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CURRENT MARKET PERSPECTIVE
(NOTE: You missed our Subscriber Mid-Week Update - You Are working with only half the info!)
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GOLD & DOLLAR MOVING TOGETHER
MARKETS PRICING IN SEPTEMBER RATE CUTS
Click All Charts to Enlarge
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GOLD, DOLLAR (inv): As Democrats surge ahead in Presidential polls the market senses a coming debt explosion. As a consequence, Gold and the DXY (inv) are moving together as Gold breaks consolidation range to the upside while the US Dollar begins weakening. | |
1 - SITUATIONAL ANALYSIS
NOTES FOR THE WEEK & FRIDAY CLOSE
- On the day, US markets were able to brush off weak Housing data, (looks like a bit of a drag from Hurricane Beryl), and underwhelming earnings from AMAT (closed -2%) to:
- Close out its best week of the year and
- 7th consecutive session in the green.
- US equities also soared this week to their best week of the year, led by a a 5%-plus surge in the Nasdaq (up 12% from last Monday's lows).
- Nasdaq rallied up to a key technical resistance level - at its 50DMA and the last July high, which mirrors the rebound in Mag7 stocks (as they rallied up to the late-July highs, but couldn't break it).
- Small Caps were lifted by an ongoing short-squeeze.
- VIX was clubbed like a baby seal on the week, extending its largest/fastest retracement ever.
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- The collapse of implied vol this week leaves a massive discount to the realized vol of the last month...
- Credit markets rallied hard this week, adjusting back from "hard landing" to "soft landing" scenarios.
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- Despite all the focus on jobless claims, CPI and retail sales, this week was actually a 'weak' one for US macro surprises and that sparked a hawkish drop in rate-cut expectations - back to pre-payrolls levels (less than 200bps of cuts to end-2025).
- That prompted weakness at the short-end (+1bps) of the Treasury curve on the week, (but the long-end ended 7bps lower on the week). The obvious shift was the bearish rise in yields after CPI.
- The yield curve flattened significantly on the week, with 2s10s re-inverting.
- Another choppy week for crypto, but today saw Bitcoin surge back up to $60,000 as Kamala spoke. to end the week unchanged.
- Oil prices were flat on the week after some volatile days.
- The other side of the AI-trade - copper - is not buying the euphoria in AI stocks.
- Also worth noting is that the yen carry trade was not fully embraced to lift stocks.
ASIDE
- We are sure it's just a coincidence, but on the day that Kamala Harris unveiled her price-fixing, vote-buying agenda for economic growth the dollar plunged to 5-month lows and gold soared to a record high, topping $2500 for the first time.
- Also, the plunge in the dollar and surge in stocks and gold all took place since Kamala overtook Trump in the prediction markets - All just coincidences?
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CHART RIGHT:
It's worth noting just how dramatically inverted the S&P 500's vol term structure is. With VIX liquidity at or near record lows, and gamma negative, there's still plenty of room for chaotic swings before NVDA's earnings.
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SENTIMENT
We have three supportive bids:
- The retail BTD
- The corporate buyback ($20-45 bn per week)
- The pension buy (approximately $40bn)
In addition to the above, you should consider that stabilizing markets could trigger volatility falling further, that eventually will lead to systematics buying equities - "if SPX moves 50 bps per day for a month they need to buy $170bn".
CHART RIGHT ABOVE: Additionally, since the S&P 500 peaked on July 16th, higher dividend paying stocks have been outperforming stocks that pay no dividends. As shown above right, there are exactly 100 stocks in the S&P that pay no dividend, and those stocks were down 5.6% on average from 7/16 through last Friday's close. Conversely, the 100 stocks in the index with the highest dividend yields were actually up slightly over the same time frame. If you're of the belief that interest rates will continue to fall on economic growth concerns, dividend stocks should do well in that environment.
CHART BELOW: A lot of investors don't trust this rally and still see it as a "Bear Trap".
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OBSERVATIONS WORTH NOTING
- $255 trillion: value of all global bonds & stocks today, up 2.5x since the 2008 GFC
- 6.0x: Wall St (asset prices) 6.0x the size of Main St (GDP), near all-time highs
- $313 trillion: size of global debt, now over 3x the value of world GDP
- 0: value of global debt with a negative yield, down from $18tn peak in 2020
- 100 days: US govt debt currently rising by $1 trillion every 100 days
- #1: US -- Accounts for 44% of global government bond market, 65% of global equity market
- #2: China -- 2nd largest govt bond market (14%), Japan 2nd largest equity market (12%)
- 46%: Bank of Japan owns close to half of all outstanding JGBs, up from 8% in 2008
- -54%: peak-to-trough loss in US 30-year Treasury bond over past 4 years
- 2020s: top-performing assets…US stocks (14% p.a.), commodities (12%), gold (11%)
- $125tn: global stock market capitalization, up almost 4x since GFC lows of 2008
- 20%: Europe & Japan's combined share of global equity market…was 39% in 2008
- 81%: US share of the $19tn market cap of global tech sector
- $10.4tn: market cap gain of “Magnificent 7” stocks in past 18 months
- 27%: top 5 stocks as % of S&P 500 market cap (was 18% at dotcom bubble peak)
- $544bn: market cap of SPY, world's largest ETF (was $58bn in 2004)
- -10.4%: annualized return of China equities past 4 years (worst-performing index)
- 12.3%: annualized return of Indian equities past 20 years (best-performing index)
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GROWTH NOW MATTERS
The narrative is now fully shifting towards whether the economy is slowing quicker than the Fed will react, and as such traders put more weight on retail sales than on this month's CPI.
The technical levels that would flip Wall St narrative from soft to hard landing have not been broken.
- 4% on 30-year Treasury
- 400bps on HY CDX
- 5050 on S&P500
All good news so far, but important now for stock leaders SOX (4600) & big tech XLK (200) to hold 200dma levels.
If levels break, traders then target 2021 highs (i.e. 10% lower).
CHART BELOW
Global growth expectations in the August survey fell a sharp 20ppt from July ...a net 47% of survey respondents expect a weaker global economy in the next 12 months.
| Growth has taken over as a driver of risk appetite and is becoming more important driver than monetary policy/inflation. | |
STOCK OWNERSHIP: The proportion of Americans’ financial assets invested in public stocks is nearing record highs, just shy of the peak seen in 2021. Investor confidence, a strong U.S. economy, and superior historical performance over the last several decades is driving allocations to equities. In 2024, 41.6% of U.S. households’ financial assets are tied to the stock market.
CHART BELOW: When the public is all in (chart above), Fund Managers have extremely low cash levels (chart right) and Corporate Buybacks using borrowed money are the primary market buyers left (chart below) ... it is historically a bad Omen and like Warren Buffett, time to lighten-up on Equity holdings.
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Goldman Sachs predicts a substantial rise in S&P 500 share buybacks throughout 2024 and 2025.
This growth is currently expected to be fueled by continued strong earnings from technology companies and improved financial conditions.
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EQUITY ETF - RUSSELL 2000 (IWM)
WATCH THE RUSSELL 2000 FOR MARKET DIRECTION
ISLAND FORMATION: When the markets sold-off two weeks ago, it left the Russell (IWM) with a very Bearish Island Formation. After finding support at the 200 DMA, the IWM has quickly retraced half of the initial drop and closed Friday in the midst of closing the Island Formation's unfilled Gap (see chart below).
WHAT TO WATCH FOR
- Will Momentum (middle pane) break the current overhead resistance level (dotted orange trend line)?
- If momentum breaks overhead resistance, price may run much higher as momentum is likely to want to test long term overhead resistance as shown by the black dash trend line.
- Will price then fill the unfilled gap and therefore erase the Island Formation?
- Will price then test the underside of the ending diagonal triangle (in black) as overhead resistance?
- Will price then rise to put in a Double Top?
- Any of these could mark a major long term top for the mark. A break of a double top means the Bull market does not see a recession and the bull market has a lot further to run!
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YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART
Macro Analytics Chart Above: SUBSCRIBER LINK
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As goes NVDA, so goes the MAG-7, As Goes Mag-7 so goes The Market.
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CHART RIGHT: NVDA v the dominant darling CSCO of the Dotcom Bubble (for those who recall). | | |
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- NVDA has decidedly broken above the 50 DMA to the upper bound of the current downward trend channel.
- The MATASII Proprietary Momentum Indicator (lower pane) has also broken through its longer term support with a short term Momentum line (Dotted descending Orange Line) above it to act as overhead resistance.
- The upcoming Wednesday August 28th Earnings release date will be very important for not only NVDDA but the market overall.
- The Dotted Black Trend line in the MATASII Proprietary Momentum Indicator, (lower pane below), has been signaling this sell-down was coming for some time now.
- Divergence is normally seen as a warning to the downside and is still ahead if the Divergence isn't removed by a movement higher in Momentum.
- At some point, the major unfilled gaps (at much lower levels) must be filled. NVDA therefore may no longer become a Short to Intermediate Long Term hold, but rather a position trading stock as other competitors enter the space and force margins and the earnings growth rate contracts.
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YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART
Macro Analytics Chart Above: SUBSCRIBER LINK
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MAGNIFICENT 7
The Magnificent 7 stocks are now down an incredible $2.3 trillion market cap from their record highs.
- The basket of 'Magnificent 7' stocks bounced hard off near term support at the black dotted line labeled "initial Support" line on our chart below.
- The Intermediate Momentum Indicator trend line (Lower pane) also offered support, before being broken and is now testing the underside as temporary overhead resistance.
- As we said in our last report: "A brief counter rally may ensue next week, but it is highly likely that Longer term Momentum Support (lower pane black dashed line) will soon be tested".
- Continued caution is advised since major global "Dark Pools" have been identified as presently operating behind the scenes on the Mag-7.
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YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART
Macro Analytics Chart Above: SUBSCRIBER LINK
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"CURRENCY" MARKET (Currency, Gold, Black Gold (Oil) & Bitcoin) | |
10Y REAL YIELD RATE (TIPS)
Real Rates bounced-off our lower support trend line, which gives us confidence with the two alternative counts that could occur, (shown in the chart to the right- as of close week ending 08/09/24). (LATEST)
NOTE: Gold is suggesting it will be resolved by the red line (chart right) with a fall in real rates (chart lower right) with rising Gold prices.
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CONTROL PACKAGE
There are TEN charts we have outlined in prior chart packages, which we will continue to watch closely as a CURRENT Control Set:
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US DOLLAR -DXY - MONTHLY (CHART LINK)
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US DOLLAR - DXY - DAILY (CHART LINK)
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GOLD - DAILY (CHART LINK)
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GOLD cfd's - DAILY (CHART LINK)
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GOLD - Integrated - Barrick Gold (CHART LINK)
- SILVER - DAILY (CHART LINK)
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OIL - XLE - MONTHLY (CHART LINK)
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OIL - WTIC - MONTHLY - (CHART LINK)
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BITCOIN - BTCUSD -WEEKLY (CHART LINK)
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10y TIPS - Real Rates - Daily (CHART LINK)
US DOLLAR - DXY - Monthly
CURRENT
- The Dollar should now be expected to fall with expectations for Fed Rate cuts.
- There are key lower support levels shown below (and on the more detailed Daily chart we showed in prior newsletters) that should be expected to offer important support.
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YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART
Macro Analytics Chart Above: SUBSCRIBER LINK
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GOLD
CHART RIGHT:
We have just experienced the biggest 2-week inflow to gold since March '22.
CHART BELOW
- Gold tested and broke through its overhead resistance line (black line).
- We are beginning to get the initial framework of a rising triangle which suggests gold (if true) may be reaching towards an Intermediate term high. The Macro suggests otherwise with the dollar continuing to fall and Real Rates weakening.
- Also, the MATASII Proprietary Momentum Indicator (Lower pane) was within a "momentum wedge" which has been broken to the upside.
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YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART
Macro Analytics Chart Above: SUBSCRIBER LINK
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CONTROL PACKAGE
CHART RIGHT: Beware of the Island top Formation pattern in the SPX with downside projections at 5287 (measured move) and 5135 (pattern count).
There are FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a CURRENT "control set":
- The S&P 500 (CHART LINK)
- The DJIA (CHART LINK)
- The Russell 2000 through the IWM ETF (CHART LINK)
- The MAGNIFICENT SEVEN (CHART ABOVE WITH MATASII CROSS - LINK)
- Nvidia (NVDA) (CHART LINK)
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S&P 500 CFD
- The S&P 500 cfd has broken decidedly higher on dollar weakness. Many wonder if this is a Bear Market trap often accompanying a major sell-off? A sell-off that didn't test the 200 DMA?
- The MATASII Proprietary Momentum Indicator (middle pane) is currently rising again and is testing its overhead resistance level (the dotted orange trend line ) as part of a large wedge that appears soon to end.
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YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART
Macro Analytics Chart Above: SUBSCRIBER LINK
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S&P 500 - Daily - Our Thought Experiment
OUR CURRENT ASSESSMENT IS THAT THE INTERMEDIATE TERM IS LIKELY TO LOOK LIKE THE FOLLOWING:
NOTE: To reiterate - "the black labeled activity shown below, between now and September, looks like a "Killing Field", where the algos take Day Traders, "Dip Buyers", the "Gamma Guys" and FOMO's all out on stretchers!"
WHY DID I CALL IT A KILLING FIELD?: "We remain in short gamma land. Dealers had to sell deltas into the 5450 support area during the July 30 move lower. The same dealers had to chase all that sold delta and much more at higher prices as they became shorter and shorter deltas as the market ripped higher yesterday. Today is another brutal day for the short gamma community as they have been forced to sell (at much lower prices) all that delta they bought yesterday. Add to it poor summer liquidity, and you realize why things are moving in an erratic way."
- The S&P 500 like the S&P 500 cfd appears to have broken decidedly higher on dollar weakness.
- The MATASII Proprietary Momentum Indicator (lower pane) supplied initial support at its longer term rising support trend line before being decisively broken before rising. This should be seen as an indication that final support has not yet been found, (likely the 200 DMA).
- The longer term Momentum Indicator wedge (dashed black lines) is narrowing. It appears the S&P 500 is looking to touch this overhead resistance level.
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YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART
Macro Analytics Chart Above: SUBSCRIBER LINK
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STOCK MONITOR: What We Spotted
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CONTROL PACKAGE
There are FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a CURRENT "control set":
- The 10Y TREASURY NOTE YIELD - TNX - HOURLY (CHART LINK)
- The 10Y TREASURY NOTE YIELD - TNX - DAILY (CHART LINK)
- The 10Y TREASURY NOTE YIELD - TNX - WEEKLY (CHART LINK)
- The 30Y TREASURY BOND YIELD - TNX - WEEKLY (CHART LINK)
- REAL RATES (CHART LINK)
FISHER'S EQUATION = 10Y Yield = 10Y INFLATION BE% + REAL % = 2.077% + 1.800% = 3.877%
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- The TNX appears to be putting in a "continuation triangle". This suggests yields will soon continue lower.
- The Momentum Indicator (lower pane) is also showing weakness, which should mean continued lower yields.
- The Bond Vigilante's continue to send a clear message to the Fed that they are 100 bps behind the curve.
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YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART
Macro Analytics Chart Above: SUBSCRIBER LINK
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