I hope you had a good week!
In last Friday’s post we discussed how any disappointment in the economic data might actually be interpreted by investors as bullish for markets given the Fed’s data-dependent stance which was emphasised at Jackson Hole with the now famous words “time will tell”. Rather than pulling back on stimulus, Jerome Powell indicated that he would be more patient in his assessment of the labor market and inflation given the ongoing challenges posed by the delta variant. Following a very weak jobs report last week there has been little to shift sentiment, yet the equity market has appeared tentative to test new highs. Here’s why.
Referring to our process, you can see how the Checklist presents a score of just 0.5 having declined from a more convincing 2.5 last month. This weakness comes following a number of successive months in positive territory and warrants closer attention in September.
Beyond the conjecture and speculation surrounding recent economic data and the Fed, it seemed that the stock market might be due something of a breather. As you can see in the following chart of the S&P 500, this has played out exactly as our model anticipated with a fair amount of indecision producing only a slight gain since the score was updated towards the end of last month.
This appears to validated further by the neutral position in general risk sentiment outside of equities. With a score of 0 following a similar 0.5 previously, there doesn’t seem to be any apparent urgency by either the bulls or the bears to press their bets in any of the major asset classes right now.
But what about that other Checklist that caught my eye last week? I can now reveal that it was in fact gold which got my attention with a score of 4.5, which really stood out amidst the broadly neutral scores elsewhere. It has been some time since the score for gold has been this positive, with only futures positioning weighing on the overall total.
Although the market has yet to sustain a convincing rally, there has still been a couple of opportunities to get long on short-term pullbacks indicated by the oversold hourly RSI. The first came when we updated the Checklist for Trading Club members towards the end of last month, and there was a further opportunity below 1800 earlier this week. Having traded towards a high of 1840, adding to positions towards the bottom of the range has worked, although we do of course expect to see more convincing upside momentum in the next 2-3 weeks.
In the words of Jerome Powell, “time will tell” how this all plays out. If you would like to learn more about our methods, and join me for more analysis in real-time, head to milliondollartraders.com and check out MDT course and Trading Club pages where you can preview everything that we cover.
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Have a great weekend,
Disclaimer: For educational purposes only. Even though we do our best to provide reliable data, you should not trade based on this information.
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