• Stocks are drifting on Wall Street Tuesday, and the S&P 500 is once again bouncing against its record closing level, which has been acting as its ceiling in recent days. The S&P 500 was virtually flat at 3,382.24 in midday trading. Earlier, it briefly rose above its record closing high of 3,386.15, which was set in February before the pandemic pancaked the economy. It’s the fourth time in the last week that’s happened, and each past time, the index faded back below that record level during the afternoon.

 

• This is the first day, though, that the S&P 500 crested above 3,393.52, which had stood since Feb. 19 as the highest level it ever touched within a day’s trading. The Dow Jones Industrial Average was down 87 points, or 0.3%, at 27,757, as of 11:12 a.m. Eastern time, and the Nasdaq composite was up 0.4%. Trading has been very quiet in recent days, after a tremendous rally since March wiped out virtually all of the nearly 34% drop the S&P 500 suffered earlier from its all-time high. Tremendous amounts of aid from the Federal Reserve and Congress helped launch the rally, which built higher on signs of budding growth in the economy. More recently, corporate profit reports that weren’t as bad as expected have helped boost stock prices.

 

• Now, analysts say markets are taking a pause with less news flowing in amid a seasonally slow period of trading. Big U.S. companies are mostly finished reporting their earnings for the spring, while investors are waiting to see if Congress and the White House can get past their partisan differences and agree on more aid for the economy.

 

• It’s mostly just retailers left in the S&P 500 to report their second-quarter results, and several continued the strong recent trend of delivering better results than expected.

 

• Advance Auto Parts rose 1.2% after it reported a much bigger jump in earnings for the spring than analysts had forecast. It said enhanced unemployment benefits and other aid for the economy provided earlier by the U.S. government helped its customers afford parts to repair and service their automobiles. It said sales grew at its established stores last quarter by the strongest degree in nearly a decade.

 

• Walmart and Home Depot also reported better results than analysts expected. Walmart benefited from surging sales for its online business, as customers looked to buy necessities without having to go to a store. Home Depot, meanwhile, saw more people picking up do-it-yourself projects as the pandemic kept many working from home. Their stocks, though, were more muted. Walmart was down 1.5% after waffling between small gains and losses. Home Depot slipped 1.1%. Home Depot’s report coincided with data from the Commerce Department showing a recovery is continuing for home construction. Builders broke ground on more new homes in July than economists expected, and at a faster pace than June.

 

• It echoes other data that have shown budding improvements across the economy since the spring, as widespread shutdowns have eased. The worry, though, is that conditions could backtrack if coronavirus counts worsen or if Washington can’t broker a deal on more aid for an economy that investors say absolutely needs it. Extra unemployment benefits for workers and other stimulus for the economy have already expired.

 

• Numerous other risks are also hanging over the market. The world’s two largest economies keep ratcheting up their tensions, and China on Tuesday accused Washington of damaging global trade with sanctions that threaten to cripple tech giant Huawei. China added that it will protect Chinese companies, though it gave no indication of possible retaliation.

 

• The yield on the 10-year Treasury dipped to 0.66% from 0.69% late Monday.

 

• In Asia, South Korea’s Kospi led regional losses, slumping 2.5% amid worries over surging coronavirus cases. Hong Kong’s Hang Seng index lost 0.2%, Japan’s Nikkei 225 slipped 0.2% and stocks in Shanghai added 0.4%.

 

• In Europe, Germany’s DAX slipped 0.4%. The French CAC 40 lost 0.7%, and the FTSE 100 in London dipped 0.8%.

 

• Benchmark U.S. crude oil fell 0.7% to $42.25 per barrel. Brent crude, the international standard, slipped 0.4% to $45.18 per barrel.

 

• Gold added 0.4% to $2,005.70 per ounce.
  • Stocks are drifting on Wall Street Tuesday, and the S&P 500 is once again bouncing against its record closing level, which has been acting as its ceiling in recent days. The S&P 500 was virtually flat at 3,382.24 in midday trading. Earlier, it briefly rose above its record closing high of 3,386.15, which was set in February before the pandemic pancaked the economy. It’s the fourth time in the last week that’s happened, and each past time, the index faded back below that record level during the afternoon.

   

  • This is the first day, though, that the S&P 500 crested above 3,393.52, which had stood since Feb. 19 as the highest level it ever touched within a day’s trading. The Dow Jones Industrial Average was down 87 points, or 0.3%, at 27,757, as of 11:12 a.m. Eastern time, and the Nasdaq composite was up 0.4%. Trading has been very quiet in recent days, after a tremendous rally since March wiped out virtually all of the nearly 34% drop the S&P 500 suffered earlier from its all-time high. Tremendous amounts of aid from the Federal Reserve and Congress helped launch the rally, which built higher on signs of budding growth in the economy. More recently, corporate profit reports that weren’t as bad as expected have helped boost stock prices.

   

  • Now, analysts say markets are taking a pause with less news flowing in amid a seasonally slow period of trading. Big U.S. companies are mostly finished reporting their earnings for the spring, while investors are waiting to see if Congress and the White House can get past their partisan differences and agree on more aid for the economy.

   

  • It’s mostly just retailers left in the S&P 500 to report their second-quarter results, and several continued the strong recent trend of delivering better results than expected.

   

  • Advance Auto Parts rose 1.2% after it reported a much bigger jump in earnings for the spring than analysts had forecast. It said enhanced unemployment benefits and other aid for the economy provided earlier by the U.S. government helped its customers afford parts to repair and service their automobiles. It said sales grew at its established stores last quarter by the strongest degree in nearly a decade.

   

  • Walmart and Home Depot also reported better results than analysts expected. Walmart benefited from surging sales for its online business, as customers looked to buy necessities without having to go to a store. Home Depot, meanwhile, saw more people picking up do-it-yourself projects as the pandemic kept many working from home. Their stocks, though, were more muted. Walmart was down 1.5% after waffling between small gains and losses. Home Depot slipped 1.1%. Home Depot’s report coincided with data from the Commerce Department showing a recovery is continuing for home construction. Builders broke ground on more new homes in July than economists expected, and at a faster pace than June.

   

  • It echoes other data that have shown budding improvements across the economy since the spring, as widespread shutdowns have eased. The worry, though, is that conditions could backtrack if coronavirus counts worsen or if Washington can’t broker a deal on more aid for an economy that investors say absolutely needs it. Extra unemployment benefits for workers and other stimulus for the economy have already expired.

   

  • Numerous other risks are also hanging over the market. The world’s two largest economies keep ratcheting up their tensions, and China on Tuesday accused Washington of damaging global trade with sanctions that threaten to cripple tech giant Huawei. China added that it will protect Chinese companies, though it gave no indication of possible retaliation.

   

  • The yield on the 10-year Treasury dipped to 0.66% from 0.69% late Monday.

   

  • In Asia, South Korea’s Kospi led regional losses, slumping 2.5% amid worries over surging coronavirus cases. Hong Kong’s Hang Seng index lost 0.2%, Japan’s Nikkei 225 slipped 0.2% and stocks in Shanghai added 0.4%.

   

  • In Europe, Germany’s DAX slipped 0.4%. The French CAC 40 lost 0.7%, and the FTSE 100 in London dipped 0.8%.

   

  • Benchmark U.S. crude oil fell 0.7% to $42.25 per barrel. Brent crude, the international standard, slipped 0.4% to $45.18 per barrel.

   

  • Gold added 0.4% to $2,005.70 per ounce.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 moved up by 0.27% to end the day at 3382. The total intraday range was 8.4 points.

 

• The intraday range has shrunk in the past few days, which suggests that both the bulls and the bears are playing it safe.

 

• However, with bulls holding on to their positions, the possibility of an upside breakout⁸ is high.

 

• Following the tight range action of the past few days, the breakout⁸ is likely to be strong.

 

• As we have been saying, if the index sustains the new highs for three days, we anticipate a melt up because a new high is likely to attract further buying from traders who have missed buying at lower levels.

 

• However, if the bulls fail to sustain the new highs, then a few days of consolidation¹¹ or minor correction¹² is possible.

 

• We remain cautious and will start turning bearish³ if the index breaks⁶ and sustains below the 20-day EMA.

Market Data

• 1529 stocks advanced on the NYSE, whereas, 1452 stocks declined. 91 stocks made new 52-week highs, whereas, 11 stock made new 52-week lows.

 

• 1842 stocks advanced on the Nasdaq, whereas, 1549 stocks declined. 135 stock made new 52-week highs, whereas, 14 stock made new 52-week lows.

Intraday Chart

 

• The index opened strong but the bulls could not build up on the initial strength, which shows profit taking close to 3388 levels.

 

• On the downside, the bulls purchased the dips to 3379 levels, hence, most of the day was spent in a tight range.

 

• Today, a break⁶ above 3388 can propel the index to 3400 and then to 3416.

 

• On the other hand, a break⁶ below 3378 can sink the index to 3364.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• Technology stocks are being led higher today by rallies in Tesla (+7.4%) and Nvidia (+5.5%). Bank stocks were undercut today after news that Berkshire Hathaway reduced its stakes in some big U.S. banks. Boeing (-3.2%) today fell on U.S./Chinese tensions and its report that it received no new orders in July. Boeing’s decline weighed on the Dow Jones Industrials index. U.S. stocks are being undercut today by U.S./Chinese tensions after Saturday’s U.S./China 6-month review of the phase-one trade deal was indefinitely postponed. That review was expected to be a teleconference on Saturday among U.S. Trade Representative Lighthizer, Treasury Secretary Mnuchin, and Chinese Vice Premier Liu. Scheduling delays were cited as the reason for the postponement, but the markets suspect there is a backstory that involves larger U.S./Chinese tensions. Chinese Foreign Ministry spokesman Zhao Lijian on Monday refused to answer a question about why Saturday’s meeting was postponed.

• U.S. stocks saw some carry-over support from today’s sharp rally by the Shanghai Composite index, which closed the day up +2.34% and is just below July’s 2-1/2 year high. Chinese stocks received a boost after the Chinese central bank today announced a larger-than-expected reserve injection with 700 billion yuan ($100 billion) of new 1-year funding via the bank’s medium-term lending facility.

• Meanwhile, there was a new move today by the Trump administration against China. The Commerce Department today added 38 Huawei affiliates in 21 countries to the U.S. economic blacklist, seeking to more thoroughly eliminate Huawei equipment from global 5G networks and restrict Huawei’s access to chips.

• Stocks are seeing support from today’s +6 point increase to 78 in the NAHB housing market index, which was much stronger than expectations of +2 to 74. The index matched its record 35-year high, which was originally posted in 1998 (data since 1985). However, stocks were undercut by today’s -13.5 point drop in the Aug Empire manufacturing index to 3.7, which was weaker than expectations for a smaller -2.2 point decline to 15.0.

• House Speaker Pelosi on Sunday called House members back to Washington from their August recess to hold a vote on the Post Office. However, there is no indication there will be any new talks on a pandemic bill after the talks collapsed and President Trump on August 8 issued four executive orders. The stimulus talks are not expected to be revived, if at all, until after Congress returns to Washington after Labor Day from its August recess.

• The ongoing Covid pandemic continues to negatively impact global economic growth and is weighing on stocks. Confirmed cases of Covid have risen above 21.11 million globally, with deaths exceeding 758,000.

• The VIX S&P 500 Volatility Index ($VIX) today is slightly higher by +0.05 at 22.10, consolidating mildly above last Tuesday’s 5-3/4 month low of 20.28. The VIX is far below March’s 11-1/2 year high of 85.47.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 finished the week with another small range day. The index corrected 0.02% to close at 3372.9. The total intraday range was 16.9 points.

 

• Although the index is struggling to breakout⁸ to new all-time highs, the bulls are not closing their positions. This increases the possibility of an upside breakout⁸.

 

• If the index enters a melt up after breaking out⁸ to new highs, then it is likely to be a good place to take profits.

 

• Conversely, if the index turns down from the current levels or reverses direction after making new highs and breaks⁶ below the 20-day EMA, then it will indicate profit taking and could result in a deeper correction.

 

• Currently, the sentiment is positive and any dips will be viewed as a buying opportunity.

 

• The number of stocks at new 52-week highs has been reducing gradually, which shows profit taking by a few traders. Therefore, we remain cautious but have not yet turned negative.

Market Data

• 1492 stocks advanced on the NYSE, whereas, 1449 stocks declined. 44 stocks made new 52-week highs, whereas, 7 stock made new 52-week lows.

 

• 1553 stocks advanced on the Nasdaq, whereas, 1770 stocks declined. 55 stock made new 52-week highs, whereas, 14 stock made new 52-week lows.

Intraday Chart

• The index again spent most of the day inside the tight range of 3364-3378. Usually, these tight ranges resolve with a sharp move up or down.

 

• On the downside, the bears broke below 3364 but the bulls aggressively purchased the dip.

 

• This shows that the trend remains to buy the dips.

 

• Today, a break⁶ above 3378-3388 is likely to attract further buying and start the next leg of the uptrend.

 

• On the other hand, if the index breaks⁶ below 3364, the bears are likely to intensify selling that can drag the price down to 3328.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• There was no such struggle for Apple tapping the bond market for the second time since May however, including raising both 30y and 40y bonds, and joining other mega cap and cash rich tech companies like Amazon and Google in raising long-dated debt at ultra-low yields. Credit was slightly weaker yesterday nonetheless with US HY finishing 6bps wider and IG 1bp wider. The DOW closed down -0.29% though the NASDAQ (+0.27%) did just manage to hold its head above water.

• This morning the focus has shifted to China’s July activity data which was slightly disappointing with industrial output rising by +4.8% yoy (vs. +5.2 yoy expected) while retail sales printed at -1.1% yoy (vs. +0.1% yoy expected). Fixed asset investment was in line with expectations at -1.6% yoy and the surveyed jobless rate was unchanged at 5.7%. The Shanghai Comp has given up gains to trade -0.16% following that while the Hang Seng was -0.19%. The biggest decline has come for the Kospi (-1.63%) following a tick up in virus cases. There’s better news for the Nikkei (+0.13%) and ASX (+0.56%).

• Data did its best to help risk in the early going with the stronger-than-expected weekly initial jobless claims print in the US, which fell below a million for the first time since the pandemic started. They came in at 963k (vs. 1.1m expected) in the week through August 8, and the report added to hopes that the labor market recovery is continuing into August. This optimism was supported by the continuing claims reading which came in at 15.486m (vs. 15.8m expected), which is its lowest since early April. Nevertheless, to put this progress in some perspective, it’s worth noting that the worst week following the GFC saw initial claims of “only” 665k, so we’re well above that level even now, with a long way to go before we reach pre-Covid normality once again.

• In terms of the latest on the stimulus, it was more of the same with House speaker Nancy Pelosi saying she didn’t know when the next talks with Republicans would take place. Bostic became the latest Fed official to weigh in, saying “I’m hopeful we will see more relief efforts out there to provide that support”. As for the latest on the virus, US cases rose by 53,483 in the past 24 hours (+1.0%) while Florida’s governor warned that more Covid-19 deaths may be coming at nursing homes and assisted-living facilities. Across the other side of Atlantic, Germany recorded the highest number of new cases (1,422) in more than three months, as cases also continue to rise in France (2,669) and Spain (7,550). Meanwhile, the UK imposed a mandatory quarantine requirement for 14 days on travelers from France, the Netherlands and four other countries while at the same time in England theatres, casinos and beauty salons are allowed to reopen. In Asia, South Korea reported a surge in new cases of 103, almost double from a day prior. New Zealand also recorded 12 new confirmed cases in the past 24 hours with 2 being outside of Auckland.

• As for European markets yesterday, sovereign debt lost ground across the continent. 10yr bund yields climbed +3.5bps to reach a one-month high, while 10yr yields on OATs (+4.9bps) and BTPs (+5.0bps) also saw sizeable moves higher.

• Oil prices also came down from their post-pandemic highs, with both WTI (-1.01%) and Brent crude (-1.03%) experiencing declines. The moves came after the International Energy Agency reduced their forecasts for oil demand this year by 140,000 barrels/day, the first downgrade in several months. Their 2021 demand estimate was also revised down by 240,000 barrels/day. Gold continued its recovery with a +1.98% advance, with silver also up +7.81%.

• We got a couple of Brexit headlines yesterday. The first came from the UK’s chief negotiator, David Frost, who tweeted that “Our assessment is that agreement can be reached in September and we will work to achieve this if we can.” The transition period concludes at the end of the year, but with time needed to ratify any agreement, this means that the effective deadline is earlier, and the EU’s chief negotiator, Michel Barnier, has previously pointed to October as the deadline for an agreement. Meanwhile, Prime Minister Johnson met with Irish Prime Minister Martin yesterday, with Martin saying that “It seems to me that there is a landing zone if that will”.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 formed a doji candlestick pattern yesterday. It closed at 3373.4 with a marginal loss of 0.2% for the day. The total intraday range was 23.8 points.

 

• The positive thing is that the index is closing near the all-time highs. This shows that the bulls are in no hurry to close their positions yet.

 

• While a new high is almost a certainty, whether the price will sustain the highs is to be seen. That will give us a good idea on what to expect next.

 

• If the index breaks out to new highs and sustains the levels for a few days, then it is likely to start the next leg of the up move.

 

• As we have been mentioning, the index will turn negative in the short-term if the bears sink and sustain the price below the 20-day EMA.

 

• Until then, we shall continue to hold positions but will turn aggressive sellers if the price closes below the 20-day EMA.

Market Data

• 1246 stocks advanced on the NYSE, whereas, 1750 stocks declined. 59 stocks made new 52-week highs, whereas, 3 stock made new 52-week lows.

 

• 1513 stocks advanced on the Nasdaq, whereas, 1820 stocks declined. 102 stock made new 52-week highs, whereas, 18 stock made new 52-week lows.

Intraday Chart

 

• The index largely remained in a range for most of the day, however, the bulls could not scale it above the previous day’s high.

 

• By the end, the index gave up some ground and closed near the lowest point of the day.

 

• Today, the bulls will make one more attempt to push the index to all-time highs, while the bears will try to sink the index below 3356 support and start a deeper correction.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• The other talk point yesterday was the bear steepening in bond markets. Indeed 10yr (+6.6bps) and 30yr (+7.5bps) Treasury yields saw their biggest increases in over a month, while the 2s10s curve steepened +4.6bps, the most since June 5th. The curve has steepened over 10bps since last Tuesday and is now back above 50bps with part of the driver being the deluge of issuance this week including a large 10y auction today and 30y auction tomorrow. It’s worth noting that corporate IG issuance has maintained a decent run rate this month too, at $69bn in August so far – on course to be the busiest August ever – and with a number of record low coupons hit in recent days.

• Yields have continued to tick higher with 10y and 30y Treasuries up another +1.5bps and +2.3bps respectively. Equity markets in Asia have also followed Wall Street’s lead with the Shanghai Comp (-1.99%), Hang Seng (-0.19%), Kospi (-0.09%) and ASX (-0.34%) all lower. Only the Nikkei (+0.35%) bucked the trend. In FX, the New Zealand dollar is down -0.47% after the country’s central bank said it would boost its large-scale asset-purchase program while keeping rates unchanged. The RBNZ also said that it is actively preparing for negative rates. Meanwhile, the US dollar index is up +0.23%, marking 3 days of continuous gains.

• Risk had been supported by President Trump’s comments about a potential capital gains tax cut even though we didn’t see any follow up to that in yesterday’s session. Regardless, while Trump can’t unilaterally cut the current rate without Congress the suggestion was that the President could issue an executive order that would mean no tax is paid on any appreciation tied to inflation. Kudlow’s comment about China “meeting the obligations of the trade deal” also helped solidify the moves and by the end of play in Europe, the STOXX 600 (+1.68%), the DAX (+2.04%) and the CAC 40 (+2.41%) all saw solid gains. The biggest sector winner however was banks which is unsurprising given the rates moves, with US banks rallying +2.43% and European banks rallying +4.06% after 10y bunds rose +5.0bps. That being said the flight to risk did see a tightening in peripheral spreads, as the gap between both Italian (-2.5bps) and Spanish (-2.5bps) 10yr debt over bunds fell to their lowest levels in nearly 6 months.

• Meanwhile, safe havens suffered with the risk-on move. Gold closed down -5.69% in its worst daily performance in over 7 years, and has dipped another -2.06% overnight to trade below $1900. Other asset classes weren’t immune to this pattern, with the traditional haven of the Japanese Yen as the worst performer among the G10 currencies, just as sovereign debt also lost significant ground. As for oil, that also came down from post-pandemic highs, with WTI (-0.79%) and Brent (-1.09%) both losing ground.

• On the coronavirus, the main development yesterday came from Russian President Putin, who said that Russia had become the first country that has granted regulatory approval for a vaccine, and added that his own daughter had received it. That said, other nations sounded a note of skepticism, and US health secretary Alex Azar said that the point was “not to be first with the vaccine, the point is to have a vaccine that is safe and effective”.

• In terms of other virus developments, New Zealand has placed Auckland under lockdown for an initial period of three days to trace the origin of the infections after 4 new cases were detected in a household while social distancing rules and limits on gatherings have been re-imposed on the rest of the country. Meanwhile, more than half of the respondents in a survey in Japan said the government should declare a new state of emergency. Australia’s State of Victoria is also continuing to see high growth in new cases as it reported a further 410 in the past 24 hours and recorded a record 21 deaths in a day. Across the other side of the world, new cases in the US rose by 1.0% in the past 24 hours versus the average 1.1% daily gain over the past week.

• With less than 3 months to go now until the presidential election, we got the news yesterday that Democratic nominee and former Vice President Joe Biden had picked California Senator Kamala Harris as his own vice presidential running mate. Harris herself ran for president in the Democratic primaries, being one of the frontrunners for the nomination last summer, though she ended her campaign before the first primaries took place. Markets have increasingly focused on Biden’s platform in recent weeks given his consistent polling lead, and a new national poll yesterday from Monmouth University showed Biden with a 10-point lead over President Trump, with 51% to 41%. We should hear more from Harris today, who’s expected to speak in Biden’s home state of Delaware.

• As for the data yesterday, in the UK labor market data showed a -220k fall in employment in the three months to June, which is the steepest decline since 2009, even if it was somewhat better than the -300k expected. Though the unemployment rate did unexpectedly remain at 3.9%, other data showed a more worrying picture, with the more up-to-date vacancies reading for the three months through July, which is a good proxy for labor demand, only up to 370k, so still beneath the lows seen after the GFC. Furthermore, early estimates from HMRC payrolls data show that in July, the number of payroll employees was down by -730k compared with March. Separately, other releases included the US PPI reading, which rose by a stronger-than-expected 0.6% month-on-month (vs. 0.3% expected), while the ZEW survey of investor expectations rose to 71.5 in August, its highest since December 2003, even as the current situation reading fell back to -81.3.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 came within a whisker of the all-time highs but could not hold on to the levels. Profit taking dragged the index to 3333.7, a drop of 0.8%. The total intraday range was 54.6 points.

 

• Yesterday, the index reversed direction from close to the all-time highs, which shows profit taking by some short-term traders.

 

• The index has formed a bearish engulfing pattern⁴, which usually acts as a reversal pattern. Today, if the index again corrects sharply, it will increase the possibility of a deeper correction¹² to the 50-day SMA at 3183.

 

• However, the number of stocks at new 52-week highs is still in triple digits, which shows that the strong stocks are holding up well.

 

• If the index recovers and moves up sharply today, then the bearish³ candlestick¹⁰ pattern will be invalidated.

 

• Therefore, we will watch for the next couple of days and then start taking profits aggressively if the index slips below 20-day EMA.

Market Data

• 1497 stocks advanced on the NYSE, whereas, 1483 stocks declined. 118 stocks made new 52-week highs, whereas, 3 stock made new 52-week lows.

 

• 1364 stocks advanced on the Nasdaq, whereas, 2013 stocks declined. 116 stock made new 52-week highs, whereas, 10 stock made new 52-week lows.

Intraday Chart

 

• The index broke above the 3378.8 resistance²⁵ but the bulls could not hold on to the higher levels. This attracted profit taking and the selling intensified as the markets broke below the previous day’s low of 3361.6.

 

• Today, the bears will try to resume the down move. The next support on the downside is at 3320 and then 3290.

 

• On the other hand, the bulls will try to stage a recovery, which is likely to gain strength above 3360.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• While the S&P nudged higher, the Dow Jones saw a much larger +1.30% gain, which is somewhat unusual given the strong correlation between the two indices. Indeed, it’s only the 6th time in the last decade that the Dow’s daily move has been more than one percentage point different to the S&P’s (even if 5 of them have been since the pandemic hit). At the other end of the spectrum though, the NASDAQ (-0.39%) slipped for a rare second consecutive session. At the margin the macro news acted as a bit of headwind and included the news of further Chinese sanctions on US officials after similar measures were announced by the US on Friday, with those sanctioned by China including the Republican senators Marco Rubio, Ted Cruz and Tom Cotton. Chinese Foreign Ministry spokesman Zhao Lijan said yesterday that “China has decided to impose sanctions on those individuals who behaved badly on Hong Kong-related issues”. And in a further sign that US-China tensions are showing no sign of abating any time soon, US Secretary of State Mike Pompeo tweeted yesterday that the arrest of Jimmy Lai under Hong Kong’s national security law was “further proof that the CCP has eviscerated Hong Kong’s freedoms and eroded the rights of its people.”

• Meanwhile, markets continue to turn a bit of a blind eye to the lack of any progress on the next US fiscal package with no updates to report of yesterday. Nevertheless, there was some more positive coronavirus news from the US, with the number of hospitalizations in New York State at the lowest since the start of the pandemic, and the number of cases in Florida at their lowest in over 6 weeks. California and Texas also reported a fall in hospitalizations. Overall, cases in the US grew by 44,647 in last 24 hours or +0.9% while at the same point last week cases had grown by 46,918 or 1.0%. Globally, the number of cases have crossed the 20 million mark. It is worth highlighting that it took 6 months for cases to reach 10 million after the first infection surfaced in China while the second 10 million took only 6 weeks. On the positive side, China has said that it will resume issuing tourist visas for visitors to Macau which has helped casino stocks rally in the region.

• In Asia, the Hang Seng (+2.40%) has led the way up after underperforming on Monday, while the Nikkei (+1.81%) was up following Monday’s holiday. The Kospi (+1.60%) and ASX (+0.84%) all also up. It’s been fairly quiet for overnight news, however President Trump did say that he’s “very seriously” considering a capital gains tax cut “which would create a lot more jobs”.

• In Europe the moves were pretty similar to the US in terms of the upward direction for equities, though the STOXX 600 (+0.30%) still remains nearly 16% beneath its own record high in February, with European indices having underperformed their US counterparts since the pandemic hit. Energy stocks led the rally on both sides of the Atlantic thanks to a strong performance in oil prices, and both WTI (+1.75%) and Brent (+1.33%) saw solid gains. Silver was up +2.93% at a 7-year high of $29.13/oz yesterday, though gold (-0.40%) continued to come down from Thursday’s record high with a 2nd successive decline. Looking at other markets, sovereign bonds advanced modestly in Europe, with yields on 10yr bunds (-1.7bps), OATs (-2.3bps) and BTPs (-0.8bps) all moving lower. Yields on 10yr BTPs were down to 0.918%, their lowest level in nearly 6 months. US Treasuries gave up their gains however, with 10yr yields ending the session up +1.2bps at 0.577%. The MOVE index of implied Treasury volatility did nudge up yesterday however still remains just 2 points off the all-time lows from the end of July. Speaking of volatility, the VIX is now down to 22.13, the lowest since 21 February.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 moved up marginally by 0.27% to end the day at 3360.5. The total intraday range was 27.9 points.

 

• The index has continued its journey northwards as it notched one more day of gains. This shows that the bulls continue to buy at every higher level.

 

• Having come this close to the all-time highs, the bulls will try to scale it. If the index sustains above 3400 for three days, the momentum is likely to pick up.

 

• The index could enter a period of melt up after the index sustains above 3400, which could result in a short-term top for the market.

 

• Therefore, we are cautious at these levels and will start taking profits aggressively if the index dips below the ascending channel¹.

 

• We are not looking to add fresh positions at the current levels unless the index breaks⁶ out and sustains the new highs.

 

• The next few days are critical for the markets as they will give an idea whether the top is in place or not.

Market Data

• 2172 stocks advanced on the NYSE, whereas, 827 stocks declined. 123 stocks made new 52-week highs, whereas, 5 stock made new 52-week lows.

 

• 2045 stocks advanced on the Nasdaq, whereas, 1313 stocks declined. 133 stock made new 52-week highs, whereas, 8 stock made new 52-week lows.

Intraday Chart

 

• The index opened strong but the bulls could not build up on the initial strength, which shows profit taking by a few traders.

 

• However, the bulls stepped in at lower levels, which shows that the buyers are keen to use the intraday dips to enter positions.

 

• Today, a retest of the new highs is possible. Strong support on the downside is in the 3320-3340 zone.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• The US president has no time for China’s late-night cat gifs: he issued new orders last Friday banning US companies from doing business with WeChat and TikTok. The orders – which come into effect 45 days from now – are the latest attempt by the US to curb China’s power in global technology. America, after all, has a long and growing list of blacklisted Chinese companies that mainly operate in the tech industry. Now it seems TikTok-owner ByteDance and WeChat-owner Tencent are next. As if things weren’t already bad enough for TikTok: the video-sharing network has been in the spotlight since the US threatened to ban its American operations earlier this month. And to make matters worse, Instagram recently launched its own video feed – which might remind TikTok of the time the photo-sharing app knocked Snapchat off the top spot.

• U.S. stock indexes are mixed with the Dow Jones Industrials at 5-1/2 month high. Stocks found support after President Trump on Saturday took executive actions to extend economic aid. Stocks also rallied on better-than-expected U.S. labor market data. Weakness in technology stocks weighed on the Nasdaq 100 and took the S&P 500 from modest gains to modest losses.

• President Trump signed four executive orders, including extending unemployment benefits, eviction protection, student loan relief, and a temporary payroll tax deferral, as Congress remains at an impasse on passing a new virus relief package.

• Today’s U.S. economic data was bullish for stocks after U.S. June JOLTS job openings unexpectedly rose +518,000 to 5.889 million, showing a stronger labor market than expectations for a decline to 5.300 million. Strength in energy stocks today is also supportive of the overall market, with crude oil prices up over +1% on demand optimism.
• European economic data today was bullish for stocks after the Eurozone Aug Sentix investor confidence index rose +4.8 to a 6-month high of -13.4, stronger than expectations of +2.2 to -16.0. Also, the Bank of France July business sentiment indicator rose 10 to a 14-month high of 99, stronger than expectations of +3 to 92.

• On the negative side for stocks is the escalation of U.S./China tensions. China’s Foreign Ministry today said that it would sanction 11 U.S. officials “who behaved badly on Hong Kong-related issues” in a tit-for-tat response to Friday’s action by the U.S. to impose sanctions on 11 Chinese officials over their roles in curtailing political freedoms in Hong Kong.

• Stocks continue to be undercut by the second Covid wave that is sweeping the U.S. and other areas of the world. Confirmed cases of Covid have risen above 20.046 million globally, with deaths exceeding 734,000.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 remained flat on Friday as it moved up 0.06% to end the day at 3351.3. The total intraday range was 23.8 points.

 

• As long as the index remains inside the ascending channel¹, the possibility of a retest of the all-time highs is possible.

 

• There is nothing negative on the chart. Both moving averages are sloping up and the RSI²⁴ is close to the overbought zone, suggesting that bulls are in command.

 

• If the bulls can push and sustain the index above 3393.50, the momentum is likely to pick up and we might enter a melt up that might be the last leg of the up move before a sharp fall once again.

 

• Conversely, if the index turns down and breaks⁶ below the channel, a drop to the 50-day SMA is possible.

 

• This is an important support to watch out for. A break⁶ below this support will indicate a weakening momentum.

 

• We are holding on to the positions but will start closing them aggressively when the index slips below the channel.

Market Data

• 1891 stocks advanced on the NYSE, whereas, 1078 stocks declined. 98 stocks made new 52-week highs, whereas, 8 stock made new 52-week lows.

 

• 1460 stocks advanced on the Nasdaq, whereas, 1497 stocks declined. 113 stock made new 52-week highs, whereas, 6 stock made new 52-week lows.

Intraday Chart

 

• The index opened with mild weakness, which was purchased by the bulls. They tried to push the index above 3351 but the bears defended this level aggressively.

 

• In the second half of the day, the bears again attempted to sink the index but could not as the bulls stepped in closer to 3330.

 

• That resulted in a sharp recovery once again, which helped the index close near the highs of the day.

 

• Today, the index will resume its up move above 3352. On the downside the support is at 3328 and then again at 3320.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• European equities on the other hand fell -0.73% as a majority of the index retreated, with only 2 of 19 sectors higher. The pullback can mostly be attributed to poor earnings announcements from recent winners. Glencore specifically fell even as metals are hitting new highs, as the company announced it was discontinuing its 2020 dividend, causing Basic Resources (-2.45%) to be the worst sector in the index. Insurers (-0.97%) also lagged with AXA and Munich Re withdrawing growth targets and 2020 guidance respectively, pointing to the high levels of uncertainty in the economic outlook. The STOXX 600 has not fallen into quite the lull that the SPX has this week, but the index has remained in a 3-4% weekly trading range since the first week of July, the longest it has been that tight since prior to the pandemic-induced selloff in late February.

• Bank of England kept rates and the level of QE unchanged yesterday morning, as expected, but there were still interesting nuances. For the first time, the MPC linked any future tightening to inflation rising to the target of 2% and eliminating spare capacity. In the ensuing press conference, Governor Bailey said that negative rates were not in the cards for the UK currently, but opened the door for revisiting the topic later on after the initial Coivd-19 shock has abated. The central bank released its economic forecasts, with the near term forecast improving from growth falling -14% to -9.5%, pulling down the 2021 bounce-back projection down to +9%, from +15%.

• The US has reinstated tariffs on some Canadian aluminum imports with President Trump announcing that he’s removing Canada’s exemption from 10% tariffs, effective August 16. The decision comes just weeks after the new NAFTA (USCMA) trade agreement went into effect. Canada’s Deputy PM Chrystia Freeland responded by saying that the US tariffs are “unwarranted and unacceptable” and added “In response to the American tariffs, Canada intends to swiftly impose dollar-for-dollar countermeasures.” Secondly, President Trump also took executive action to prohibit US residents from doing any business with Chinese-owned TikTok or WeChat beginning 45 days from now, citing the national security risk of leaving Americans’ personal data exposed. The order threatens penalties on any US resident or company that engages in any transactions.

• US data unexpectedly fell to the lowest weekly reading since March after two weeks of rising. Weekly claims fell by 249k to 1.186m (vs. 1.400m expected), while continuing claims for the previous week (ending July 25) decreased to 16.107m (vs. 16.9m expected). That is the lowest number of Americans continuing to receive benefits since April. While the level of initial claims is still over five times the levels seen prior to the pandemic, this does offer some hope that the previous two-week rise was more of an aberration than a break in the improving trend, though it will take longer to have clarity in either direction. It is important to note that the expiration of the extra $600 per week in federal benefits may have caused some to not file at the margins.

• The continuation of these benefits have been center stage in the recent stimulus talks, along with state and local government aid and employment litigation reform. Today is the deadline imposed by the White House Chief of Staff Meadows for the administration to agree to terms with Democrats. Senate Majority Leader McConnell has not been heavily involved with the talks, but yesterday noted that about 20 GOP senators would likely not support any additional stimulus, citing burgeoning federal deficits. This makes a deal with Democrats even more necessary, given there will likely be holdouts from the Democrats as well, but with concerns that the deal does not go far enough. President Trump has threatened to go ahead with fiscal action through executive action, but it is still unclear in what form his office would allow this and any action could end up in court over presidential authority, given that funding is a Congressional power. Meanwhile, after the overnight negotiations with Democrats, the White House Chief of Staff Mark Meadows said that President Trump has instructed them to reach a narrow deal if they can’t reach a big agreement and Treasury Secretary Mnuchin said there are a “handful of issues” where sides remain far apart.

• The need for the additional stimulus is abundantly clear with the virus still affecting large portions of the US at quite high levels. Even though cases have dropped over the past 2 weeks, it was likely at the cost of poorer economic conditions that need to be supplemented in some way if the recovery is to continue. Cases in the US saw an uptick in the past 24 hours as they rose by 1.3% or just under 61,000 cases vs the weekly averages of 1.15% and 56,700 respectively. However, if the uptick proves as an aberration and cases continue to fall in line with recent trend over the coming days then that will put the recent peak at roughly two weeks ago, which could mean Covid-linked deaths are also currently near about peaking themselves. The State Department lifted their global Level 4 health advisory that advised against all international travel. Regardless many countries around the world are still reticent on receiving Americans.

• Europe is dealing with the fledgling beginnings of a second wave of its own, with Germany recording over 1000 new cases for the first time since 1 May; average daily cases have nearly doubled over the last 3 weeks. Italy recorded just over 400 cases, the highest since June, with a plurality from the Lombardy region that was most affected back in the late-winter/early-spring.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 extended its northward journey with a 0.64% rally ending the day at 3349.2. The total intraday range was 32.9 points.

 

• As expected, the index is inching closer to new highs. After reaching this close, the possibility or making a high are very strong.

 

• The important thing to note would be whether the new highs sustain or the index turns down from the highs.

 

• The latest leg of the up move has negated the bearish³ divergence on the RSI²⁴. This is a positive sign as it indicates that the momentum is picking up.

 

• Currently, the index is trading inside the ascending channel¹. A break⁶ below the channel will be the first indication of profit taking. Until then, the uptrend is likely to continue.

 

• We reman cautious as the macro factors look uncertain.

 

• Although we are holding on to our positions, we shall start selling aggressively when the index breaks⁶ below the channel.

Market Data

• 1458 stocks advanced on the NYSE, whereas, 1493stocks declined. 113 stocks made new 52-week highs, whereas, 5 stock made new 52-week lows.

 

• 1548 stocks advanced on the Nasdaq, whereas, 1770 stocks declined. 214 stock made new 52-week highs, whereas, 8 stock made new 52-week lows.

Intraday Chart

 

• The index opened flat and remained stuck in the tight range for the first half of the trading day. Thereafter, in the second half, the index witnessed buying by the bulls

 

• As a result, the index broke above the tight range and rallied to 3250 resistance²⁵.

 

• The next level to watch out for today is 7277. On the downside, strong support is at 3320.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• European equities rallied as well yesterday with the STOXX 600 rising +0.49%. The move was led by mining/basic resource stocks (+3.98%), which have rallied along with the move in metals as the USD dollar has weakened. Staying with the cyclical outperformance, travel and leisure stocks in Europe were up (+3.25%), which may have been partly driven by positive vaccine news. The positive vaccine news was from Novavax, which nearly hit 5-year highs (up +over 20% in early trading before finishing +10.38%) on news that Novavax’s experimental vaccine generated antibody responses four times higher than those seen in people who had recovered from the disease.

• Gold continues to be one of the most watched assets right now, as the metal leaves $2000 behind, closing at $2038 and up another +0.94%. This was mostly driven by the continued drop in the USD, which fell another -0.55%, the largest drop in just over a week, falling to a fresh 2 year low. Core sovereign bond yields were slightly higher with risk assets higher yesterday. German 10yr yields were +4.7bps higher at -0.502%, while US 10yr yields were +4.1bpps higher at 0.54%.

• Overnight, the rally has stalled somewhat following news that US Secretary of State Michael Pompeo has urged American companies to refuse to make their apps available for phones made by Huawei and end the use of Chinese cloud providers such as Tencent, Alibaba and Baidu for sensitive American data. He also said that “untrusted Chinese apps” like TikTok and WeChat pose “significant threats to the personal data of American citizens” and are potential tools for Chinese content and censorship. The Hang Seng              (-1.63%) and Shanghai Comp (-0.38%) were lower following those headlines along with the Nikkei (-0.29%) however the Kospi (+0.98%) and ASX (+0.35%) have posted gains.

• The theme of soft employment measures in the manufacturing data was consistent in the services PMIs, offering something to pay attention to going forward and adding a touch of caution to the overall positive sentiment. While PMIs are diffusion indices, which show direction and momentum, it is still notable that many countries and regions saw their highest prints in quite some time. The Euro Area composite PMI registered 54.9 (vs. 54.8 flash), the highest since June 2018. Meanwhile in the UK, the composite PMI rose to 57.0 (vs. 57.1 flash), as services PMI rose to 56.5 (just under the 56.6 flash reading) which was the highest since August 2015. Germany similarly fell just short of its flash readings, with a composite PMI of 55.3 (vs. 55.6 flash) and a services measure that was 55.6 versus a 56.7 flash reading. France followed suit with services and composite readings of 57.3, just under the flash readings of 57.8 and 57.6. The ISM US services reading was much stronger at 58.1 vs. the 55.0 estimate, even though the employment index fell to 42.1 from 43.1. This was the highest level since February 2019, and was driven partly by the largest level of new orders (66.7), back to when data starts on Bloomberg in 1997.

• NYC announced plans to construct checkpoints at key entry points into the city, in order to ensure people coming from states on the 35 state self-quarantine list complete forms to support contact-tracing efforts in the state and city. This tries to address the largest difference between the Europe and the US during the initial wave of infections, where state-to-state mobility was not as restricted or tracked as nation-to-nation travel in Europe. On the other hand, NYC is currently the only major US city with students returning to school, after Chicago announced plans for remote work this fall. Cases in the US rose by under 60,000 for the fifth straight day for the first time since early July. However, Florida now has over 500,000 cases, which would be 6th in the world as a standalone country. With the virus still spreading, it was announced that presumptive Democratic Nominee Joe Biden will not be travelling to Wisconsin to accept the nomination in person late this month, opting to deliver a speech from his home state of Delaware instead. The Democratic National Convention Committee announced that none of the scheduled speakers will travel to Milwaukee for the convention, citing the advice of health officials.

• White House Chief of Staff Meadows and Treasury Secretary Mnuchin reportedly told Republican lawmakers that if the GOP and Democrats cannot reach an agreement by Friday, that there would be no deal. This is likely more of a negotiation tactic given the importance of the bill to the recovery, especially in an election year. The state of the negotiations sees the White House offering $400 per week in supplemental unemployment benefits through mid-December, with Democrats insisting on $600 per week, according to Bloomberg reporting. Republicans have also included $200 billion in state and local aid, far less than the $1 trillion Democrats were originally seeking. The White House has agreed on extending a moratorium on evictions through mid-December. The senate will be indeed postponing their recess in order to ensure the bill can be enacted if an agreement in reached in the next 48 hours or so.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 extended its northward journey with a 0.64% rally ending the day at 3327.8. The total intraday range was 13.4 points.

 

• The up move yesterday increases the possibility of a rally to the all-time highs. The reaction at the highs will give us a better idea whether the index will melt up further or take a break⁶ at those levels.

 

• If the rally continues for a couple of days more, the bearish³ divergence on the RSI²⁴ will be invalidated, which is another positive.

 

• The number of stocks at new 52-week highs has been rising, which is a sign that the rally is getting broad-based. If that happens, the possibility of the rally sustaining are high.

 

• There is nothing on the chart that denotes any weakness.

 

• Therefore, we have been holding to a few of our positions but will book profits as soon as we see any weakness.

Market Data

• 2057 stocks advanced on the NYSE, whereas, 919 stocks declined. 150 stocks made new 52-week highs, whereas, 4 stock made new 52-week lows.

 

• 2275 stocks advanced on the Nasdaq, whereas, 1061 stocks declined. 268 stock made new 52-week highs, whereas, 11 stock made new 52-week lows.

Intraday Chart

 

• The index gapped up from the tight range but after the initial strength, the bears could not push it above 3330.

 

• However, the positive thing is that the bulls did not give up any ground, which shows that the bulls were in no hurry to take profits.

 

• Today, a break⁶ above 3330 can result in a rally to 3350.

 

• On the downside, a break⁶ below 3310 can result in a drop to 3290.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• In terms of yesterday, the S&P 500 notched up its third consecutive daily gain with a +0.36% advance and in doing so closed above 3,300 for the first time since late February. That being said it was a much more benign trading session with the intraday range of just 20.5pts the second smallest since 19 February. Yesterday’s move included a bit of a rotation out of Software (-0.63%) and Biotech (-0.45%) stocks into Energy (+2.46%) and Food and Staples (+2.19%). Meanwhile, the NASDAQ ended +0.35% while the DOW finished +0.62%.

• The good news is that there was a bit more excitement away from equity markets including a milestone for Gold which rallied +2.14% to close above $2,000 in the spot market for the first time on record (it broadly held that level overnight). That’s an impressive +33.08% move year-to-date now. Silver also jumped +7.02% to take it’s year-to-date run to +45.67% in what is turning out to be a three-horse race for the top spot along with Iron Ore (+30.94%).

• We also had a bit of an under the radar rally across bond markets yesterday with 10y Treasuries finishing -4.7bps lower at a record closing low of 0.507%. In fact, most of the curve fell to record lows with 5y yields falling -2.8bps to 0.190% and 2y yields falling -0.2bps to 0.107%. In Europe, 10yr Bund yields were down -3.0bps at -0.55% while peripheral debt continued to tighter further against Bunds, with Italy, Spain, Greece, and Portugal all tightening between -1 and -3bps.

• Overnight it’s been a more mixed session in Asia where gains for the Hang Seng (+0.57%), Shanghai Comp (+0.29%) and Kospi (+1.21%) were balanced with declines for the Nikkei (-0.17%) and ASX (-0.52%). We do have some data to highlight, with China’s Caixin July services PMI printing at a much weaker than expected 54.3 (vs. 58.0 expected and 58.4 last month). There was better news in the details however, with employment in particular rising. Meanwhile, Japan’s final services PMI came in 0.2pts above the flash print at 45.4 while composite reading stood at 44.9 (vs. 43.9 in flash).

• The other overnight news to report is a story broken in the WSJ suggesting that the US and China will hold talks via video conferencing on August 15 to assess compliance with the Phase 1 trade deal. The talks will supposedly include US Trade Representative Robert Lighthizer and Chinese Vice-Premier Liu He. Bloomberg is reporting that US Health and Human Services Secretary Alex Azar will lead a delegation to Taiwan in what is being billed as the highest level visit by a US cabinet official in over 40 years. Taiwan has previously spoken about concerns of an increasingly assertive leadership in China.

• In terms of other newsflow, yesterday we learned that House Speaker Pelosi negotiated with the White House directly on the next virus relief package in the form of direct negotiations with Treasury Secretary Mnuchin. The various feedback from that suggested that there was “a little” progress and a desire to do something quick but also that a deal this week is unlikely. This sentiment was shared by some Republican Senators, particularly Majority Leader McConnell, who continued to express that the sides are still far apart ahead of this Friday’s recess. The Majority Leader acknowledged that there are significant difference within the GOP, but has said that if the White House and Democrats reach an agreement, he will support it regardless of personal reservations. Late last night it was announced that Mnuchin and Pelosi have set a timeline to reach an agreement between the two parties by the end of the week, with a vote to take place next week.

• In the UK Covid-linked deaths in England & Wales fell to an over 4 month low in the week ending July 24. However there continues to be concerns of renewed spread around the world, for instance Germany recorded a 717 person increase in new coronavirus cases in the past 24 hours (vs. 550 7-day average same time last week), though that compares to roughly 7,000 at the peak of their pandemic. Poland, the country which had a much smaller first wave, saw a record 680 cases yesterday, marking the eight consecutive day of increases over 500. The Netherland continues to see a similar acceleration, with the country counting nearly 2600 cases over the last week vs 1300 the week prior.

• Here at home, daily new cases continue to remain at a very high level, there has been a clear slowing over the last week. Cases across the US fell from an average of roughly 70k last week to four straight days under 60k new cases per day this week. A bipartisan group of governors from states such as Maryland, Massachusetts, Michigan, Ohio and Virginia, are in discussions with manufacturers Becton Dickinson and Quidel on a quick response test, which can deliver results in 15 to 20 minutes. Meanwhile across the other side of world, Japan’s Olympics chief told the Financial Times that the 2021 Games will proceed even if there’s no resolution to the pandemic. The State of Victoria in Australia is continuing to reel under the virus as it reported a further 725 cases in the past 24 hours and the New Zealand’s Director-General of Health warned that the country must prepare for another local outbreak of the coronavirus.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 rallied 0.36% to end the day at 3306.5. The total intraday range was 20.4 points.

 

• The index remains above 3277 levels, which is a positive sign. This shows that although the momentum is lacking, the bulls are not closing their positions in a hurry.

 

• If the buyers can keep the index above 3277, then the possibility of a retest of the all-time highs increase.

 

• The negative divergence on the RSI²⁴ is still intact but the failure of the price to correct might invalidate this pattern soon.

 

• There are several pockets in the market that have gone from being overbought to heavily overbought, hence, we remain cautious.

 

• The trajectory of the markets remains bullish⁹. At the current juncture, even if we get a minor fall it is likely to be purchased aggressively.

 

• We have held on to a few of our positions but might start taking profits soon and then will wait for a minor dip to enter.

Market Data

• 1905 stocks advanced on the NYSE, whereas, 1082 stocks declined. 101 stocks made new 52-week highs, whereas, 9 stock made new 52-week lows.

 

• 2057 stocks advanced on the Nasdaq, whereas, 1299 stocks declined. 207 stock made new 52-week highs, whereas, 18 stock made new 52-week lows.

Intraday Chart

 

• The index spent most of the day largely in a range, which is a positive sign. Although it shows a lack of urgency among the bulls to buy, it shows that they are in no hurry to take profits either.

 

• In the final minutes, the index broke above the tight range and closed the day near the highest point, which is another positive. This shows that the buyers are confident of carrying long positions home.

 

• Today, on the upside, a move to 3223 is possible. On the downside, the bulls will offer strong support at the 3283-3277 zone.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• Sovereign bonds were slightly higher or unchanged as risk sentiment improved yesterday. German 10yr yields were largely unchanged (+0.1bps) at -0.52%, while US 10yr yields were +2.6bps higher at 0.554%. The dollar rose +0.21%, rising for consecutive sessions for the first time since 29 June.

• Asian markets have largely tracked Wall Street with the Nikkei (+1.42%), Hang Seng (+0.83%), Kospi (+1.06%) and ASX (+1.82%) all posting decent gains but with the Shanghai Comp trading flat.

• Norway’s government is banning cruise ships from entering all ports for two weeks after an outbreak on board a cruise liner led to about 40 new cases, according to Trade Minister Nybov yesterday. The UK is in talks with Portugal to ease quarantine rules on travelers returning from the country on the Iberian Peninsula. The UK are looking into more closely tailoring rules for specific regions, according the government. This comes while the government has put together plans to lockdown London in case of another surge of cases, according to Prime Minister Johnson’s Spokesman Slack. The plan, he said, sets out “the possibility of a power to restrict people’s movement and potentially close down local transport networks.” Concerns across the continent are rising as daily case growth is again starting to accelerate from low levels in much of Europe, even as it’s gently falling from high levels in the US. Across the other side of the world, state of Victoria in Australia has announced that it will start imposing on the spot fines of as much as AUD 5,000 on anyone who flouts isolation rules while repeat and serious offenders could attract a court imposed penalty of AUD 20,000. The move comes as the state is battling to control the spread of virus.

• California reported the fewest new cases in four weeks (4,982), which is well below the average increase of 8,700 over the past 7 days. Arizona also saw new cases hit the lowest levels since the end of June, with just over 1030 versus the 7-day average of over 2400. Regardless of the improving news, as highlighted above the overall numbers are still high with economic restrictions in place to reduce these case numbers. This continues to encourage focus on the fiscal stimulus package that Congress is debating. Republican and Democratic leaders have still been unable to agree on the specifics of the latest stimulus bill ahead of their month long recess from this Friday. There was a little more positivity yesterday but nothing concrete yet.

• Bloomberg has reported overnight that the UK government will invest GBP 1.3bn in building projects and provide GBP 2bn in energy efficiency grants in an effort to create jobs and rally the pandemic-hit UK economy.

Our Technical Analyst’s Commentary

SPX Daily Chart

• The S&P 500 rallied 0.72% to end the day at 3294.6. The total intraday range was 18.2 points.

 

• The index broke out of the 3277 resistance²⁵ on Monday but it lacks momentum, which shows a lack of aggressive buying at higher levels.

 

• If the momentum does not pick up soon, the index could again dip back below 3277 levels.

 

• However, a breakout⁸ of 3277 increases the possibility of a retest of the lifetime highs.

 

• Therefore, we remain positive but cautious because the bearish³ divergence on the RSI²⁴ is still intact. This suggests that the momentum is weakening as the index moves northwards.

 

• A break⁶ below 3277 will be a negative sign as it could result in a drop to the 20-day EMA and then to the 50-day SMA.

 

• By the end of this week, we should get a good idea whether the uptrend will resume or will the index face selling at higher levels.

Market Data

• 1911 stocks advanced on the NYSE, whereas, 1089 stocks declined. 130 stocks made new 52-week highs, whereas, 18 stock made new 52-week lows.

• 2413 stocks advanced on the Nasdaq, whereas, 974 stocks declined. 227 stock made new 52-week highs, whereas, 23 stock made new 52-week lows.

Intraday Chart

• The index gapped up and largely remained in a range for the rest of the day. This suggests that both the bulls and the bears are fighting for supremacy.

 

• The bulls want to resume the uptrend while the bears want to force a correction.

 

• Today, a break⁶ below 3285 can again pull down the index to 3277 levels.

 

• Conversely, a break⁶ above 3300-3305 levels could attract further buying, with the next target at 3320.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• In terms of how August is faring so far, it’s been a mixed start in Asia with the Nikkei (+1.95%) and Shanghai Comp (+1.08%) both posting decent gains, the Hang Seng (-0.95%) down and the Kospi and ASX little changed. Yields on 10yr USTs are up +1.3bps. In terms of data releases, China’s June Caixin manufacturing PMI came in at 52.8 (vs. 51.1 expected) which was the highest reading since Jan 2011 while Japan’s final manufacturing PMI reading was confirmed at 45.2 (vs. 42.6 in preliminary read). We also got Japan’s final annualized 1Q GDP print this morning, printing at -2.2% qoq (vs. -2.8% qoq expected).

• In terms of weekend news, US Secretary of State Michael Pompeo has said that the White House will announce measures against “a broad array” of Chinese-owned software deemed to pose national-security risks. This follows President Trump saying on Friday that he intends to ban music-video app TikTok from the US. Meanwhile, on the fiscal stimulus negotiations in the US, there are reports that Democrats and Republicans continue to remain far apart on the plan to restore a $600-per-week jobless benefit that expired last week. Negotiations will continue today.

• Looking at coronavirus numbers for the weekend, growth rates for new cases slowed in the US to an average of 1.13% per day (vs. average growth of 1.70% over last 5 weekends). The same was true for the most populous states like Texas, Florida, California and Arizona. The fatalities growth rate also slowed in Texas (1.35% vs. 1.89%) and Arizona (0.96% vs. 2.45%) but continues to remain high in Florida (1.75% vs. 1.34%) and California (1.13% vs. 0.73%). Meanwhile, the White House coronavirus task force head Deborah Birx said the pandemic is in a “new phase” as it spreads across U.S. rural and urban areas. In Asia, Australia’s Victoria state declared a state of disaster and has ordered Melbourne’s residents to stay home except for work, medical care, provisions or exercise. The city is now under curfew between 8 p.m. and 5 am and the new restrictions will be in force for six weeks. The state reported 671 new cases in the past 24 hours. Finally, the latest on a possible vaccine is that the Serum Institute of India received approval for conducting phase two and three clinical trials of the Covid-19 vaccine candidate developed by the University of Oxford and AstraZeneca in the country.

• Earnings will continue to be in focus, with 133 companies reporting from the S&P 500 and a further 95 from the STOXX 600. Among the releases include HSBC, Heineken, Siemens, Berkshire Hathaway, and Ferrari today. Then tomorrow markets will hear from Bayer, Diageo, Fidelity, BP, Walt Disney and Activision Blizzard. Wednesday will see Deutsche Post, Allianz, Humana, Bayerische Motoren, Regeneron Pharmaceuticals, CVS Health, MetLife and Fiserv release earnings. Following that, Thursday includes Merck, AXA, Siemens, adidas, Bristol-Myers Squibb, Novo Nordisk, Becton Dickinson & Co, Zoetis, T-Mobile, Illumina. Finally, on Friday, Standard Life Aberdeen, Norwegian Cruise Line, Royal Caribbean Cruises and Ventas.

• Global equity markets were bifurcated with US stocks outperforming after beating low earning expectations, particularly in tech. The S&P 500 rose +1.73% (+0.77% Friday) led primarily by the mega cap tech stocks which reported towards the end of last week. With Apple, Facebook, and Amazon in particular surprising on earnings, the tech-focused Nasdaq outperformed this week as the index rose +3.69% (+1.49% Friday). Over 60% of the S&P have now reported and the index has seen a record of just under 85% of companies beat EPS estimates. The issue with this earnings season was that analysts didn’t increase their estimates in June as macro surprises beat. This left a great set up for earnings versus expectations.

• Risk assets in Europe did not fare as well with European equities down -2.98% (-0.89%) over the 5 days, pushing the index down -1.11% for July. It was the first monthly loss since March as cyclical sectors led the declines following more concerns on the economic outlook and small rises in cases across the continent.

• Even as US equities rose, core sovereign bonds fell with US 10yr Treasury yields falling -6.1bps (-1.8bps Friday) to a record closing low of 0.528%. Similarly, UK 10yr gilts rose +1.6bps on Friday to be just off Thursday’s all-time closing lows to fall -4.0bps overall on the week to 0.10%. German bunds fell -7.6bps to -0.52%, while a souring risk appetite saw wider peripheral spreads to bunds in Italy (+9.2bps), Spain (+6.3bps), Portugal (+7.1bps) and Greece (+9.7bps). The dollar fell over -1.0% on the week for the second week in a row, and has not seen a weekly rise since mid-June when economic data and US cases started getting worse again. With yields and the dollar falling, gold continued its breakneck rally. The metal rose +3.88% (+0.98% Friday) to another all-time record of $1975.86/oz.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 had a volatile day but it managed to close 0.77% in the green at 3271.1. The total intraday range was 51.9 points.

 

• On Friday, the bears again squandered their chances to plummet the index below the 20-day EMA.

 

• That led to strong buying by the bulls who pushed the price near the overhead resistance²⁵ at 3277.3.

 

• This increases the possibility of a breakout⁸ above 3277 that will start the next leg of the up move.

 

• A breakout⁸ of 3400 will be another positive as it could cause traders to jump in or miss out on the rally.

 

• This bullish⁹ view will be invalidated if the bears sink the index below the 20-day EMA. Such a move will be the first indication that the bulls are losing their grip.

 

• A break⁶ below the 50-day SMA will signal further weakness.

 

• We remain cautious as the risk to reward is getting skewed to the downside but are holding on to the positions

Market Data

• 1247 stocks advanced on the NYSE, whereas, 1719 stocks declined. 83 stocks made new 52-week highs, whereas, 18 stock made new 52-week lows.

 

• 1141 stocks advanced on the Nasdaq, whereas, 2230 stocks declined. 156 stock made new 52-week highs, whereas, 30 stock made new 52-week lows.

Intraday Chart

 

• The index gapped up sharply but then sold off in the first half of the day, hitting a low of 3220 but there was a reversal of fortunes at noon.

 

• The bulls started buying aggressively that started a recovery that picked up momentum late in the afternoon and helped the index recover all the intraday losses.

 

• This shows strong demand at lower levels.

 

• Today, the bulls are likely to push the price above 3277. Above this level, a retest of 3300 is possible.

 

• On the other hand, if the index slips below 3255, a drop to 3233 is possible.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• There was no progress in negotiations last night on a new pandemic bill. Treasury Secretary Mnuchin on Thursday night after leaving a 2-hour negotiating meeting in Speaker Pelosi’s office said, “On certain issues we made progress, on certain issues we’re still very far apart.” He said negotiations would continue on Friday and Saturday “as long as it takes to get this done.” Democrats want an overall package and are refusing the Republican attempt to get a short-term extension of enhanced unemployment benefits, which expire today. The House is now on recess but can be called back to Washington to vote on a bill. The Senate is scheduled to leave for its August recess next Friday.

• Major oil company stocks are lower today on negative earnings news and today’s -0.40% sell-off in Sep WTI crude oil prices. Exxon and Chevron reported their worst results in decades after the pandemic caused oil prices and fuel demand to plunge. Exxon posted a $1.1 billion loss in Q2 and is down -2.17% today, adding to Thursday’s loss of -4.49%. Chevron is down -5.32% today, adding to Thursday’s decline of -3.80%.

• Stock prices were undercut by today’s news that the University of Michigan’s U.S. consumer sentiment index fell by -0.7 points to 72.5 from the early-July level, which was weaker than expectations for a -0.3 point decline to 72.9.

• Today’s U.S. personal income and spending data was mixed for stocks. June personal income fell by -1.1% m/m, which was weaker than market expectations of -0.6. However, June personal spending rose by +5.6% m/m, which was stronger than market expectations of +5.2%. Personal income declined since government stimulus payments faded and since unemployment remains extremely high, while spending remained high in June on pent-up demand after the spring economic lockdowns.

• Stocks continue to be undercut by second Covid wave that is sweeping the U.S. and other areas of the world. Confirmed cases of Covid have risen above 17.3 million globally, with deaths exceeding 673,000.

• The VIX S&P 500 Volatility Index ($VIX) today is up +0.60 at 25.36. The VIX remains in a wide 4-month range between June’s 4-3/4 month low of 23.54 and March’s 11-1/2 year high of 85.47.

Our Technical Analyst’s Commentary

SPX Daily Chart

• The S&P 500 corrected marginally by 0.38% to end the day at 3246.2. The total intraday range was 46.8 points.

 

• The index again took support at the 20-day EMA. In the past few days, the index has repeatedly bounced off this level.

 

• While the buyers are supporting at lower levels, the demand dries up at higher levels. This has kept the index between the 3233-3277 levels for the past few days.

 

• The index is getting squeezed between the 20-day EMA and 3277, which is similar to a coiling spring. Such tightening of a range usually ends up with a sharp move, which can happen in either direction.

 

• If the breakout⁸ happens above 3277, then a retest of the lifetime highs will be on the cards.

 

• Conversely, if the bears sink the index below 20-day EMA with force, then it could result in a drop to the 50-day SMA and then to 3000.

 

• The next few days are critical that will set the next direction of the markets. Until then, we are just holding on to our positions. Depending on the breakout⁸, we will take the next step.

Market Data

• 1020 stocks advanced on the NYSE, whereas, 1953 stocks declined. 83 stocks made new 52-week highs, whereas, 13 stock made new 52-week lows.

 

• 1482 stocks advanced on the Nasdaq, whereas, 1851 stocks declined. 133 stock made new 52-week highs, whereas, 31 stock made new 52-week lows.

Intraday Chart

• The index gapped down and sold off in the first half an hour of trade, however, the bulls again stepped in closer to the 3200 mark and started a recovery that carried the index to 3250 levels.

 

• The sharp recovery from close to 3200 levels suggests strong demand at lower levels.

 

• Today, the bulls will challenge the 3277 resistance²⁵ while the bears will try to defend it.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• The losses come after a report showed that layoffs are continuing at their stubborn pace across the country, denting hopes that the economy can recover nearly as quickly as it plummeted into recession. A separate report on Thursday showed that the U.S. economy contracted at a nearly 33% annual rate in the spring, the worst quarter on record.

• Markets worldwide had already turned lower before those reports were released. An earlier report showed that Germany’s economy, Europe’s largest, suffered through its worst quarter on record during the spring, a contraction more than twice as sharp as during the global financial crisis in 2009.

• The losses for markets accelerated following the U.S. data reports, as well as a tweet from President Donald Trump suggesting the United States delay its presidential election in November, though that would require an act of Congress to do.

• It all added to a frantic day for markets, which is scheduled to be the busiest for profit reports among S&P 500 companies within the busiest week this earnings season. Investors had already been expecting Thursday’s reports on the economy to be weak, “so the real story today for traders is earnings,” said Chris Larkin, managing director of trading and investment product at E-Trade Financial.

• Earnings reports have mostly been better than Wall Street’s expectations so far, but they’ve been far below year-ago levels, before the pandemic struck. The big companies in the S&P 500 are on track to report a nearly 40% drop for the second quarter from a year earlier, according to FactSet.

• With four of the biggest companies in the world set to report their quarterly results shortly after markets close on Thursday, Larkin said trading is likely to be bumpy.

• Thursday’s loss for the S&P 500 nearly mirrors its jump from the day before, when the Federal Reserve pledged to keep interest rates at their record low but highlighted how uncertain the path is for the economy, and how it’s mostly dependent on what happens with the coronavirus pandemic. If the market stays at its current level, it would be the second time that the index has flip-flopped this week.

• Energy stocks had some of the market’s sharpest losses, dropping in concert with oil prices amid worries about weaker demand amid a struggling global economy. Exxon Mobil dropped 4.4%, and ConocoPhillips lost 5.6%.

• Financial stocks were also weak, hurt by a drop in interest rates that reins in the profits to be made from lending. JPMorgan Chase fell 2.7%, and Citigroup lost 4.5%. On the winning end was UPS, which jumped 17% after reporting revenue and profits for the spring that blew past analysts’ expectations. It benefited from more people getting deliveries at home amid the pandemic.

• Apache rose 17.3% for the biggest gain in the S&P 500 after it said it made a major discovery of oil off the coast of Suriname. Technology stocks held up better than the rest of the market, as they have through the pandemic. The sector fell 0.2%, a quarter of the S&P 500’s decline. Four of the biggest tech-oriented companies are scheduled to report their latest quarter results after trading ends. Amazon, Apple, Facebook and Google’s parent company are all up more than 12% this year, when the S&P 500 is down 0.2%. Amazon is up more than 60%.

• Investors have continued to flock to such stocks on expectations that sales for the companies will continue to explode as the pandemic accelerates life’s shift toward online. But with great expectations also comes the possibility of great disappointment, and discouraging reports from the four would have big effects on the market. They alone account for nearly 16% of the S&P 500 by market value.

• Investors are also continuing to wait for signs of progress from Capitol Hill, where Congress is debating how and whether to offer more aid for the economy ravaged by the pandemic. An extra $600 in weekly unemployment benefits from the federal government is about to expire, and that cash is growing in importance as the number of laid-off workers ticks higher.

• A little more than 1.4 million U.S. workers applied for unemployment benefits last week, according to a Thursday report from the Labor Department. That’s up by 12,000 from a week earlier.

• The yield on the 10-year Treasury fell to 0.55% from 0.58% late Wednesday after earlier touching its lowest level since April. It tends to move with investors’ expectations for the economy and inflation.

• Gold pulled back a bit from its record heights, offering at least a pause to its huge rally amid a weakening dollar, rock-bottom interest rates and worries about the economy. It fell 1% to $1,933.40 per ounce.

• Benchmark U.S. crude dropped 3.1% to $39.98 per barrel. Brent crude, the international standard, lost 2.7% to $42.89 per barrel.

• In European stock markets, Germany’s DAX lost 3.7%, and France’s CAC 40 dropped 2.4%. The FTSE 100 in London was down 2.4%.

• In Asia, Japan’s Nikkei 225 slipped 0.3%, South Korea’s Kospi added 0.2% and Hong Kong’s Hang Seng dropped 0.7%. Stocks in Shanghai slipped 0.2%.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 rallied 1.24% to end the day at 3258.4. The total intraday range was 37.5 points.

• With yesterday’s up move, the index has again rebounded off the 20-day EMA, which suggests that the bulls continue to accumulate on dips.

• Now, they will try to push the index above 3277.3. If they succeed, a rally to the lifetime highs is possible.

• As we have been pointing out, the only negative on the chart is the bearish³ divergence on the RSI²⁴. This formation is known to signal a top but the problem is that it also tends to give a false warning during strong uptrends.

• Therefore, we remain cautious but are not selling out all our positions in a hurry.

• However, if the index breaks⁶ below the moving averages, we shall close our positions aggressively because such a move could signal a deeper correction.

Market Data

• 2411 stocks advanced on the NYSE, whereas, 592 stocks declined. 123 stocks made new 52-week highs, whereas, 13 stock made new 52-week lows.

• 2266 stocks advanced on the Nasdaq, whereas, 1078 stocks declined. 120 stock made new 52-week highs, whereas, 19 stock made new 52-week lows.

Intraday Chart

 

• The index opened flat and after consolidation¹¹ for a few minutes, the index started its upward journey. This suggests that the bulls are again back in action.

• Today, the bulls are likely to challenge the 3277 levels.

• On the other hand, the bears will try to stall the up move and sink the index back to the 3233 levels.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• Stocks also have support from expectations that the Fed will signal at the conclusion of today’s FOMC meeting that it will maintain its extremely easy monetary policies.

• Concern continues about the Covid pandemic continues; Florida today reported a record of 216 deaths from the virus, the second straight day of record deaths. Also, China reported 101 new Covid cases today, up from 68 on Tuesday, and Japan reported a record 1,002 new Covid infections today as cases surged in Osaka and Tokyo. Confirmed cases of Covid have risen above 16.923 million globally, with deaths exceeding 664,000.

• On the negative side for stocks is the lack of movement towards a compromise between Republicans and Democrats on a new pandemic rescue bill. Negotiations have begun, but Treasury Secretary Mnuchin said today that Republicans and Democrats are “very far apart” on a new stimulus plan.

• The VIX S&P 500 Volatility Index ($VIX) this morning is down -0.99 to 24.45. The VIX remains in a wide 4-month range between March’s 11-1/2 year high of 85.47 and June’s 4-3/4 month low of 23.54.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 corrected 0.65 to end the day at 3218.4. The total intraday range was 27.5 points.

 

• Although the index remains in an uptrend, the bulls are finding it difficult to sustain the overhead resistance²⁵ at 3233.1. This shows some profit booking at higher levels.

 

• However, we are yet to see a sharp selling on the downside. The bulls buy every dip, which has kept the index above the 20-day EMA.

 

• This tight range action is unlikely to continue for long. Soon, either the buyers will drive the price higher or the bears will pull down the index.

 

• The bearish³ divergence on the RSI²⁴ is signaling that the uptrend has weakened, pointing to a possible down move.

 

• A break⁶ below the 50-day SMA will intensify the selling that can drag the index to 3000-2955 levels.

 

• We remain cautious on the markets.

Market Data

• 1349 stocks advanced on the NYSE, whereas, 1602 stocks declined. 80 stocks made new 52-week highs, whereas, 8 stock made new 52-week lows.

 

• 1109 stocks advanced on the Nasdaq, whereas, 2216 stocks declined. 67 stock made new 52-week highs, whereas, 20 stock made new 52-week lows.

Intraday Chart

 

• The bulls bought the dip closer to 3219 during the day while the bears defended the overhead resistance²⁵ at 3240.

 

• However, the final hour saw a sharp fall, which suggests that the professionals are sellers in the market.

 

• Today, a break⁶ below 3219 can drag the index to 3200. On the other hand, a break⁶ above 3240 can see a rise to 3277.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• Stocks also fell back today on a negative outlook from Fitch Ratings who said today that global potential economic growth is set to drop in the coming years due to fallout from the pandemic, amid a rise in unemployment and reduced investment by companies.

• Today’s U.S. economic data was bearish for economic growth prospects and stock prices. The Conference Board’s U.S. Jul consumer confidence index fell -5.7 to 92.6, weaker than expectations of 95.0. Also, the May S&P CoreLogic composite-20 home price index rose +3.69% y/y, weaker than expectations of +4.00% y/y. Conversely, the Jul Richmond Fed survey current manufacturing conditions rose 10 to a 6-month high of 10, stronger than expectations of +5 to 5.

• Stocks rebounded from their worst levels after the Fed announced today that it would extend its emergency lending programs through Dec 31, three months longer than initially planned.

• Senate Republicans unveiled a bill reported at $1tn and which includes cutting supplemental unemployment benefits to $200 weekly from $600 until states are able to provide 70% of a worker’s previous pay. There remains a great deal of consternation within the party, as Senator Lindsey Graham said Sunday that half of his caucus are going to vote no on any additional stimulus. Majority Leader McConnell said that the end of the first week of August is still the target date, so time is ticking. Overnight, House Speaker Nancy Pelosi delivered a harsh assessment of the GOP plan, calling it a “pathetic” piecemeal approach and saying it wasn’t adequate to the country’s needs. However, she added “having said that, we are going to see if we can find some common ground. But we are not there yet.” Politics at its best…

• It was a slightly different picture in Europe yesterday where the STOXX 600 closed -0.31% albeit on well below average volumes. Bonds were stronger, with 10y Bund yields down -4.3bps and with the rally it’s worth noting that the stock of negative yielding debt in the world hit $15.18tn yesterday, taking it above the March highs. However, it’s still some way off the $17.04tn back in August 2019. The weakness in Europe appeared to be due to some of the deteriorating virus data. In Germany, the public-health authority announced a “very concerning” trend of case growth traced to a farm in Bavaria. Similar concerns are faced in the Catalonia region of Spain, where the regional President Torra said the region faces a critical situation with coronavirus outbreaks.

• Moderna started its late-stage vaccine trial in the US with 30,000 people and received an additional $472 million award from the Biomedical Advanced Research and Development Authority (BARDA) over the weekend. In terms of cases, California’s 7-day average of new cases fell to just under 2.3%, which is the lowest level since mid-June before the recent acceleration in cases. Florida similarly has seen its 7-day average rate of new cases drop under 3% for the first time since the current wave started last month. Overall the US’s 7 day average is now under 1.7% new cases per day for the first time this month, indicating reinstated restrictive measures are indeed slowing the rate of spread.

• Australia’s state of Victoria reported a further 384 new cases in the past 24 hours and said that it will suspend all but the most urgent elective surgeries. In Vietnam, provinces are now making it mandatory to wear masks in public after an unexpected flare-up in community infections in Danang (reported 11 new cases yesterday). Danang province has put about 7,000 people in quarantine for 14 days. China also reported 68 new infections overnight with 1 new case in Beijing which went without any case for over 2 weeks in a row. Hong Kong, India and Japan are also showing concerning trends.

• The Federal Reserve begins a two-day meeting today, with its results to be released on Wednesday afternoon.  Few expect a major change in Fed policy.  It is hard to imagine them moving off their near zero Fed Funds target or making any comments that reduce their commitment to remaining vigilant, especially with fiscal stimulus on the horizon, but investors will turn to Chairman Powell’s press conference for clues about the central bank’s thinking on the nation’s economic outlook. June 10th press conference was viewed as downbeat, followed by nearly 6% drop in the S&P 500 (SPX) on the subsequent day.  Markets rallied after the press conference on April 29th, only to give back the gains and more in the subsequent two sessions.  On Thursday, markets will likely be pricing in their reaction to the Fed press conference while reckoning with a pre-market release of second quarter GDP.  Estimates are for a drop of 35%. Many economic releases have exceeded dire consensus forecasts, and we will see if markets are quietly anticipating a similar beat.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 started the week on a positive note as it rallied 0.74% to close the day at 3239.4. The total intraday range was 27.1 points.

 

• The index again bounced off the 20-day EMA, which is a positive sign. It shows that the bulls still are under control.

 

• On the upside, the bears are likely to mount a strong defense at 3277 levels.

 

• If the bulls drive the price through this resistance²⁵, a retest of the highs is possible. Conversely, if the bears sink the index below the 20-day EMA, a drop to the 50-day SMS is possible.

 

• The number of stocks at new 52-week highs has again hit the triple digit mark, which shows that the weakness in the past two days was only temporary.

 

• The bearish³ divergence on the RSI is warning that the momentum is weakening. Hence, we have been cautious in the past few days.

Market Data

• 1791 stocks advanced on the NYSE, whereas, 1208 stocks declined. 112 stocks made new 52-week highs, whereas, 8 stock made new 52-week lows.

 

• 2011 stocks advanced on the Nasdaq, whereas, 1355 stocks declined. 82 stock made new 52-week highs, whereas, 28 stock made new 52-week lows.

Intraday Chart

 

• The index opened flat but quickly gained ground after the first five minutes of trade. This shows strong buying by the bulls.

 

• On the upside, the bears are trying to pose a stiff challenge close to the 3240 levels but this level is likely to be scaled today.

 

• Above 3240, a rally to 3265 is likely. On the downside, the support is at 3220 and then 3200.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• Broad fixed income markets were also on the rise during the week, particularly on the long end as the US Treasury curve flattened. The yield on the 10-year US Treasury Note finished the week at 0.59%, while the 2-year yield remained flat at a mere 0.15%. Corporate bonds, likewise, increased in value during the week as those at the more-speculative end of the spectrum outperformed during the week despite the hiccup in US equity markets. The iShares iBoxx US High Yield ETF (HYG) finished 1.3% higher on the week as another $3.9 billion flowed into funds classified in the high yield category, according to Refinitiv Lipper.

• Oil prices held mostly steady, for the third-straight week, despite weakness in the US dollar as supply and demand forces seem to have stabilized for the time being. The spread between the US West Texas Intermediate (WTI) and the International Brent crude oil benchmark widened, however, with the latter increasing by 2% to $41.34/bl while the former remained unchanged. The weakness in the US dollar was specifically highlighted by price moves in precious metals, with Silver prices ending the week nearly 17% higher, as the spot price of Gold breached and closed the week above $1,900/oz.

• We have many of the world’s biggest companies reporting this week. In total, releases include 190 from the S&P 500 and a further 169 from the STOXX 600. Among the releases include SAP, Ryanair and LVMH today. Then tomorrow we’ll hear from Starbucks, Visa, McDonald’s, Pfizer, Peugeot and Nissan. Wednesday will see Facebook, Sanofi, Rio Tinto, GlaxoSmithKline, Qualcomm, PayPal, Boeing, Santander, General Electric, General Motors, Barclays and Nomura release earnings. After that, Thursday’s releases include Alphabet, Amazon, Apple, Samsung, Nestle, Procter & Gamble, Comcast, L’Oreal, Stanley Black & Decker, AstraZeneca, Linde, Mastercard, American Tower, AB InBev, Total, Volkswagen, Ford, Royal Dutch Shell, Lloyds Banking Group and Credit Suisse. Finally on Friday, there’s Chevron, Charter Communications, Merck, AbbVie, Phillips 66, ExxonMobil, BNP Paribas, Caterpillar, Nokia, NatWest Group and Fiat Chrysler Automobiles.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 ended the week at 3215.6 with a marginal loss of 0.62%. The total intraday range was 27.2 points.

 

• The index is witnessing some profit taking closer to 3300 as investors are getting nervous about increasing coronavirus cases and the flare up of tensions with China.

 

• However, the bulls continue to defend the 20-day EMA on the down. If the bears can sink the index below this support, a deeper correction¹² to 3100 is possible.

 

• The RSI²⁴ has formed a bearish³ divergence, which is a warning sign that the momentum is weakening.

 

• This short-term bearish³ view will be invalidated if the index rebounds off the 20-day EMA and rises above the 3300 levels. If that happens, a rally to the lifetime highs is possible.

 

• The number of stocks at new 52-week highs has quickly declined from triple digits, which suggests profit taking by the traders.

Market Data

• 1020 stocks advanced on the NYSE, whereas, 1931 stocks declined. 45 stocks made new 52-week highs, whereas, 5 stock made new 52-week lows.

 

• 883 stocks advanced on the Nasdaq, whereas, 2433 stocks declined. 47 stock made new 52-week highs, whereas, 31 stock made new 52-week lows.

Intraday Chart

 

• The index opened weak but the bears could not capitalize on the weakness. The bulls purchased the dip up to the 3200 levels twice during the day.

 

• However, the bears did not allow the index to rally above 3225, which suggests selling on minor pullbacks²³.

 

• Today, the bulls will try to push the index above 3225 and carry it to 3240.

 

• On the other hand, the bears will try to sink the index below 3200 and deepen the correction¹².

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• Florida reported a record 173 deaths yesterday as cases rose by 2.6%, which is under the 7-day 3.3% average but still represents over 10,000 new cases. Even in light of the pickup in fatalities and high absolute case rate, Governor DeSantis said there was no need to impose new restrictions, citing locally enacted mask and distancing measures. Meanwhile, California reported 5,975 new cases over the past 24 hours or a 2.9% increase, which is larger than the 2.5% 7-day average, indicating that the spread is still ongoing in the state even as they re-implemented some restrictions late last month. On the other hand, Arizona is likely seeing early returns on their restrictions as public-health experts in the state said the virus may have reached a peak. Cases rose by 1.3% vs. the 7-day average of 2.0% and the 7-day average of new cases has fallen from under 4000 per day to just over 2000 in the past week. Given the initial claims data worsening across the US, it will be important to watch which states can get the recent outbreak under control and how long it takes to do so. Asian countries like Hong Kong, Japan, India and the Australian state of Victoria are also seeing worrying virus trends.

• Gold advanced a further +0.86% yesterday in its 5th consecutive move upwards, reaching a fresh 8-year high of $1887/oz. We’re now less than 1% away from the all-time closing high in nominal terms for gold of $1900/oz back in September 2011, with the intraday high of $1921/oz also reached that month. The rally ran out of steam however, with silver down by -1.77%, and platinum (-0.47%) and palladium (-0.07%) also moving lower.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• After failing to pick up momentum following the breakout⁸ on July 20, the bears are now trying to drag the S&P 500 back below 3233.1. The total intraday range was 57.3 points.

 

• The index is likely to find strong support between the 20-day EMA at 3186 and 3233. If this zone holds, the bulls will again try to resume the up move above 3278.

 

• Conversely, if the bears sink the index below the 20-day EMA, a deeper correction¹² to 3100 and then to 3000 is possible.

 

• Although it is a little early to say that the correction¹² has started, the fall below the 20-day EMA will be the first indication of a short-term top.

 

• As the uncertainty is rising, we have planned to take profits on the stocks that look “tired”. We are holding on to the stocks that are still in an uptrend.

 

• If the index breaks⁶ below the 20-day EMA, we will close several other positions or tighten the stops if they continue to move up.

 

• Today’s weekly close will give us an idea about who is in charge. A strong bounce and a positive close will suggests strong buying on dips.

 

• On the other hand, if the selling continues, it will suggest that traders are booking profits.

Market Data

• 1429 stocks advanced on the NYSE, whereas, 1547 stocks declined. 125 stocks made new 52-week highs, whereas, 9 stock made new 52-week lows.

 

• 1268 stocks advanced on the Nasdaq, whereas, 2065 stocks declined. 141 stock made new 52-week highs, whereas, 20 stock made new 52-week lows.

Intraday Chart

 

• The index opened flat and the bulls tried to resume the uptrend in the first few minutes but they could not sustain the level above 3277. There were two more attempts by the bulls to scale the index above this resistance²⁵ but both met with heavy selling.

 

• As a result, the sellers booked profits aggressively that dragged the price from 3277 to 3225. There was some support at 3225 but the rebounds look unconvincing.

 

• Today, if the bears sink the index below 3225, a drop to 3000 is possible. A break⁶ below this support will be a huge negative.

 

• On the upside, the resistance²⁵ is at 3255 and then 3275 levels.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

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• Microsoft reported slower growth in their cloud-computing business, with revenues rising 47% and below analysts’ estimates of 49% and far below last quarter’s 59% rise. Overall EPS was $1.46 a share, compared with estimates of $1.36 a share. The stock was down just over -2% after the close. Tesla was the other big tech name announcing after the close, and the automaker reported a $104mn net profit for the second quarter. This compares to a $408mn loss a year ago, with Tesla’s shares up as much as +7.8% in after-hours trading. Meanwhile, this also makes Tesla eligible to become part of the S&P 500 as it has now posted profits in 4 consecutive quarters, thereby meeting a key inclusion criteria and thus could attract index based fund flows. Last week some investment houses highlighted the rise of Tesla vs the rest of the auto industry and out of 1200 responses to a few flash polls 91% said Tesla was overvalued, while 6% said not and 3% were not sure.

 

• Today there will be a hearing in the US Senate on the potential need for the US to create its own cryptocurrency to challenge and keep up with China’s recent action in the field. In a sign of tensions elsewhere Bloomberg is reporting that the Chinese state TV has now taken English football off the airwaves after China/U.K. tensions have climbed in recent weeks.

 

• Oil dropped over -1.5% early on with the move lower in risk sentiment and also EIA data showing a rise in production and modest decline in demand. However, it recovered to nearly flat with Brent Crude at -0.07% and WTI at -0.14%. The recovery in oil may have been partly to do with the dollar’s drop. Copper prices pulled back -1.11%, the metal’s second biggest drop since mid-June when risk assets globally pulled back on news of a potential second wave of covid-19 cases in the US.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 moved up 0.57% to end the day at 3276. The total intraday range was 26.2 points.

 

• Yesterday was the second day the index sustained above 3233.1. If the index rises above 3277.3, it is likely to pick up momentum.

 

• A retest of the lifetime highs looks likely in the next few days.

 

• First, the rally was limited to a few select stocks but since breaking-out⁸ of 3233.1, the broader market has resumed the up move and the number of stocks hitting new 52-week highs has been in triple digits.

 

• There is nothing on the charts yet that warns of a sharp pullback²³ in the next few days.

 

• The first warning sign would be if the index drops below the 20-day EMA. Such a move would indicate profit booking at higher levels. If that happens, we shall take profits on the remaining positions in our portfolio.

Market Data

• 1744 stocks advanced on the NYSE, whereas, 1237 stocks declined. 114 stocks made new 52-week highs, whereas, 5 stock made new 52-week lows.

 

• 1533 stocks advanced on the Nasdaq, whereas, 1786 stocks declined. 127 stock made new 52-week highs, whereas, 15 stock made new 52-week lows.

Intraday Chart

 

• The index opened flat with the bears attempting to sink the index in the first few minutes of trade but the bulls stepped in at 3248 and from there the index remained range-bound for most of the day.

 

• In the final hour, the index broke out and made a dash above 3277.2 levels, which is a huge positive.

 

• Today, the bulls are likely to resume the up move above 3280. The next target is 3300. Support on the downside is in the 3248-3256 range.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

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• Energy stocks moved higher Tuesday as demand optimism pushed crude oil prices up more than +2% to a 4-1/2 month high.

 

• A decline in the U.S. Covid infection rate was also positive for stocks. New U.S. Covid cases rose +1.3% Monday, below the average daily gain of +1.9% over the past week. Confirmed cases of the virus have risen above 14.881 million globally, with deaths exceeding 614,000.

 

• Weakness in technology stocks on Tuesday limited the upside in U.S. stock indexes. The Nasdaq 100 index fell back Tuesday after the recent torrid pace that took it up to a 1-week high early Tuesday, just below its all-time high from July 13.

 

• The VIX S&P 500 Volatility Index ($VIX) on Tuesday fell to a 1-1/2 month low of 23.61 but recovered as stocks shed most of their gains and finished the day up +0.38 at 24.84. The VIX remains in a wide 4-month range between the mid-March 11-1/2 year high of 85.47 and the early-June 4-1/2 month low of 23.54.

 

• Following a suspicious document fire that necessitated a visit from the local police yesterday, Washington has turned the tensions with Beijing up to ’11’ by ordering the immediate closure of the Chinese consulate. Apparently, the incident occurred just as the US was ordering the abrupt closure of China’s consulate in Houston, citing a need to protect American intellectual property and data. The decision, which rattled global equity markets, has been decried as a dramatic escalation in bilateral tensions as Beijing condemned the order as an outrageous violation of international law. Spokespeople for the Chinese government also slammed the decision as outrageous and unprecedented. Washington’s order, which according to WSJ was issued just yesterday, marks an “unprecedented escalation” and “a political provocation unilaterally launched by the US,” according to Chinese Foreign Ministry spokesman Wang Wenbin, who addressed the issue during his regular press briefing in Beijing. “China urges the US to immediately rescind its erroneous decision, otherwise China will undertake legitimate and necessary responses.” Reuters is now reporting that China is considering closing the US consulate in Wuhan in retaliation. Though we suspect those diplomats wouldn’t mind being stationed elsewhere.

 

• California has overtaken New York overnight to become the most infected state in the US in terms of total infections since the start of the pandemic as it reported 14,369 new cases (vs. 7-day average of 8790) or a 3.6% daily rise (vs. 7-day average of 2.5%). California’s total infections now stand at 409,305 versus 408,181 in New York. Governor Newsom noted that California is likely to have adequate hospital capacity, with Covid-19 patients occupying just 17% of available beds across the state. In Florida, cumulative hospitalizations rose 2.4%, to 21,780, while the daily increase of 517 is the most on record. Cases rose by just over 9400 (vs. 7-day average of 11,172) yesterday in the state or 2.6% (vs. 7-day average of 3.5%), but Tuesday has routinely been lower than the rest of the week and so should be taken with a degree of caution. According to the Texas Medical Center, the number of covid-19 patients in Houston-area hospitals, which at one point were using surge beds to deal with the overflow of patients, should decline for at least the next two weeks, given recent admission stats. New York continues to add to its “Quarantine list”, with 10 new states including Alaska, Delaware, Indiana, Maryland, Missouri, Montana, North Dakota, Nebraska, Virginia and Washington, but Minnesota has been removed. Meanwhile, President Donald Trump has rebooted his coronavirus briefings and warned yesterday that the coronavirus crisis will probably worsen before improving.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 move up marginally by 0.17% to end the day at 3257.3. The total intraday range was 29.5 points.

• After the breakout8 of a strong resistance²⁵, the index should ideally pick up steam and rally. If that happens, it shows that the traders who had been waiting on the sidelines have decided to jump in and higher levels are likely.

• However, yesterday, the up move in the index lacked confidence. This shows that traders have not jumped in following the break⁶ above 3233.1.

• If the index does not pick up momentum within the next two days, the bears will try to pull the index back below 3233.1.

• A break6 below the 20-day EMA will be the first sign of weakness. If that happens, a deeper correction is possible.

• Conversely, if the index sustains above the 20-day EMA, the possibility of the up move continuing increases.

• We remain cautiously bullish⁹ in the short-term.

Market Data

• 2290 stocks advanced on the NYSE, whereas, 713 stocks declined. 141 stocks made new 52-week highs, whereas, 2 stock made new 52-week lows.

 

• 2065 stocks advanced on the Nasdaq, whereas, 1310 stocks declined. 191 stock made new 52-week highs, whereas, 13 stock made new 52-week lows.

Intraday Chart

 

• The index gapped up at the start but the bears stepped in closer to 3277. However, the bears could not drag the price below 3262 for most of the day.

 

• In the second half, the bulls again failed to cross above 3277. This attracted profit taking and the index gave up a large part of its gains in the final hour. This is a negative sign as this hour is considered to be dominated by professionals.

 

• The bulls will have scale the 7278 level today to resume the up move towards 3300. On the other hand, the bears will have to sink the index below 3233.1 before they can gain traction.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

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• The euro is trading little changed at $1.143 which reflects the fact that much of this was already priced in. DAX and STOXX 50 are up a little over +0.50% and that follows a broadly positive tone across Asia too where the Nikkei (+0.68%), Hang Seng (+1.88%), Shanghai Comp (+0.07%), Kospi (+1.56%) and ASX (+2.03%) were all up.

 

• In terms of the broader moves yesterday, equities generally moved higher on both sides of the Atlantic as the promising news on the recovery fund and vaccine developments came through. By the end of the session the S&P 500 (+0.84%) and the STOXX 600 (+0.75%) had both reached a new post-pandemic high, with tech stocks among the outperformers as the NASDAQ achieved yet another all-time high after the small underperformance last week, gaining +2.51%. Even with the mostly positive vaccine news, the S&P was led by the stay-at-home trade with AMZN (+7.93%), Citrix (+7.64%), and ServiceNow (+6.51%) the best performing stocks in the index, while airlines such as United Airlines were among the worst performers (-4.69%). US Treasuries rallied along with their European counterparts with 10yr yields falling -1.6bps.

 

• On the coronavirus, the main development yesterday came from the Oxford vaccine trial, where results published in The Lancet journal showed that the vaccine led to increased levels of antibodies and T-cells, and did not cause serious adverse side effects. This was as part of the Phase 1 trial that involved 1,077 adults back in April-May. In response to the news, AstraZeneca shares surged to an intraday high of +10.16%, although they later gave up those gains to close just +1.45% higher.

 

• There is no doubt the news over the last few weeks on vaccine developments have been incrementally positive. However, it is still likely to be some months before the leaders complete the trial stages and are in a position for mass distribution if we get that far. And with society still needing to find a way to live with the coronavirus, news came through yesterday of further restrictions in the US, with Chicago announcing they were retightening restrictions on bars and restaurants, and NY Governor Cuomo threatening to close all bars and restaurants if social distancing rules continued to be broken. That said, in three of the worst affected states, case growth was below the previous 7-day average, with Florida (3% vs. 3.8% previously), California (2.3% vs. 2.7%) and Arizona (1.1% vs. 2.3% previously) seeing a slowdown in the number of new cases. The US overall saw cases rise by 1.5% vs. the weekly average of 1.9%. There continues to be some Monday effects as states try and catch up from lower testing levels on the weekend, however 7-day averages for these states continue to slow slightly from what we saw 1-2 weeks back. The attention now moves to how the states’ economies have been affected and how quickly they can more fully suppress the spread.

 

• Against this backdrop, and worries that rising case growth in the southern US has in turn led to a reversal in the economic recovery, US stimulus talks have taken front stage as there will be concerns for how much financial conditions could tighten in the US if something is not done by the end of the month. Yesterday, White House officials met with senior Republican Congress officials to hammer out details of the newest relief bill. U.S. Treasury Secretary Mnuchin said that the next round of stimulus will focus on incentives for getting children back to school and workers back to their jobs. He noted that Republicans are “starting with another trillion dollars”, which is a change from senators who said $1tr was their ceiling. House Republican leader McCarthy, told reporters that the initial Republican proposal would include cutting the payroll tax, which has been a central demand of President Trump, and will include another round of direct stimulus payments to individuals. Though the direct payments may be more tailored this time around. One big sticking point for the GOP and Democrats will be any additional aid for state and local governments, and Democratic proposals to keep supplemental payments for unemployment insurance at the $600. Overnight, Bloomberg has reported that Mnuchin and White House Chief of Staff Mark Meadows will meet House Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer today afternoon to start negotiations on the stimulus bill.

 

• In other news, Bloomberg has reported that Judy Shelton, President Donald Trump’s pick to join the Federal Reserve’s Board of Governors, was poised to clear a key hurdle to confirmation after Louisiana Senator John Kennedy said overnight that he would back Shelton. Shelton and fellow nominee Christopher Waller, director of research at the St. Louis Fed, will finally receive their committee votes more than five months after appearing before the panel to answer questions. The committee will meet at 2 pm Washington time.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 rallied 0.84% to end the day at 3251.8. The total intraday range was 43.4 points.

 

• With yesterday’s close, the index has resumed its up move. The next target is a retest of the lifetime highs.

 

• The upsloping moving averages and the RSI²⁴ in the positive territory also support the view of a bullish⁹ up move.

 

• The stocks that have been outperforming the index for the past few days are likely to do so in the next few days as well.

 

• This bullish⁹ view will be invalidated if the index turns down and slips below the 3233.1 level.

 

• If that happens, it would indicate that the current breakout⁸ was a bull trap.

Market Data

• 1278 stocks advanced on the NYSE, whereas, 1692 stocks declined. 113 stocks made new 52-week highs, whereas, 10 stock made new 52-week lows.

 

• 1763 stocks advanced on the Nasdaq, whereas, 1578 stocks declined. 179 stock made new 52-week highs, whereas, 17 stock made new 52-week lows.

Intraday Chart

 

• After some initial weakness in the first few minutes, the index picked up momentum and the bulls pushed the price above 3233.1. Thereafter, there was no looking back as the index continued higher.

 

• The 20-day EMA acted as a strong support during intraday dips, which suggests that the bulls are firmly in command.

 

• Today, if the bulls can resume the up move, the next target is 3270. Conversely, the bears will try to sink the index back below 3233.1, which will be a negative sign.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

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• Positive Covid vaccine news is bullish for stocks after a researcher today said that AstraZeneca’s Covid vaccine candidate shows “good antibody and T-cell response.” U.S stock indexes are also receiving positive carry-over from a +0.57% gain in the Euro Stoxx 50 after EU leaders made progress on the 750 billion-euro pandemic recovery plan. The Netherlands, Austria, Denmark, and Sweden dropped their opposition to the plan after leaders agreed that 390 billion euros of the 750 billion euro package would be available as grants, with the rest as low-interest loans. The negotiations are scheduled to resume today in Brussels to finalize the deal.

• Comments today from ECB Vice President Guindos were supportive of stocks when he said “the most recent data” shows that Eurozone Q2 GDP contraction will be better than earlier ECB estimates of around -13%.

• U.S. stock indexes are still being weighed down by the rising spread of the Covid pandemic in the U.S. that may force more states to re-impose lockdown measures in an attempt to contain the spread of the virus. Florida on Sunday had its fifth consecutive day of more than 10,000 new virus cases, and House Representative Shalala said the outbreak is “totally out of control.” Also, the mayor of Los Angeles said the city is “on the brink” of new restrictions to try to stem the surge in new Covid infections. Confirmed cases of the virus have risen above 14.668 million globally, with deaths exceeding 609,000.

• Japanese trade data today was negative for economic growth prospects and bearish for stocks after Japan June exports fell -26.2% y/y, weaker than expectations of -24.7% y/y.

• The VIX S&P 500 Volatility Index ($VIX) fell to a 1-1/2 month low of 24.50 and is currently down -0.57 at 25.11. The VIX remains in a wide 4-month range between the mid-March 11-1/2 year high of 85.47 and the early-June 4-1/2 month low of 23.54.

 

• In a Financial Times op-ed, famed economist Mohamed El-Erian warned that the financial stress from Covid-19 is not even close to being over. “The financial stress caused by COVID-19 is far from over,” he wrote. El-Erian wrote that investors should ready themselves for defaults that will “spread far beyond the most vulnerable corporate and sovereign borrowers.” He advised that instead of buying assets which have “stunningly decoupled” values from their underlying fundamentals, investors should adjust their portfolios to focus on the recovery potential of their assets. So far, El-Erian wrote, defaults have only been limited to certain hard-hit sectors over the past few months of financial pain on both corporate and public balance sheets, but that could change, he warned. “The sense that the worst did not come to pass has fed complacency among investors of all stripes,” he said. A sense of complacency has risen among all types of investors and a glaring example of that, he wrote, is the emergence of retail investors – who roughly make up 25% of stock market activity amid recent volatility. “A new generation of retail investors has emerged, helping stocks on their relentless march higher,” he said. A rise in business vigilance has been propelled by a resurgence in coronavirus cases around the world, he said while pointing out that some states in the US have reversed their reopening policies. This scenario “reduces borrowers’ willingness and ability to meet contractual obligations” especially in hospitality, retail, and in developing countries, El-Erian wrote.

• Other concerns for investors include: a record speed of bankruptcies, job losses across all types of companies, deferrals in commercial real estate and credit card payments, and some developing countries defaulting on debt payments, he said. Despite several points of worry, investors are displaying “insufficient concern” as they continue to expect a sharp V-shaped recovery helped by development of a vaccine. On the other end, safeguards from governments and international organizations have managed to boost sentiment, El-Erian said. But he cautioned that such measures will not save investors from sharing some capital losses. “Many have already made it clear that they expect ‘private sector involvement’. That is likely to mean, at the minimum, the short-term suspension of interest and principal payments.” This time, retail investors are front and center. But it is the next stage that we should already be thinking about. That requires much more careful scrutiny from investors than the past few months have demanded,” El-Erian concluded.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 formed a doji¹⁴ candlestick¹⁰ pattern on Friday, which suggests a state of indecision between the bulls and the bears. The index moved up 0.28% to end the week at 3224.7. The total intraday range was 27.8 points.

 

• The bulls are finding it difficult to break⁶ above the overhead resistance²⁵ of 3233.1 but they are not giving up much ground, which shows strength. This increase the likelihood of a break⁶ above 3233.1 soon.

 

• If the index sustains above 3233.1, a retest of the lifetime highs is possible. A new lifetime high will be bullish⁹.

 

• Although there is a huge disconnect between the fundamentals and the pace of the rally, the abundant liquidity has made it easy for the stocks to rally.

 

• Therefore, if the index sustains above 3233.1, we shall be buyers again but for the short-term.

 

• This view will be invalidated if the index turns down sharply from the current levels and breaks⁶ below the 20-day EMA. Such a move will be the first sign that the trend is about to change.

 

• Until then, the path of least resistance²⁵ is to the upside.

Market Data

• 1632 stocks advanced on the NYSE, whereas, 1335 stocks declined. 81 stocks made new 52-week highs, whereas, 1 stock made new 52-week lows.

 

• 1988 stocks advanced on the Nasdaq, whereas, 1330 stocks declined. 124 stock made new 52-week highs, whereas, 15 stock made new 52-week lows.

Intraday Chart

 

• The index opened flat but sold off in the first few minutes of trading but the bears could not sink the index to 3200, which encouraged buying.

 

• From close to 3210, the index started a recovery that continued till the final half an hour when some profit taking was observed.

 

• Today, the bulls are likely to push the index above 3210. If they can sustain the index above this level, a move to 3230 is possible.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• Yesterday the main headline came from the UK’s National Cyber Security Centre, which said that Russian cyber actors were targeting organizations involved in developing a coronavirus vaccine in the UK, the US and Canada. Their website said that the group known as APT29 that was exploiting organizations, “almost certainly operate as part of Russian intelligence services”. Russia has denied the accusations however.

 

• Meanwhile, in terms of the latest on case numbers, Florida reported a further 4.6% increase yesterday, above the previous 7-day average of 4.4%, along with a record 156 daily deaths. Arizona continued to see a slight slowing in cases, with a 2.5% increase vs. the 2.8% weekly average. The positivity rate remains very elevated at 24.5% though. California had just over 9400 new cases, which is above the recent 7-day average of 8900, while fatalities have ticked up in the state with 118 new deaths in the last 24 hours vs. a 94 7-day average. Texas also saw a 5.5% jump in new cases as against the 7 day average of +3.7% while reported fatalities came in at a record 169 in the last 24 hours as against the 7 day average of 88 per day. Overall US cases rose by 2.5% with nearly 64,000 per day over the past week, which is twice as much as the first peak seen in early April. Amid rising case numbers in the state, the Republican National Committee said that they would be scaling back the Republican National Convention, which is due to be held in the state next month. Arkansas and Colorado were added to the ever growing list of states requiring masks in public spaces. Texas Governor Abbott warned attendants at the Texas Republican Convention yesterday that the recent outbreak may leave him with few options outside of shutting down the second most populous U.S. state. This comes as Pennsylvania rolled back their own reopening yesterday, shuttering nightclubs and lowering occupancy across bars and restaurants. Overnight, Brazil has surpassed the 2m mark of confirmed cases with confirmed fatalities at 76,688.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 was stuck in a tight range yesterday. It closed t 3215.6, down 0.34% for the day. The total intraday range was 21.8 points.

 

• Although the bulls are facing resistance²⁵ at 3233.1 levels, the positive thing is that they have not given up much ground.

 

• This increases the possibility of a break⁶ above the residence that can result in a retest of the all-time-highs.

 

• The only thing negative on the chart is the bearish³ divergence on the RSI²⁴. However, in strong trends, these divergences tend to cancel out. Hence, we are cautious but are not closing positions because of this set up.

 

• Until the bulls sustain the index above the 20-day EMA, the likelihood of a breakout⁸ above 3233.1 remains high.

 

• We might resume our purchases if we get a strong close above 3233.1.

Market Data

• 1349 stocks advanced on the NYSE, whereas, 1597 stocks declined. 58 stocks made new 52-week highs, whereas, 6 stock made new 52-week lows.

 

• 1328 stocks advanced on the Nasdaq, whereas, 1984 stocks declined. 80 stock made new 52-week highs, whereas, 12 stock made new 52-week lows.

Intraday Chart

 

• The index opened weak but the bears could not capitalize on it. For the rest of the day, the index remained stuck between 3200-3215.

 

• The bulls attempted to break⁶ out of this range and start a rally but they could not sustain the higher levels.

 

• Today, a break⁶ below 3200 is likely to signal weakness. On the other hand, if the bulls can propel the index above 3220, a challenge to 3233.1 is possible.

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

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• It was a similar story in Europe, where the Travel and Leisure sector (+6.06%) led the STOXX 600 higher, however the sector is still over -33% down from pre-pandemic highs compared to the broad index which is down -13.83%. The rise of cruise lines, airlines and other hospitality stocks in both the US and Europe was likely tied in parts to the positive vaccine stories over the last 36 hours. Europe managed to survive the aforementioned dip in risk sentiment with most of the bourses up by around 2%, including the STOXX 600 (+1.76%), the DAX (+1.84%) and the CAC 40 (+2.03%).

 

• Asian markets traded lower with the Nikkei (-0.71%), Hang Seng (-1.17%), Shanghai Comp (-1.41%), Kospi (-0.52%) and Asx (-0.97%) all down. A miss on retail sales data seems to be weighing on Chinese bourses even as Q2 GDP surprised on the upside. The jump in COVID-19 infections in the region seems to also be acting as an overhang.

 

• On the coronavirus, markets were initially reacting to the previous night’s news from the Moderna’s trial, in which their vaccine produced antibodies in all the patients tested. In response the company’s share price was up by +6.90% yesterday. The other news came through from UK ITV’s Robert Peston, who tweeted that “Positive news is coming on Oxford Covid-19 vaccine. The vaccine is generating the kind of antibody and T-cell (killer cell) response that the researchers would hope to see, I understand.” AstraZeneca shares surged following that tweet, ending the day up +5.23%, and Peston’s report on the ITV website said that the news could come as soon as today. Sky News also reported that the Lancet medical journal will publish data on the potential AstraZeneca Plc vaccine on Monday.

 

• The use of masks continued to become more widespread, with Walmart announcing that it would require all customers to wear them in its US stores from July 20. This comes as more US states have adopted mask mandates in recent days, the most recent of which was Alabama yesterday. The state borders recent hotspot Florida and has seen daily new cases rise by over 1,500 for 4 days in a row for the first time. In Europe, both Ireland and Serbia announced that the use of masks would become mandatory. The former also announced that they will delay the latest phase of reopening, which included bars and nightclubs, after the effective transmission rate rose over 1.0 in the country.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 formed a doji¹⁴ candlestick¹⁰ pattern yesterday. It rallied 0.91% to end the day at 3226.6. The total intraday range was 37.5 points.

 

• With Wednesday’s rally, the index has reached the critical overhead resistance²⁵ of 3233.1.

 

• If the bulls can scale the index above this level, it will be the first sign of strength and will result in a quick move to the highs.

 

• Therefore, we might buy for the very short-term to pocket a few percentage points of gains.

 

• However, if the breakout⁸ lacks strength, then it could be a bull trap. Therefore, we are cautious around these levels.

 

• If the index turns down, then, we shall watch the 20-day EMA and when that breaks⁶, we shall take profits on our remaining positions.

 

• The risk to reward ratio has skewed to the downside. Hence, we are cautious but we shall aggressively buy the next dip.

Market Data

• 2536 stocks advanced on the NYSE, whereas, 466 stocks declined. 99 stocks made new 52-week highs, whereas, 4 stock made new 52-week lows.

 

• 2716 stocks advanced on the Nasdaq, whereas, 633 stocks declined. 106 stock made new 52-week highs, whereas, 8 stock made new 52-week lows.

Intraday Chart

 

• The index opened near the strong resistance²⁵ of 3233.1 and moved higher after the first few minutes of trade. However, the bulls could not sustain the price above 3233.1, which shows some selling above this level.

 

• However, the bears could not capitalize on this and sink the index below 3200. This shows that the bulls continue to buy at lower levels.

 

• By the end, the index had again reached the 3233.1 levels. This increases the possibility of a sharp break⁶ above this resistance²⁵, which will commence the next leg of the up move.

 

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

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• Goldman Sachs reported earnings this morning, blowing the roof off expectations at $6.26 a share versus expectations of $3.78 a share. With the strongest trading revenues in years, the company weathered a volatile second quarter very well. Their results though, when compared to some peers such as JPMorgan, were buoyed by less cash being set aside for bad loans. At the same time, it exudes the fears of such banks with a higher concentration to lending.

• Yesterday, President Trump removed Hong Kong’s special status. Markets seemed unconcerned with the landmark decision that continues to signal a deteriorating relationship between the U.S. and China. Instead it traded higher on a problem only recently created and one that risk-assets never even traded lower on; the U.S. government will now allow international students to stay in the U.S. while taking online classes.

• Fed Governor Brainard, who is considered a centrist (dovish to hawkish), lit a fire under risk-assets yesterday calling for additional measures due to the ongoing risks and a slow recovery. Harker who also spoke of the slow recovery yesterday, is considered to be more hawkish among the committee. He is a 2020 voter and his comments will be closely watched again today. Tonight, a deluge of Chinese data that includes Q2 GDP and Industrial Production is due at 9:00 pm CT.

• The OPEC Joint Ministerial Monitoring Committee meeting is underway. Early discussions point to tapering the pandemic cuts from 9.7 mbpd to 7.7 mbpd. Additionally, early comments from the Saudi Energy Minister allude to holding some production back whereas Russia’s Energy Minister appears more eager to taper. Still, Novak, Russia’s Energy Minister, made a point that the market will not be flooded with unneeded production and much of their increase is earmarked domestically. Overall, the tape is holding ground well and just below recent highs. However, the strength is amid the broader risk-on move coupled with a large unexpected draw reported by the private API survey last night and less to do with the start of the OPEC JMMC meeting. API’s -8.322 mb Crude and -3.611 mb Gasoline set a fairly bullish bar for today’s official EIA report at 9:30 am CT where analysts expect -2.098 mb Crude, -0.643 mb Gasoline and +1.485 mb Distillates.

• Gold is losing some ground from yesterday’s highs amid the risk-on move and positive vaccine news. This is not surprising as we have seen Gold do exactly this each time headlines point to steps forward in fighting Covid-19. Still, the path of least resistance is higher for Gold and dips are a buying opportunity.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 turned around from the lows of the day and rallied 1.34% to end the day at 3197.5. The total intraday range was 73.3 points.

 

• Although the bears had the advantage, they could not capitalize on it and sink the index below the 20-day EMA.

 

• This suggests that the bulls are still aggressively buying the dips. Yesterday’s turnaround also increases the possibility of a break⁶ above 3233.1.

 

• The bulls are still not tired and are likely to carry the index to new lifetime highs.

 

• As the short-term trend looks to be changing in favor of the bulls, we might add a few short-term positions in the next couple of days.

 

• This bullish view will be invalidated if the index again turns down from 3233.1. If that happens, the possibility of a break⁶ below the 20-day EMA increase.

 

• The next couple of days are critical for the index as it will set the direction for the next trending move.

Market Data

• 1949 stocks advanced on the NYSE, whereas, 1040 stocks declined. 27 stocks made new 52-week highs, whereas, 12 stock made new 52-week lows.

 

• 2087 stocks advanced on the Nasdaq, whereas, 1262 stocks declined. 51 stock made new 52-week highs, whereas, 32 stock made new 52-week lows.

 

Intraday Chart

 

• The bears had the initial advantage but they could not drag the index even to 3110 levels, which shows that the bulls are aggressively buying on dips.

 

• From the lows, the recovery faced two assaults by the bears but held the 50-SMA, which is a positive sign.

 

• The recovery picked up steam in the final hour, which is generally considered as positive. Therefore, today, the chances of a move to 3233.1 are high.

 

Economic Calendar Release

 

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

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• Since the Global Financial Crisis (GFC), the US equity market has outpaced the rest of the world by some distance. For example, for the 10-year period ended 12/31/19, US equities, as measured by the MSCI USA Index, achieved an annualized return of 13%. In contrast, international equities, as measured by the MSCI All Country World ex USA Index, achieved an annualized return of only 5% during that same time period. Even in the wake of the COVID-19 outbreak, this trend has remained intact, leading some investors to question whether they should even bother owning any non-US equities at all.

• It is important to remember, however, that this was not always the case. Although the US has been the best performer this decade, it was one of the weakest performers in the previous decade, as shown in FIGURE 1.

• For example, during the 2000s, the bursting of the US tech bubble coincided with increased globalization and the industrialization of China. This paved the way for a boom in emerging-market (EM) equities. Similarly, during the 1970s and 1980s, Japan’s asset market rally appeared unstoppable, as overconfidence reigned over the country’s seemingly infallible economic model. Nevertheless, optimism that these markets would continue to outstrip the rest of the world eventually subsided.

FIGURE 1

Performance Leadership Tends to Be Cyclical. MSCI USA vs MSCI World ex USA return decomposition, rolling 5-year annual relative returns

Source: Refinitiv Datastream and Schroders. Data as of 4/30/20.

Notes: US equities = MSCI USA Index, International equities = MSCI World ex USA Index. (Investors cannot directly invest in an index)

• Investors often fall into this trap of extrapolating past performance into the future because they have trouble imagining a future that is different from the present. But if history is any guide, outperformance does not last forever, and US equities could soon suffer this same fate. In this paper, we examine what factors could sway performance in favor of international equities.

US Earnings Advantage Has Disappeared

 

• Looking back over the past decade, the main reason US equities have done so well is because of their profit growth. For example, from 2009 to 2014, US earnings-per-share (EPS) grew at 17% per year compared with only 7% outside the US. Part of this can be attributed to the stronger US economic recovery after the GFC, as Europe was still reeling from its sovereign debt crisis, while a collapse in commodity prices put an end to the EM growth rally.

• At a corporate level, the US is also home to some of the most successful companies in the world, including firms such as Amazon, Apple, and Google, which have delivered significant profit growth and technological innovation. US companies have also engaged in more shareholder-friendly activities such as share buybacks, which have boosted EPS growth (by reducing the number of shares in issue, buybacks raise the level of EPS growth for a given level of aggregate earnings growth).

• The problem is that this earnings growth advantage has pretty much disappeared. Since 2015, nearly all of the relative outperformance has been driven by a combination of valuation multiple expansion and dollar strength. This mirrors the pattern observed in the 1990s shortly before the US stopped outperforming. Of course, valuations and the dollar can always climb higher, but not indefinitely.

Peak-Profit Margins?

 

• One justification for this valuation premium is that US firms have been able to reinvest their profits at increasingly higher reinvestment rates. For example, since 2008, US public companies have increased their return on equity (ROE) by 25% relative to their international peers. ROE can be decomposed into the product of net profit margins, leverage, and asset turnover.

• FIGURE 2 shows how these component parts have varied for US equities compared to international equities. Since 2008, improving profitability and leverage have both been tailwinds for the US. In fact, research shows that US equity prices would have been 40% lower if not for the secular expansion of profit margins.

FIGURE 2

Margins and Leverage Have Increased Relatively More in the US Compared to Overseas. Nonfinancial US versus international equities

• Source: Refinitiv Datastream and Schroders. Data as of 5/29/20.However, the structural forces behind these drivers are now under threat. For instance, although globalization has offered companies access to new export markets as well as cheap labor in places such as China, trade frictions and the disruption to supply chains brought about through the pandemic have increased the incentives for onshore production, which could eventually weigh down on US margins.

• Similarly, the tax and borrowing environment has been very supportive for corporates over the past few decades. Looking forward though, these are unlikely to provide another boost to profitability. After the recent Trump administration tax cuts, the effective US corporate tax rate (the weighted average rate paid by US companies on all of their earnings worldwide) now roughly equals the domestic rate, thereby limiting the potential tax arbitrage of moving revenues abroad. At the same time, with leverage already at record levels, it seems improbable that US companies could take on substantially more debt in the coming years.

• Although international equities in general are not immune to any of these changes either, it may prove difficult for US companies to maintain their relatively higher profitability without these tailwinds, let alone increase their margins further. This means US equities could struggle to repeat previous relative gains.

Fundamentals No Longer Support Valuations

 

• For most of the post-crisis period, US outperformance has moved in tandem with relative earnings expectations. However, the gap between relative returns and earnings expectations recently has widened significantly. This is not sustainable. At some point, earnings expectations will need to catch up, or US stock prices must correct.

FIGURE 3

US Outperformance Has Decoupled From Relative Earnings Expectation. EPS projections for US versus international equities

Source: Refinitiv Datastream and Schroders. Data as of 5/1/20.

• One consequence of this disconnect is that US equities appear overvalued relative to their international peers. For example, although analysts are forecasting that US EPS will grow 2% less than international equities over the next three years, current share prices imply that it will grow by 13% more. US share prices have a lot of optimism baked into them, which could be setting them up for disappointment.
• US equities appear overvalued relative to their international peers.

FIGURE 4

US Equities Appear Overvalued in Growth Terms Relative to International Equities. EPS projections for US versus international equities

Source: Refinitiv Datastream and Schroders. Data as of 5/31/20.

The Price You Pay Matters for Returns

 

• Although valuations have a poor track record of predicting short-term returns, they have far greater power as a guide to long-term prospects. Historically, the cyclically-adjusted price-to-earnings ratio (CAPE) has had a correlation of -0.83 with subsequent relative 10-year US returns (a high US CAPE relative to a international CAPE has preceded low returns for US equities relative to international equities, and vice-versa) and explained 68% of its variation over time.

FIGURE 5

Valuations Imply US Investors Could Be Disappointed Over the Coming Decade. Subsequent relative 10-year return per year (US vs international) %

Source: Refinitiv Datastream and Schroders.

• For example, back in December 2007, US equities had a CAPE ratio of 22x, compared with 27x for international equities. Since the US market was relatively cheaper, it was poised to outperform over the subsequent decade. However, today US equities trade at a multiple of 25x earnings versus only 13x for international equities. Betting that US equities could continue to outperform over the next decade no longer looks like a winning trade.
• Admittedly, the composition of the US market has evolved somewhat over time, with an increased weighting to capital-light businesses, and this may warrant a higher valuation compared to before. This brings us to the next issue: the dominance of technology firms.

Too Big to Fail?

 

• Investors often reassure themselves that “this time is different” and on certain fronts, the FAMAGs—Facebook, Amazon, Microsoft, Apple, and Google—certainly stand out as impressive businesses. Historically, they have rapidly grown their profits, commanded large market shares, and continued to innovate to stay ahead of their competition. The pandemic has accelerated these trends by making us more dependent on their services.

• However, these companies have become so large that they are essentially driving the market. Between 2015 and 2019, the S&P 500 Index climbed 74%, of which the FAMAG stocks—just five companies out of 500—contributed 22% (nearly a third of the Index’s total return). As a consequence, their combined market-cap weight has more than doubled from roughly 8% of the S&P 500 Index in 2015 to nearly 20% today. This means the largest US stocks now account for a larger slice of the market than at the peak of the dotcom bubble in 1999.

• The largest US stocks now account for a larger slice of the market than at the peak of the dotcom bubble in 1999.

FIGURE 6

The Tech Giants Have Doubled Their Market Share of the S&P 500 Index % weight of S&P 500

Source: Refinitiv Datastream and Schroders. Data as of 5/31/20.

• Investors seem to think that these companies are unstoppable. But the truth is that the bigger they get, the harder it becomes for them to replicate that performance. After all, once a company dominates an industry, it can only grow as fast as the market size grows. Going forward, the only way they can continue to justify their growth multiples is by developing other game-changing products or leveraging their existing resources to branch out into other services. For example, Amazon, Google, and Microsoft have all ventured into the market for cloud computing, yet even here competition is quickly heating up and this may eventually eat into their margins.

Size Breeds Government Attention

 

• Regulation is by far the biggest risk looming over the tech giants. Over the past 18 months, the FAMAGs have faced a barrage of criticism over their anticompetitive behavior. The bigger these firms get, the more likely they will become more heavily regulated. History is replete with such examples. At some point, this could have serious implications for their growth prospects.

• With a number of governments turning to tech companies to help manage the virus outbreak, one possibility is that the major digital platforms could become regulated like public utilities, given their increasing size and influence. In the past, governments did not hesitate to regulate services that were deemed essential public goods, such as railways and energy suppliers. New regulations could be imposed that limit how these firms monetize data and in which markets they can participate. Tech valuations could grind lower if the regulatory environment deteriorates.

The Winner’s Curse

• While it is tempting to argue that these powerful firms are unlike their historical predecessors, it is naïve to assume their stock market dominance will continue indefinitely. This is not to say they will not remain industry leaders in their respective fields. Cisco, IBM, and General Electric are just a few examples of firms that are no longer the motorboat for equity returns. Often when big companies rise quickly, their market matures, they fall asleep at the wheel in innovation, or regulation hinders their growth; their stocks prices suffer as a result.

• So even if these companies are not displaced, they can become eclipsed. It is difficult to foresee what new companies could emerge that could overshadow the FAMAGs. But it is important to remember that change and disruption is constantly happening around the world, from healthcare to automation to fin-tech. Financial markets are often slow to recognize this disruption or are reluctant to accept its impact. Investors should not become complacent.

 

A Portfolio Manager’s View: Simon Webber, Global and International Equities Team

 

Case study 1: Cloud computing – Xero

• Xero is a pure play cloud software company focusing on small business accounting products. The company has successfully built strong positions in Australia, New Zealand, and the UK. At the core of its success has been its very strong product offering and its cloud-first strategy, disrupting the incumbent desktop software providers.

• The potential for growth in cloud accounting software is vast. Xero boasts a strong product offering and brand, alongside leading bank and app integration, as well as the ability to attach services and software. All of this paints a bright outlook for Xero. Source: https://innovationatwork.ieee.org/

Case study 2: Automation of online grocery fulfilment orders – Ocado

• Ocado began life as a start-up online grocery business in the UK. The ‘Hive’ concept that Ocado pioneered allows the company to automate the fulfillment process of online grocery through a matrix of robot boxes that bring items to the picking point to fulfill individual orders. This technology is now being licensed all over the world, empowering traditional grocers in Canada, France, and the US to compete with Amazon and other online grocery companies.

• By lowering the cost of online grocery fulfillment through automation, Ocado is very disruptive to incumbent grocers who do not have the margins or resources to develop such a technology driven solution.  Source: Business Insider.

International Equities Offer Cheap Exposure to a Cyclical Recovery

 

• An important similarity between the current environment and previous market cycles is the composition of the US equity market. As of May 31, 2020, cyclical stocks represented only 36% of the S&P 500 Index while non-cyclicals represented 64%. This mirrors the experience in the early 2000s. By comparison, today cyclicals represent 58% of the MSCI All Country World ex USA Index while non-cyclicals represent only 42%. Typically, cyclicals have generated strong performance after the economic cycle bottoms, so a lower relative weighting in this segment could limit the rebound in US equities once global growth recovers, which is inevitable at some point.

• For example, despite a recovery in cyclical indicators in the early 2000s, tech stocks continued to pull back from their lofty valuations, effectively dampening the overall market performance. This same scenario could play out again.

The US Market Composition Mirrors the Experience of the Dotcom Bubble % weight in S&P 500

Source: Refinitiv Datastream and Schroders. Data as of 5/31/20.

Conclusion

• US equities have benefitted from several tailwinds relative to international equities over the past decade: profit growth, rising leverage, improving profitability, world-beating companies, and investors being more prepared to pay ever-higher prices to invest in them. However, we believe it would be unwise to bet that these will all continue unchecked. While timing an inflection point is very difficult, all signs tell us that gravity will eventually bring these “rockstar” large-cap equities back down to earth.

• US share prices now bake in earnings growth that is at odds with analyst expectations—and analysts are not exactly known for their pessimism. Valuations have been stretched to levels which would have historically foreshadowed low returns for US stocks versus the rest of the world. Meanwhile, we believe politicians and regulators are unlikely to allow large US technology companies to wield ever-greater power. And compositional differences indicate that international equities could outperform in a cyclical upswing. A tilt toward international equities may also prove beneficial if the dollar weaken. Let’s also not forget that winners, both within markets and between markets, vary considerably over time. The last decade has belonged to the US, but history shows that performance leadership is cyclical. Therefore, we think it would be prudent for equity investors to consider diversifying their equity exposure across international markets.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 gave up its early gains and closed in the red at 3155.2, a drop to 0.94%. The total intraday range was 85.9 points.

 

• Yesterday, the index crossed the critical level of 3233.1 that we had been highlighting for the past many days but the bulls could not sustain the higher levels.

 

• The markets quickly turned around and gave up all the gains. This looks like a rejection at the 3233.1 level.

 

• However, in order to confirm that the trend has been broken, the index should slip below the 20-day EMA. If that happens, it will be a sign that the markets will enter a period of weakness.

 

• Contrary to that assumption, if the index soars again today and breaks⁶ above yesterday’s highs, it will suggest that the buyers have soaked up all the supply and the index is ready to challenge the lifetime highs.

 

• However, watching at the price action of some of the stocks, it looks like a few days of profit booking is likely.

 

• We will watch the price action for the next couple of days closely and then decide whether to start buying now or wait for 2955 levels to put money.

 

Market Data

• 1059 stocks advanced on the NYSE, whereas, 1865 stocks declined. 119 stocks made new 52-week highs, whereas, 6 stock made new 52-week lows.

 

• 1049 stocks advanced on the Nasdaq, whereas, 2326 stocks declined. 210 stock made new 52-week highs, whereas, 24 stock made new 52-week lows.

 

Intraday Chart

 

• The intraday chart shows how the index started on a strong footing and moved up to the 3233.1 level. The bulls managed to rise above it only for a few minutes following which the index witnessed a sharp correction¹².

 

• Today, it will be interesting to note whether the bears sink the index to 3100 levels or the bulls start a recovery. The price action today is likely to set the direction for the next few days of trading.

 

Economic Calendar Release

 

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

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• It was only to be expected that in an already brutal year, the summer of 2020 was going to be the absolute worst. And now, it appears that a sizzling “heat dome” will be frying most of the continental United States for several weeks starting this weekend.

• What this means is that over 80 percent of the U.S. population – encompassing 265 million people – can expect sweltering heat over the next week with highs exceeding 90. Another 45 million people will be facing highs in the triple digits. Additionally, we can expect a full season of lethal heat ranging from 90°F to 121°F, not to mention extreme tropical storms, wildfires, and extreme weather related to La Niña conditions, reports the Independent.

• On Friday, the National Weather Service issued excessive heat watch alerts for “dangerously hot conditions” and forecast that between Friday and Tuesday, over 75 record high temperatures would be reached or exceeded, with heat expected to increase in the following week. Summer is in full swing! Tropical Storm Fay formed in the Atlantic. Thunderstorms, some severe, in the Plains and Upper Midwest. Excessive heat up to 121 F possible in the Desert Southwest into early next week. Critical fire weather threats continue for portions of the West. National Weather Service (@NWS) July 10, 2020.

• On Saturday, temperature in Las Vegas reached a sweltering 112°F with the temperature expected to increase to 114°F on Sunday, while in Phoenix temperatures hit 115°F with Sunday expected to bring a withering 116°F before coasting at or above 110°F through the next week. The new extremes sharply raise the danger of heat-related illness and death, further adding to the woes of hospitals struggling with surging COVID-19 infections in hard-hit regions and states like Arizona, California, Nevada and Texas. “The heat wave will be very long-lived, lasting multiple weeks in some areas with only a few days of near-normal temperatures during that span,” Jeff Masters, Ph.D. and founder of the popular site Weather Underground, told CBS News. “This will increase the odds of heat illness and heat-related deaths.” Indeed, that’s the highest I see—although their record only goes back to 1949.   Bob Henson (@bhensonweather).

• And for those who may be feeling a little bored sheltering at home, there could be some excitement in store for you in the form of thunderstorms in the Midwest and Northeast, hurricanes in the South, and wildfires in the Southwest and West Coast. This less-than-good news comes as the east coast buckles down and braces itself for Tropical Storm Fay, which is set to thrash the New England region, deluge New York, and inundate parts of New Jersey with flash floods.

• Those dew points in the mid to upper 70’s in Oklahoma and Texas making it feel like the 110’s!  — Collin Gross (@CollinGrossWx) July 11, 2020. The news comes as many are already struggling to stay cool during the COVID-19 lockdown without air conditioning, or even the jobs and income to keep their AC units operational if they do have them.

• Heat domes occur when the atmosphere keeps hot ocean air trapped as if it were under a lid or cap, with the end result being conditions of persistent high pressure and sustained heat for a prolonged period of time, sprawled over massive geographical regions. To make matters worse, the larger the heat dome becomes, the hotter and more longer-lasting it will be. According to a team of National Ocean Services researchers who set up the Modeling, Analysis Predictions and Projections program to figure out why heat domes occur, they found that the primary cause was strong changes in ocean temperatures from west to east in the tropical Pacific Ocean during the prior winter.

• “This happens when strong, high-pressure atmospheric conditions combine with influences from La Niña, creating vast areas of sweltering heat that get trapped under the high-pressure ‘dome’,” the ocean service said. Warnings of the brutal heat dome come one day after the NWS issued a La Niña watch Thursday predicting a 50 to 55 percent chance that the phenomenon would develop in the coming months, ensuring an intensification of `1the Atlantic hurricane season and a growing number of hurricanes and tropical storms.

 

• The S&P 500 Index ($SPX) this morning is up +0.83%, the Dow Jones Industrials Index ($DOWI) is up +0.97%, and the Nasdaq 100 Index ($IUXX) is up +1.50%. as U.S. stock indexes are pushing higher with the S&P 500 at a 1-month high, the Dow Jones Industrials at a 3-week high, and the Nasdaq 100 at a new all-time high. The strength in technology and pharmaceutical stocks today is leading the overall market higher.

• Apple is up by more than +3% today at a new record high after Morgan Stanley raised its price target on Apple to $419 from $340. Pfizer is up more than +4% today to lead pharmaceutical stocks higher after it received a fast-track designation from the Food & Drug Administration (FDA) for two of its Covid-19 vaccine candidates that it has been developing with BioNTech. Increased M&A activity is also positive for stocks after Analog Devices agreed to purchase Maxim Integrated Products today for $20.9 billion.

• U.S. stocks also have carry-over support from today’s 1.77% rally in China’s Shanghai Composite to a 17-1/4 month high and today’s +1.34% jump in the Euro Stoxx 50 to a 1-week high. Chinese equities continue to move higher on speculation that China’s economy will continue to strengthen on signs that the coronavirus pandemic is contained. The outlook for additional European government stimulus is lifting European stocks today after French Finance Minister Le Maire said today that France would unveil “massive” support for youth unemployment this week and a new broad stimulus plan, including tax cuts for companies at the end of August.

• Coronavirus concerns continue to hang over the market on fears that some states may have to reinstate lockdowns due to surges in coronavirus infections. Florida, on Sunday, reported a 1-day record of 15,300 new virus infections. Confirmed cases of the virus have risen above 13.062 million globally, with deaths exceeding 572,000.

• The VIX S&P 500 Volatility Index ($VIX) this morning is up +0.58 to 27.87. The VIX last Monday fell to a 5-week low of 24.92 but remains in a wide 4-month range between the mid-March 11-1/2 year high of 85.47 and the early-June 4-1/2 month low of 23.54.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 bounced back on the last day of the week to end at 3185 with gains of 1.05%. The total intraday range was 50.6 points.

 

• The bears are not able to break⁶ below the 20-day EMA even on an intraday basis, which shows strong buying on dips.

 

• The index is led by strong stocks, which is a positive sign. It increases the possibility of a break⁶ above 3233.1.

 

• If the index breaks⁶ above 3233.1, it is likely to attract further buying by the bulls and we will also start buying for the short-term.

 

• However, if the index fails to break⁶ above 3233.1, then it will point to a consolidation¹¹ for the next few days.

 

• We also find that some pockets in the market are moving towards a bubble kind of valuation. Hence, we remain cautious.

 

• Nonetheless, with the economy opening, certain stocks that are beaten down can give attractive opportunities. Hence, we are ready to invest when we find a good opportunity.

Market Data

• 2289 stocks advanced on the NYSE, whereas, 701 stocks declined. 74 stocks made new 52-week highs, whereas, 8 stock made new 52-week lows.

 

• 2068 stocks advanced on the Nasdaq, whereas, 1272 stocks declined. 130 stock made new 52-week highs, whereas, 18 stock made new 52-week lows.

Intraday Chart

 

• There was some volatility initially during the day. However, later, the bulls took charge and carried the index higher.

 

• Although there were several dips along the way, the bulls maintained consistent buying at the 20-EMA, which resulted in the index closing near the highest point of the day.

 

• If the bulls push the price above 3185, the bulls are likely to carry the index to 3200. On the other hand, the bears will try to defend 3185-3200 levels aggressively and sink the price to 3150.

 

Economic Calendar Release

 

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• Stocks recovered their earlier losses on some positive treatment news for the coronavirus. Gilead Sciences announced today that its Remdesivir drug to treat the coronavirus showed a 62% cut in mortality risk for patients taking the drug.

 

• Today’s U.S. producer price data showed slack price pressures that are dovish for Fed policy and positive for stocks. The U.S. June core PPI report of -0.3% m/m and +0.1% y/y was weaker than expectations of +0.1% m/m and +0.4% y/y, and the +0.1% y/y gain was the smallest year-on-year increase since the data began in 2010.

 

• Comments today from Dallas Fed President Kaplan were supportive for stocks when he said, we “don’t expect inflationary pressures for a while” and that he sees the need for additional fiscal policy support.

 

• A +0.62% gain in the Euro Stoxx 50 today is also providing carry-over support for U.S stock indexes. European stocks gained on some positive economic news. French May manufacturing production rose +22.0% m/m, the biggest increase since the data began in 1980. Also, Italy’s May industrial production surged +42.1% m/m, much stronger than expectations of +24.0% m/m and the biggest increase since the data began in 1990.

 

• The VIX S&P 500 Volatility Index ($VIX) this morning is down -0.10 at 29.16 as it falls back slightly from Thursday’s 1-week high of 31.48. The VIX on Monday fell to a 1-month low of 24.92 but remains in a wide 4-month range between the mid-March 11-1/2 year high of 85.47 and the early-June 4-1/2 month low of 23.54.

 

• China’s top two foreign ministers kept to a conciliatory tone this week in public remarks about relations with the U.S., amid increasingly fraught tensions between the world’s two largest economies. “China’s US policy remains unchanged. We are still willing to grow China-US relations with goodwill and sincerity,” State Councilor and Foreign Minister Wang Yi said Thursday, according to an official English translation of his remarks published on the Chinese foreign ministry’s website. 

 

• “Some friends in the US might have become suspicious or even wary of a growing China,” Wang said. “I’d like to stress here again that China never intends to challenge or replace the US, or have full confrontation with the US. What we care most about is to improve the livelihood of our people.” Wang was speaking Thursday via video at a China-U.S. think tank event organized by the China Public Diplomacy Association, Peking University and Renmin University of China, according to the foreign ministry.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

• The S&P 500 corrected 0.56% to end the day at 3152.1. The total intraday range was 64.1 points.

 

• Although the markets dipped yesterday, the bears could not keep the index down. This suggests that buyers are still accumulating on dips.

 

• The next couple of days will be critical. If the bulls can push the index higher, that will indicate strength.

 

• However, if the index turns down again and breaks⁶ below the 20-day EMA, it will indicate selling at higher levels.

 

• Such a move will indicate that the bears are making a comeback. A breakdown⁷ and close below the 20-day EMA will be the first sign of a deeper correction¹².

 

• A break⁶ below 20-day EMA can drag the index to 50-day SMA.

 

• We have been holding most of our positions but we will start selling if the 20-day EMA breaks⁶ down.

 

Market Data

• 782 stocks advanced on the NYSE, whereas, 2184 stocks declined. 85 stocks made new 52-week highs, whereas, 16 stock made new 52-week lows.

 

• 1049 stocks advanced on the Nasdaq, whereas, 2,299 stocks declined. 181 stock made new 52-week highs, whereas, 36 stock made new 52-week lows.

Intraday Chart

 

• The index opened flat but soon selling dragged it down in the first half of the day. This was a good opportunity for the bears to take the lead.

 

• However, that did not happen because strong buying at lower levels resulted in a sharp recovery.

 

• Today, the volatility is likely to reman high as both bulls and bears will try to end the week in their favor.

 

Economic Calendar Release

 

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

Follow us on Facebook and Twitter for timely market information.

• The Dow Jones Industrial Average was down 95 points, or 0.4%, at 25,971. The Nasdaq composite rose 0.7% as big technology stocks continue to cruise on bets that they can keep growing almost regardless of the economy’s strength.

• If the S&P 500 ends up higher, it would be the seventh gain for the index in the last eight days. Some of its recent gains have come only after wobbly trading, though, where the index drifted up and down several times through the day. The erratic trading mirrors the market’s movement’s over much of the last month, as investors struggle through massive amounts of uncertainty.

• The number of layoffs sweeping the country is still astoundingly high, with 1.3 million workers filing for unemployment claims last week. But that’s down from 1.4 million the prior week and from a peak of nearly 6.9 million in late March.

• The improvements back up investor optimism that the economy can recover as states and other governments relax restrictions put in place earlier this year to slow the coronavirus pandemic. Such optimism has helped the S&P 500 climb back to within 6.5% of its record set in February, after earlier being down nearly 34%, but economists point to a troubling slowdown in the pace of improvements. They’re also worried that worsening infection levels across swaths of the U.S. South and West could derail the budding recovery.

• Such concerns helped the price of gold hold above $1,800 per ounce. Gold tends to rise when investors are worried about the economy, and on Wednesday it touched its highest price since September 2011, which was shortly after it set its record. Gold slipped 0.1% to $1,819.40 in Thursday morning trading.

• The yield on the 10-year Treasury, which tends to move with investors’ expectations for the economy and inflation, ticked down to 0.64% from 0.65% late Wednesday.

• In European stock markets, Germany’s DAX returned 1.3%, while France’s CAC 40 added 0.1%. The FTSE 100 in London slipped 0.5% after the Treasury chief warned about the depth of the recession there and more big retailers said they had to cut jobs.

• In Asia, Chinese stocks continued their huge run. Stocks in Shanghai added another 1.4%, bringing its gain for July to 15.6% and further stoking worries that speculators are in charge of the market.

• The Nikkei 225 in Tokyo added 0.4%, as did South Korea’s Kospi. The Hang Seng in Hong Kong gained 0.3%.

• Benchmark U.S. crude dipped 1% to $40.49 per barrel. Brent crude, the international standard, slipped 0.4% to $43.13 per barrel.

Our Technical Analyst’s Commentary

SPX Daily Chart

 

 

• The S&P 500 rallied 0.78% to end the day at 3169.9. The total intraday range was 35.3 points.

 

• The bears could not keep the index down for more than a day. This shows that the buyers are still keen to enter at any minor dip and the sellers are not able to overpower them.

 

• This increases the possibility of a rally to 3233.1. We believe that the index will find it difficult to scale above this level.

 

• As long as the index stays above the moving averages, individual stocks will continue to outperform.

 

• If the index does not correct within next week, we might start buying momentum stocks for the short-term. Although the risk is high, we will manage to participate without letting the markets’ blowout phase dictate the pace of positioning ourselves.

 

• The first sign of a pick up in momentum would be a strong breakout⁸ above 3233.1.

 

Market Data

• 1741 stocks advanced on the NYSE, whereas, 1214 stocks declined. 79 stocks made new 52-week highs, whereas, 11 stock made new 52-week lows.

 

• 1909 stocks advanced on the Nasdaq, whereas, 1,403 stocks declined. 142 stock made new 52-week highs, whereas, 22 stock made new 52-week lows.

Intraday Chart

 

• The intraday chart shows promise for today as the bears could not capitalize on the break⁶ below 3140 yesterday. This shows that the bulls continue to buy on every minor dip without waiting for a deeper correction¹².

 

• Today, the bulls are likely to propel the index above 3180. If they can sustain the breakout⁸, a rally to 3200 and 3220 is possible.

 

• This view will be invalidated if the index turns down and plummets below 3140.

 

Economic Calendar Release

 

 

 

 

 

 

Glossary

1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
2. Ascending triangle pattern – is a bullish formation that usually forms during an uptrend as a continuation pattern.
3. Bearish (view) – Investors who believe that a stock price will decline.
4. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
5. Bottom- the lowest price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom, and that timeframe can be a year, month or even intraday.
6. Break – a rapid and sharp price decline.
7. Breakdown – price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
8. Breakout- a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
9. Bullish (view) –  Investors who believe that a stock price will increase over time
10. Candlestick – a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
11. Consolidation- is used in technical analysis to describe the movement of a stock’s price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern
12. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
13. Descending Triangle pattern – A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
14. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
15. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
16. Dry powder – is a term referring to marketable securities that are highly liquid and considered cash-like. Dry powder can also refer to cash reserves kept on hand by a company, venture capital firm or individual to cover future obligations, purchase assets or make acquisitions. Securities considered to be dry powder could be Treasuries or other short-term fixed income investment that can be liquidated on short notice in order to provide emergency funding or allow an investor to purchase assets.
17. Evening Star – a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar’s body. This pattern is used by traders as an early indication the uptrend is about to reverse.
18. Falling Knife – is a colloquial term for a rapid drop in the price or value of a security
19. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
20. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
21. Inside Day formation – A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
22. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
23. Pullback – the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement or consolidation
24. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
25. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
26. Rounding Top pattern – is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
27. Support Level – refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.
28. Wedge – a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape.

*Glossary definitions provided through Investopedia.

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