Below are the titles of the last 10 posts we have shared with subscribers (not posted to the website):

  • Aug 31 – US GDP Accelerates / And not (Quite) Sold on Gold
  • Sept 01 – Closer look at the USD and Inflation
  • Sep 02 – XJO and S&P 500 Weekly Close – What to Expect Next
  • Sep 03 – A Surging Aussie Metals and Mining Index
  • Sep 04 – Want to get started with Bitcoin? Here’s How
  • Sep 05 – Crypto: Governments Fear It and Mainstream Don’t Get It
  • Sep 06 – BIS Warns on Crypto and RBA Warns on Hikes

The posts on crypto were extremely popular! Who knew!

Sometimes I take it for granted that most folks know about this stuff… but then again we take a lot for granted. I even shared a couple of crypto’s I own (one up 400% the past month).

But you need to tread carefully… it’s not like throwing darts at a wall.

Below is a copy of the post we shared Sep 02 “XJO and S&P 500 Weekly Close – What to Expect Next”

For the rest – feel free to subscribe – it costs you nothing! 

Preface 

After a few weeks – it’s nice to be able to review my own charts.

Whilst travelling across the US the past month — I have been making do with the free charts available from the likes of Yahoo!Finance – and that’s fine.

Most financial sites offer you (basic) technical overlays such as moving averages and a MACD (all I really need to asses a trend). However, very little (if any) allow to create Fibonacci retracements. Shame.

I digress…

Today we will take a look at the both the XJO and the S&P 500 using our regular charts.

But we will also update readers with some bullish news which hit the tape for the US economy (and it’s not jobs).

Last time we looked at these Indices – both showed weekly bullish trends. However, the XJO looked less certain with the MACD showing strong signs of weakness.

And whilst the trend was in-tact – we needed the XJO to hold above a key technical level… let’s take a look.

XJO – Cannot Break Out 

The XJO has been in real grind since the beginning of the year; ie sideways trading.

Traders are looking at the uncertainty surrounding banks and the housing market; and whether “big iron” can keep rallying.

As a result, over the past 16 weeks, things have been extremely “tight”:

XJO – Sept 1 2017 – Caught in Range

5629 to 5836 is the extent of the range since the week of June 9. Just a range of 207 points in nearly 3 months.

Watching paint dry would be more exciting!

Not surprisingly, this tension is occurring right in the middle of our structure, often where the bulls and bears will wrestle for control.

Now if you look back over the range of this chart (which includes all of 2015) – we have not seen one period like this. It a wound-up coil ready to release.

The question is – in what direction?

I don’t pretend to know, however probabilities suggest it will be higher based on the weekly trend.

As an aside, the RBA meets this week to talk rates. You can hit the snooze button.

The market is expecting another do-nothing release... as we know there is no way in hell they can raise rates.

And cutting them will just add flames to an overheated property market.

However, what traders will be paying attention to its language.

For eg, will they be dovish (ie expect lower rates for longer); or will they be slightly more hawkish (ie raising rates to a more neutral zone)?

Watch the Aussie dollar also move based on their tone…. I have a sense they will be keen to jawbone it lower. Anything above 80c is painful…

S&P 500 – Weekly Chart

Yesterday we took a look at the US dollar.

It’s been showing weakness the past few months which has been great for both stocks and gold. However, my sense is we will see the “almighty greenback” catch a bid soon from an oversold area.

For the purpose of clarity – that’s not a buy signal – I am simply suggesting the selling looks to be overdone.

Before we get to the chart for the S&P 500 — I want to share a story which broke on CNBC this morning (and it’s one regular readers will be familiar with)

Precisely!

I have been beating this (manufacturing) drum for sometime – and why I was not surprised to see the Q2 GDP print come in at 3.0% (in fact I thought it might even be higher).

CNBC shared this graphic:

It’s hard to argue with the correlation.

However, why I like this is the ISM Manufacturing Index is it’s a leading (ie not a lagging) indicator.

Here’s CNBC:

The Institute for Supply Management’s manufacturing index jumped to 58.8 in August, a six-year high and above the 56.6 reading that economists surveyed by Reuters expected.
The ISM reading is known as a diffusion index, which means it is a survey of purchasing managers who describe their businesses in terms of expansion or contraction. The total is the percentage who reported growth, so a reading above 50 indicates expansion.

Hunter said the most recent figure shows the economy likely is growing at an even faster pace than expected.

“The rebound in the ISM manufacturing index to a six-year high in August illustrates that, despite the softer pace of payroll employment growth, activity continued to expand at a healthy pace last month,” he said in a note.

So let’s see what the revisions to GDP are in the coming quarters… I think you will find it will be well north of 2%.

With that, stocks gained ground every day this week — not one day in the red:

S&P 500 – Sept 1 2017 – Weekly Chart

Our weekly bullish trend is now into its 75th week (according to the way I prefer to measure it).

Now as an aside – during the weeks of August 11 and 18 — there were a bunch of fear-mongering headlines dominating the news (eg stocks are extreme levels, take caution etc etc)

But put things into perspective with the weekly chart…

The market has barely moved in those two weeks (eg Dow down only ~500 points and the S&P approx 50 points) – and yet there was levels of panic!

Why?

As I have been telling readers – I will still be very comfortable (and bullish) with this market even if I saw the S&P 500 drop 150 points!

I don’t even blink at 50 points… that’s par for the course. Perspective.

And if we are lucky enough to see the S&P 500 fall 150 points (eg to a level of around 2300) – I will be buying this market.

I will say it again, I like the setup here.

Putting it All Together…

When I saw the fear-selling in mainstream over August – it made me smile.

We penned a few blogs saying “this market is still bullish” – ignore the noise.

Sure enough, the market recovered and traders were quick to pick up oversold stocks like Amazon and Google (… boy were they going cheap two weeks ago!)

But here’s something else…

Despite all the noise we hear regarding North Korea… what do you see with the price action?

It’s bullish. North Korea has not even moved the needle.

That’s what the market thinks of an all-out war with North Korea. And whilst that could change – today it’s pricing it as a lower-probability event.

And if it were to happen – it doesn’t think it will be all that bad for stocks.

Regards
Adrian Tout

Leave a Reply

Your email address will not be published. Required fields are marked *