Two thoughts this morning. First, I continue to have one eye on China. Their potential real estate and debt implosion (absent a government bailout) still have the potential to disrupt the global economy. The Taiwan threat (and its potential to distract social unrest at home) looms large. Japan is now beginning to react to the China rhetoric. So far this is noise – but it could easily become signal.
My second thought is that U.S. junk bonds are doing just fine. Given that China’s debt problems have disrupted their junk bond market (yields approaching 13%), our market is not flashing any risk-off signals as yet at 3% yields. This also has me leaning toward the current market dip being resolved soon and favorably.
U.S. interest rates seem to be moving lower from their recent consolidation. That has been challenging for Energy and Financials this year, but now Energy may be leaning forward again based on the last few sessions. Financials are still basing and failed to break out last week. Bank buybacks are helping the sector.
In a sense though, the 11 S&P 500 sectors have been all over the place – with leadership in tech and new economy stocks remaining strong.
Where that leaves us this morning is that the S&P 500, our market proxy, reached the 80-day cycle line (FLD) yesterday and made a nice pivot. But while the price has achieved the minimum target, time is still left on the clock. We will know more if we get follow-through today on yesterday’s rally. Also, we need to see if we can move past the midpoint of the recent decline without another down leg.
It seems too easy that we would just continue the same pattern as the past four months. The market loves to lull us into a pattern only to morph. My best guess is that we run the clock into next week with a small rally, some sideways action, and another leg down or retest of yesterday’s low into the Fed meeting.
So conquering the 21-day line and recent highs around 4478.50 hands the ball back to the bulls. A close below 4425.25 swing low keeps the sellers in charge as they had been before yesterday’s pivot. Today, I will stay with a bull bias as long as the overnight low holds at 4462.50, also the top of the single prints. I am looking for acceptance above 4462.50 and preferably above 4478.50.
The NASDAQ 100 is stronger than the S&P 500, having held at the 21-day line while the S&P 500 nearly tagged its 50-day line yesterday. As long as interest rates behave, this relative strength will likely maintain.
U.S. Retail sales exceeded expectations this morning. That is good news for the economy. Initial jobless claims were in line with expectations. But 332,000 is still a lot of claims – especially when we are told that there are a record 10 million plus job openings out there. I am still wondering how mandatory vaccines might impact the job market.
Stay tuned,
A.F. Thornton