the first three) pushing back to flat levels. RUT, held back by small growth stocks, which didn't recover much during the session, ended in the red at -0.5%. SPX (+0.15%) and NDX (+0.09%) were up a bit while Naz was just under flat. All though (including the RUT) were able to finish in the green for the week.

Style box shows the conspicuous weakness of smaller growth stocks.

And we noted the fund flows through Wednesday showed the first weekly outflow from fund managers, but it might have looked different if it was retail investors who plowed $4.84B into the market Monday-Thursday of this week according to Vanda Research. BBG.

And one point that I don't think I noted in the BofA note this morning was the second biggest weekly outflow ever from infrastructure funds.

Major Market Technicals

With the basically unchanged end, SPX, NDX, and Naz remain just below their 20-DMAs. RUT remains above all MA's I follow just above its 100-DMA. Technicals on all of them continue to firm up (but remain negative for now) on the daily charts. On the weekly charts, all four have weak technicals with Naz and NDX daily MACD's moving to a sell longs signal to join SPX and RUT who were already there.

As a side note, I got a question on the different MACD signals. Below is an article on MACD's in general (but there are tons if you Google it). The "signal" is from a crossover, which is discussed. The only distinction is whether the lines are above or below the 0 line. When they're above it's a "long" signal (either go long or sell longs). When they're below it's a "short" signal (either go short or cover shorts). So as you can tell MACD generally only wants you to be long when both lines are above 0 and the short term line is above the long term line. I just use MACD as a guide, and I don't follow these rules strictly (or even loosely oftentimes depending on other things like fundamentals, other technical signals, etc.).

Moving Average Convergence Divergence (MACD)

SPX Sector Flag

Weaker SPX sector flag today but not bad for a flat day with seven green sectors (nine yesterday) but none up over nine tenths (seven yesterday). Energy led for a fourth day. Defensives dominated the red sectors with utes down for a 12th consecutive session. Materials also red on the back of bad says from VMC and MLM (construction materials).

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. I do often buy calls though when I upgrade. Going to keep playing with the groupings so bear with me. Started to bold changes.

With the flat day no changes but several sectors on the verge of upgrades. Weekly charts all technically negative again this week.

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

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

XLY - Discretionary - MACD sell longs, RSI neutral, above all MA's. On watch for another upgrade if technicals finish turning to positive.

XLF - Financials - MACD go short, RSI negative, above all MA's. On watch for another upgrade if technicals finish turning to positive.

- 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).

XLK - Tech - MACD sell longs, RSI negative, under multiple MA's. On watch for upgrade.

XLE - Energy - MACD cover shorts, RSI neutral, under multiple MA's. Will upgrade if it can get over $51.50.

XLV - Health care - MACD go short, RSI negative, under multiple MA's.

XLP - Staples - MACD go short, RSI neutral, under multiple MA's.

XLI - Industrials - MACD go short, RSI under to over 30, below multiple MA's.

XLC - Communications - MACD sell longs, RSI under to over 30, under multiple MA's.

XLU - Utes - MACD go short, RSI negative oversold, under multiple MA's.

XLB - Materials - MACD go short, RSI negative but under to over 30, below multiple MA's.

XLRE - Real Estate - MACD sell longs, RSI negative, below multiple MA's.

- 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)

The weakest technically of our key subsectors, transportation, was the only one green today (maybe a sign of a bottom?) up just under 1%. Also got a "cover shorts" MACD signal as well as a positive RSI breakout. Now if it can just get over that trendline...

Bios the big loser down -2%. The rest were down mildly (less than half percent).

Breadth

After doing well all week, breadth not good today. On NYSE volume was only 45% positive and issues 40%. Naz was 49% positive volume, issues 40%. Not good, but it had a strong week, so we'll see what next week brings.

Commodities/Currencies/Bonds

Bonds - Bonds sold off again today across the curve with another bear steepener. 2-year yields were up by two basis points to 0.29%, five years up three basis points to 0.97%, and 10-years up six basis points to 1.47%. The 30-year was also up seven basis points to 1.99%. This puts the 2-year at its highest level post-pandemic and the 10-year to its highest since early July and over all major resistance. The 10-year yield is up by 16 basis points from its lows on Monday.

Dollar (DXY) - Bounced back today ending right about where it started the week finishing at at $93.28. Remains in short term uptrend. Daily and weekly technicals remain positive.

VIX - Looked like it might be getting some legs this morning but ended up falling through that support that we thought would most likely fail, down to 17.75.

Crude (/CL) - Pushed up to highest levels since July 30th finishing at $73.95 WTI for a fourth weekly gain. Technicals remain very positive on daily chart. Weekly are starting to firm up.

As oil rigs ticked up this week while gas rigs remain stuck around 100.

Nat Gas (/NG) - Continued to bounce off its 20-DMA moving up 4% today closing at $5.18. Daily technicals remain negative but are quickly turning. Weekly technicals remain very positive but also very overbought.

Gold (/GC) - Was able to find support at yesterday's lows and finished a bit higher. Closed at $1751. Daily and weekly technicals remain negative.

Copper (/HG) - Was able to move a little higher but continues to be under strong resistance (20 and 50 DMAs). Technicals remain negative daily chart but starting to turn. Weekly not as close to positive.

U.S. Data

Only report today was new home sales for August. Link below.

US New Home Sales Change (M/M): 1.5% (est 1.0%; prev 1.0%) - Sales remain solid held back by supply - details

US New Home Sales Change (M/M): 1.5% (Est 1.0%; Prev 1.0%) - Sales Remain Solid Held Back By Supply - Details

As Wards forecasts another 5% drop m/m in vehicle sales for September to 12.4M SAAR. That would be down 23.8% y/y.

Next Week

Another pretty big data week next week although we won't get the employment report even though Friday is the first. Big reports I'll be keying on are durable goods, consumer confidence, and income and spending (with PCE).

Overall

Sentiment has started to get less cautious (put/call ratio was down to 0.79 yesterday), we still have some important resistance to clear on the index and sector level charts (but we are so close), and I'd really like to see technicals firm up further. That said, I still feel like the easiest path for now is up.  But there's quite a bit going on in Congress (including a rare Saturday session to move the reconciliation bill forward) with Nancy Pelosi needing cooperation from both progressives and moderates to get the debt limit and government funding bills through (and then there's the Senate), so there's plenty of potential for some market turbulence around those or other events.

Misc.

Other random stuff.

Repos remain over $1.3T.

As WH gets serious about the chip supply shortage.

And Iran says it will return to talks "soon". BBG.

And US achieves a deal with Huawei finance chief that will allow her to return to China. This has been a thorn in the side of US/Chinese/Canadian relations (Canada arrested her on behalf of the US and she has been under house arrest in Vancouver while extradition hearings (which wrapped up last month) were ongoing). WSJ.

As boosters hopefully coming soon for non-Pfizer vaccines.

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.