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$QQQ Call Sweepers Stepping in
By: Cheddar Flow | September 3, 2024
• $QQQ Call Sweepers Stepping in
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The 10 Top/Bottom S&P 500 Index percent net change performers
By: Thom Hartle | September 3, 2024
• Today (8:35 CST), the 10 top/bottom percent net change performers in the S&P 500 Index.
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The 10 Top/Bottom NASDAQ 100 Index percent net change performers
By: Thom Hartle | September 3, 2024
• Today (8:35 CST), the 10 top/bottom percent net change performers in the NASDAQ 100 Index.
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What a Heavily Shorted Market Could Mean for Bears
By: Schaeffer's Investment Research | September 3, 2024
• In non-presidential election years, the odds of a higher September drop to 42%
• The SPX has chopped around the 5,600-century mark since Aug. 19
"…the SPX has covered considerable ground, traveling more than 1,050 points from its mid-July closing high to the Aug. 5 intraday low and back to Friday’s close in a ‘V-shaped’ pattern...a s equity option buyers grow more optimistic, the SPX is only one-half percentage-point below its all-time closing high of 5,667, which is the next obvious level of potential resistance."
- Monday Morning Outlook, August 26, 2024
The final two weeks of August both mirrored and significantly contrasted the first half of the month. If you compare the S&0 500 Index (SPX–5,648.40) closes going into August with the mid-month close, they are about the same. And if you compare the mid-August SPX price with the end price, they are also similar.
It is the contrasting path the SPX took in the first two weeks relative to the second that intrigues me. Per last week’s observation, the first half of the month was characterized by the SPX traveling approximately 1,050 points from high to low, and back to the mid-month high in a “V-shaped” rally.
But since the “V” rally was completed, the SPX has chopped around the 5,600-century mark, with multiple touches of this level from Aug. 19 into the month’s end. Plus, there have been equidistant moves above and below this level of roughly 40 points, defining the range high and low of 5,560 and 5,640.
In fact, the 5,560 level that marked the bottom of the two-week narrow range was the intraday high on the morning of Aug. 1 before vicious selling took place, with the SPX troughing just two trading days later at 5,120.
As such, the first levels of support and resistance are at 5,560 and 5,640. Another layer of potential resistance is around 5,670, or the mid-July all-time high. If the range low of 5,560 breaks to the downside, another layer of potential support sits in the 5,500-5,510 range, the site of its advancing 50-day moving average and the level that's 20% above the July 2023 closing high.
Nvidia (NVDA) reported earnings last week, which was billed as the most important earnings report of the season, given its artificial intelligence (AI) technology and market cap. Federal Reserve Chairman Jerome Powell recently made comments that it’s time to adjust the interest rate policy, amid reports on inflation and employment. None of these had the muscle power to move the SPX out of its narrow range in the second half of August, though.
Now what? We are moving into September, a month that has tended to be more rewarding for bears than bulls. Ironically, amid the uncertainty of presidential election years, the odds that September ends higher is the best, relative to non-election years, with a 50% chance September ends higher in presidential election years.
In non-presidential election years, the odds of a higher September drop to 42%, driven primarily negative returns in the September that precedes a presidential election year. In fact, the SPX was lower 4.6% in September 2023, on cue with the low chance it had of being profitable.
The bad news and good news is that while September is negative on average, whether it's a presidential election year or not, the average loss is less severe during presidential election years.
Looking ahead, we are all wondering how the SPX will work itself out of the current range, with the arrival of negative September seasonality. One clue as the benchmark enters the week at the top of its range could be in the candle that emerged on Aug. 22 -- a bearish outside day, as defined by the intraday high above the prior day’s intraday peak, but the intraday low and close being below the prior day’s intraday low.
On the SPX chart above, I differentiated bearish outside days with small arrows and large arrows, the latter of which means the distance between the high and low was 100 points or more. In the bearish outside days, when the difference between the high and low was 100 points or more this year, intense selling soon followed. This is a risk that bears are watching.
In possibly better news, it has been six trading days since the bearish outside day surfaced without immediately triggering intense selling. But bulls are not yet out of the woods in terms of the implications of the Aug. 22 candle until new highs are carved out.
Perhaps the most important technical observation of all is that the SPX is trading within a chip shot of its all-time high. The direction of the 10-day buy-to-open put/call volume ratio on SPX components continues to favor the bulls, even though there was a slight uptick in this ratio just ahead of NVDA's earnings last week. This caution proved to be a little excessive as the broader market held its ground, even as NVDA pulled back after its report.
It's worth noting this ratio still has room to decline before we get to a measured level of optimism that historically puts the market at increased odds of a pullback. Plus, a risk to bears in the context of the SPX knocking on the door of all-time highs is that it remains a heavily shorted market -- especially after a 4% increase in total SPX component short interest in the last report.
As we move out of earnings season, companies with buyback programs could rev up the “buyback engine” and, at the very least, keep pullbacks tempered relative to the timeframe before earnings releases.
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CBOE Put/Call Modal Analysis vs S&P 500 Index
By: Nautilus Research | September 3, 2024
• CBOE Put/Call Modal Analysis.
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Improving Global Breadth
By: Nautilus Research | September 3, 2024
• Improving Global Breadth.
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Sentiment: Currently valued at 75.58, the Market Greed/Fear Index reflects a strong sentiment of greed among investors, indicating their willingness to embrace higher risks in the US stock market.
By: Isabelnet | September 3, 2024
• Sentiment
Currently valued at 75.58, the Market Greed/Fear Index reflects a strong sentiment of greed among investors, indicating their willingness to embrace higher risks in the US stock market.
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The S&P 500 is expected to face a period of weakness until the US elections, followed by a potential rally towards the end of the year
By: Isabelnet | September 3, 2024
• The S&P 500 is expected to face a period of weakness until the US elections, followed by a potential rally towards the end of the year.
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The largest companies in the S&P 500 by...
By: Charlie Bilello | September 1, 2024
• The largest companies in the S&P 500 by...
-Market Cap (Apple)
-Net Income (Apple)
-Revenue (Walmart)
-# of Employees (Walmart)
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When we filter $QQQ seasonality for election years only, then next two months look bleak:
By: TrendSpider | September 1, 2024
• Was August warning shots of what's to come?
When we filter $QQQ seasonality for election years only, then next two months look bleak:
September: 50% win rate, -4.75% average return
October: 17% win rate, -4.69% average return
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Your barometer for risk on / risk off sentiment in the Nasdaq 100 $QQQ
By: TrendSpider | September 2, 2024
• Your barometer for risk on / risk off sentiment in the Nasdaq 100 $QQQ
< 30% look for opportunity
> 80% proceed with caution
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CoT: Peek Into Future Through Futures, How Hedge Funds Are Positioned
By: Hedgopia | August 31, 2024
• Following futures positions of non-commercials are as of August 27, 2024.
E-mini S&P 500: Currently net short 81.9k, down 2.9k.
The week swung between weekly gains and losses, in the end favoring the bulls. The S&P 500 edged up 0.2 percent to 5648. At Wednesday’s low (5561), the large cap index was down as much as 1.3 percent. On the weekly, a dragonfly doji formed.
On the 16th last month (July), the index peaked at 5670, which is now merely 22 points away. A test is all but certain. The S&P 500 has essentially gone sideways at 5640s the last seven sessions, and a breakout looks imminent. More important is what follows once this resistance gets taken out and the index proceeds toward the July peak.
Nasdaq (mini): Currently net long 21.4k, up 10.1k.
After three up weeks in a row post-August 5th trough, the Nasdaq 100 gave back 0.7 percent to 19575 this week. That said, the tech-heavy index was down as much as 2.5 percent at Wednesday’s low, so bulls deserve kudos for buying the weakness.
Nonetheless, tech is no longer leading. The sector was not giving out good vibes heading into this week’s July-quarter results from Nvidia (NVDA), which disappointed.
If there is any consolation in how the index traded this week, it is that the daily RSI just turned up at the median; the last time the metric hit 70s was last month when it was peaking, with the index recording 20691 on the 10th. Tech bulls might argue this means there is room for positive momentum to build, although the fact remains that the rally from earlier this month ran out of steam sooner than, let us say, it did for the S&P 500.
Russell 2000 mini-index: Currently net short 15.3k, down 11.8k.
Small-caps joined their tech cousins in registering a down week. The Russell 2000 inched lower 0.05 percent to 2218. And, as was the case with tech, Wednesday’s low was bought, as the small cap index was down 1.7 percent for the week at that point.
In the event of a rally, what transpires at 2260s will be crucial. In the second half last month, there were several unsuccessful attempts at that price, including a run to 2300 on the 31st but only to end the session with a sharp reversal lower.
Earlier, the Russell 2000 broke out of 2100 on July 11th, reacting favorably to softer-than-expected CPI for June. This had been an important level for bulls and bears alike. After that, within merely 15 sessions of the 2100 breakout, the Russell 2000 added 200 points and retreated after ticking 2300 intraday.
The index has had trouble at 2100 going back to early March. To boot, 2144 represents a 61.8-percent Fibonacci retracement of the drop between the November 2021 peak (2459) and the June 2022 trough (1641); 2100 also represents a measured-move price target post-breakout at 1900 last December, as the index was trapped between 1700 and 1900 going back to January 2022.
US Dollar Index: Currently net long 18.9k, up 1.3k.
Dollar bulls have managed to defend horizontal support at 100-101, which goes back years. After 5 down weeks in succession – and seven out of eight – the US dollar index rallied one percent this week to 101.62. More gains probably lie ahead.
Previously, nine or 10 weeks ago, the bulls were denied at a falling trendline from last October when the index peaked at 107.05. Eight weeks ago, it fell out of a symmetrical triangle consisting of a rising trendline from last December when it bottomed at 100.32. Last week, it breached trendline support from July last year when it bottomed at 99.22.
The level to watch now is 103-104, which goes back to December 2016. The support was lost early this month.
VIX: Currently net short 30.5k, up 5.9k.
VIX is caught between the 50- and 200-day. In the last 12 sessions, the volatility index has tested but remained above the 200-day (14.39). Concurrently, it closed above the 50-day (16.40) in a couple of sessions but only to get pushed under right away.
This week, the daily RSI on Wednesday approached the median from underneath and retreated. Volatility lacks momentum. On August 5th, when VIX surged to north of 65, the metric hit mid- to high-80s; Friday, it was under 45.
If the volatility bears play their cards right, there is room for VIX to head lower – at least near term.
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'The estimated loss in the S&P 500 that would be needed for MarketCap/GVA to reach run-of-the-mill valuation norms historically associated with subsequent total returns averaging 10% annually is about -70%.'
By: Jesse Felder | August 30, 2024
• 'The estimated loss in the S&P 500 that would be needed for MarketCap/GVA to reach run-of-the-mill valuation norms historically associated with subsequent total returns averaging 10% annually is about -70%.' https://hussmanfunds.com/comment/mc240830/
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Total Put/Call Ratio drops to 0.70, the 2nd lowest level since November 2021
By: Barchart | August 30, 2024
• Total Put/Call Ratio drops to 0.70, the 2nd lowest level since November 2021.
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How does $SPY typically perform in September?
By: TrendSpider | August 30, 2024
• How does $SPY typically perform in September?
46% win rate in September since 2000
BUT when we filter for election years only, win rate drops to just 33%
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The 10 Top/Bottom S&P 500 Index percent net change performers
By: Thom Hartle | August 30, 2024
• Today (8:34 CST), the 10 top/bottom percent net change performers in the S&P 500 Index.
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Did the S&P 500 Put in a Major Bottom?
By: Dr. Arnout Ter Schure | August 29, 2024
• Our forecast for higher prices ($5500-5700) three weeks ago was correct, and further upside appears most likely contingent on holding above yesterday’s $5560 low.
Three or Five Waves Up? It Didn’t Matter as Both Were Looking Higher
We primarily track the S&P 500 (SPX) using the Elliott Wave Principle (EWP). The EWP allows us to identify the market’s potential paths based on known patterns, which must adhere to specific price-based rules. Since we cannot predict the future, the EWP can help us identify the most likely path. However, since financial markets are non-linear, stochastic, and probabilistic, we must, like any other forecasting discipline, always “anticipate, monitor, and adjust if necessary.”
With that in mind, in our August 8 update, when the SPX was trading at ~$5300, see here, we were looking for a rally. Either as a five-wave impulse:
“… the index may now work on five (green) waves back up to ideally $5650+/-50 for the red W-i of the black W-5.”
Or, as a three-wave counter-trend rally:
“…the current rally from Monday’s [August 5] low is only a bounce back to around $5550+/-50 before the red W-c back down to ideally the 38.20% retracement of the W-3 at around $4950+/-25 kicks in.”
Fast-forward and the index is now trading at $5640. Thus, so far, so good. But the question is, “Will it be five waves up or not?” See Figure 1 below.
Figure 1. Daily SPX chart with detailed EWP count and technical indicators
The Daily Chart Continues to Look Strong
Yesterday’s low could have been the green W-4 of the new impulse up. All the market must do is break above last week’s high to confirm the green W-5. Moreover, as the index increased during the days after our previous update, we raised the Bulls’ colored warning levels accordingly to help tell our premium members below which levels further upside would become less likely.
The index has dropped below the blue first warning level but held the grey second warning level. A daily close below will be a good sign that the next leg lower has started, with a break below the orange level at $5470, essentially the second-to-last nail in the Bulls’ coffin.
However, before the Bears get too excited, they should note that the index’s price is above its rising 10-day simple moving average (d SMA), above the rising 20d SMA, 50d, and 200d SMA. Besides, the index is also above the rising Ichimoku Cloud. Thus, the current trend is almost 100% Bullish trend (only the 20d SMA is below the 50d SMA).
Moreover, the technical indicators are still pointing higher. The MACD is on a buy, and the Money Flow (MFI) just registered overbought conditions (>70), as it did in February and June of this year. Both instances lead to minor pullbacks followed by higher prices.
Thus, our forecast for higher prices three weeks ago was correct. At this stage, it seems like a small effort for the Bulls to muster a five-wave impulse up off the August 5 low, and a break above last week’s high will confirm this thesis and target, ideally, $5750+/-25. Although the daily chart setup is Bullish, the Bears can only gather strength by a break below, at least, today’s open, the blue warning level. Thus, thanks to the EWP, we have been on the right side of the trade over the past three weeks and now have a simple risk/reward trade setup again.
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This $QQQ seller at ~$478 just will NOT quit
By: TrendSpider | August 29, 2024
• This $QQQ seller at ~$478 just will NOT quit.
Good bull/bear pivot to watch for the remainder of the week.
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S&P 500 Financials
By: SentimenTrader | August 29, 2024
• On Monday, more than 87% of S&P 500 Financial sector stocks reached an overbought status, with the sector closing at a new high, a scenario that has occurred 15 other times since 1958. This phenomenon is known as a good overbought condition.
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Money managers Increased their exposure to the US Equity markets since last week...
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NAAIM Exposure Index
August 29, 2024
The NAAIM Number
81.34
Last Quarter Average
81.70
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$NDX $QQQ - Holding the Bullish 'Pennant' formation...
By: Sahara | August 29, 2024
• $NDX $QQQ - Holding the Bullish 'Pennant' formation.
Yet it is within the Bearish 'Wedge' (Red). So the battle ensues with the Bears taking control, until we get a 5th-Wave and annul the pot'l for the (b)-Wave...
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DJIA, S&P 500 & Russell 2000 Down Seven Straight Day After Labor Day
By: Almanac Trader | August 29, 2024
In the last 21 years, DJIA has registered an average loss of 0.09% on the Tuesday after the long Labor Day weekend while S&P 500, NASDAQ and Russell 2000 have eked out fractional average gains. DJIA, S&P 500 and Russell 2000 have all declined for the last seven years on Tuesday. On Wednesday the market’s performance has been varied. DJIA has performed the best (based upon frequency of gains), up 66.7% of the time with an average gain of 0.25%. S&P 500 is weakest, up only 47.6% of the time with an average gain of 0.26%. NASDAQ has a slightly better record up 52.4% of the time on Wednesday with an average gain of 0.24%.
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$NDX $QQQ - Failed to get clear of that Bear 'Wedge'
By: Sahara | August 28, 2024
• $NDX $QQQ - Failed to get clear of that Bear 'Wedge'.
Yet, there is a pot'l Bull 'Pennant' to keep us on our toes...
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The AAII Investor Sentiment
By: AAII | August 29, 2024
Bullish 51.2%
Neutral 22.9%
Bearish 27.0%
• Historical 1-Year High
Bullish: 52.9%
Neutral: 36.4%
Bearish: 50.3%
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Nasdaq 100: Has the Next Leg Lower Started?
By: Dr. Arnout Ter Schure | August 28, 2024
• The upper end of the $19300-800 target zone forecasted in early August was reached on August 22 at $19938. A break below $19250 will help the Bears in their quest for the next leg lower.
The Upper End of the Retracement Rally’s Target Zone Was Reached
For those new to our work, we primarily use the Elliott Wave Principle (EWP) to forecast the financial markets, such as the NASDAQ100 (NDX). The EWP allows us to identify the path the market can most likely take based on known patterns, which must adhere to specific price-based rules.
Our previous update from two weeks ago provides a good review of our recent work and reliable calls (see here). Since August 1, we have been looking for a (retracement) rally back to ideally $19300-800. See the red box (target zone) in Figure 1 below. Fast-forward, and so far, the index peaked on August 22 at $19938, four days after our update was posted. Now, it is back at the crime scene, so to say: $19400s. Thus, we must ask, “Is the countertrend rally over?”
Figure 1. NDX daily chart with detailed EWP count and technical indicators
As the index moved higher the days after our last update, we raised the Bulls’ colored warning levels accordingly to help tell our premium members below which levels further upside would become less likely. The index has dropped below the blue first warning level and currently holds the grey second warning level. A daily close below will be a good sign that the next leg lower has started, with a break below the orange level at $19450, essentially the second-to-last nail in the Bulls’ coffin.
Big Picture Suggest Five Larger Waves Completed
In our previous update, we also promised to share that we can count five larger waves from the critical October 2022 low into the July high, shown in Figure 2 below.
Figure 2. NDX daily chart with detailed EWP count and technical indicators
Namely, the rally from the October 2022 low to the November 2022 high, followed by the December low, counts best as a leading diagonal 1st wave and 2nd wave decline, respectively. From there, the next set of waves developed—a subdividing black W-3 (red W-v, ii, iii, iv, v), etc. However, given that the December 2022 decline retraced almost 90% of the previous choppy rally, which is relatively uncommon although technically still valid, for a 2nd wave, it could be that the count starts after that, labeled alt: 1, alt: I, etc. In that case, the current decline and rally are part of a more significant 4th wave.
Lastly, going back to Figure 1, the bears do not want to see the index break above last week’s high, as that would put five (green) waves on the chart instead of three. Namely, that would mean the August 5 low was the black “alt: 4” low, as shown in Figure 2. Thus, although our target zone outlined in early August for this (retracement) rally has been reached, and our preferred long-term view is that of a significant top being in place since July, the Bears still have more work to do before they can declare victory.
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First Trading Day of September Weaker Last 16 Years
By: Almanac Trader | August 28, 2024
S&P 500 has been up in 18 of the last 29 years on the first trading day of September, but this trend appears to be fading as the S&P 500 has been down nine of the last sixteen first trading days. DJIA’s first trading day performance has experienced a similar trend reversal, also down nine times since 2008. NASDAQ has been modestly stronger recently, but is still mixed, up eight and down eight. Proximity to the three-day Labor Day holiday weekend can dampen trading activity, which could be a factor this year with the first day falling on Tuesday.
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Seen another way, the volume for $SPX 5600 stands out among put activity today. It's likely to pull price down to it and then we could trade around that level as it's a rather significant area of options exposure.
By: Markets & Mayhem | August 28, 2024
• Seen another way, the volume for $SPX 5600 stands out among put activity today. It's likely to pull price down to it and then we could trade around that level as it's a rather significant area of options exposure.
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Rapid V-Bottom Could Spell SPX Trouble Ahead
By: Schaeffer's Investment Research | August 28, 2024
• The Nasdaq sees much more promising results after V-bottoms, however
• The SPX's latest V-bottom was especially quick
The S&P 500 Index (SPX) is within striking distance of new all-time highs. If the index does nab a new record soon, it will complete the V-bottom. It it is obvious where the V-bottom gets its name -- the sharp fall and quick recovery resembles a V on the charts.
This week, I will be looking at past occurrences of V-bottoms for the SPX to see how it usually performs going forward. The Nasdaq Composite (IXIC) pulled back even deeper than SPX, but it's not as close to completing the V-Bottom. Still, I’ll run those numbers as well in anticipation of it doing so.
S&P 500 V-BOTTOMS
Going back to 1950, I found times when SPX hit an all-time high, fell at least 9%, and then hit all-time highs. This happened 37 other times. The table below summarizes the returns after these signals.
The returns have been bearish in the short term, with the two-week and one-month returns underperforming typical returns, per the second table. The longer returns are closer to typical market returns, however.
This recent V-Bottom for the SPX was especially quick, with the recent all-time high just over a month ago. I figured a 9% pullback and new high happening in a short amount of time could be something completely different from one that happens over an extended period. Therefore, I separated the V-Bottoms in which the high, bottom, and new high happened within three months. There were 10 occurrences, with subsequent returns summarized below.
These rapid V-Bottoms have not boded well for stocks going forward. Not only have the short-term returns been bearish, but longer-term returns also underperformed. A full year after these rapid V-Bottoms, the SPX averaged a 3.1% return, with 50% of those returns positive. The index has typically averaged a 9.1% return, with 74% of returns positive for a 12-month time frame.
WHAT ABOUT THE NASDAQ?
We have IXIC data going back to 1971. The recent pullback for the index was just over 15%, but it is still about 5% from its all-time high. With that in mind, let’s look at returns after it completed a V-bottom. Specifically, I looked at 15% pullbacks and new highs occurring within a year.
There have been eight instances of this happening, and the returns are much more promising than what we saw for the SPX. These have been buying opportunities, with the IXIC averaging a 12% gain in the next six months after completing these V-bottoms, with all eight returns positive.
Since 1978 (the year of the first signal), the index averaged a 6.9% return over six-month timeframes, with 71% of the returns positive. A year after these V-bottoms, the IXIC gained 25% on average, with seven of eight returns positive. The typical 12-month return for the index has been about 14%. Hopefully, stock returns going forward will look more like these IXIC returns and less like the SPX ones mentioned above.
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The 10 Top/Bottom NASDAQ 100 Index percent net change performers
By: Thom Hartle | August 28, 2024
• Today (8:34 CST), the 10 top/bottom percent net change performers in the NASDAQ 100 Index.
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Wednesday Best Day Before Labor Day Weekend
By: Almanac Trader | August 27, 2024
In recent years, Labor Day has become the unofficial end of summer, and the three-day weekend has become prime vacation time for many. In the last 21 years, Friday has been the weakest on average with declines across all four indexes. However, Wednesday has outperformed over the years with DJIA, S&P 500, NASDAQ, and Russell 2000 all up over 70% of the time or better. S&P 500 and NASDAQ are strongest on Wednesday, up 17 of the last 21 years. Average gains on Wednesday range from 0.48% by DJIA to 0.79% by Russell 2000.
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$SPY $3+ Million OTM Calls (Very Unusual)
By: Cheddar Flow | August 27, 2024
• $SPY $3M+ OTM Calls (Very Unusual)
These were executed above the ask and have a November expiration
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Technical Overbought/Sold Composite
By: Isabelnet | August 27, 2024
• S&P 500
With a current reading of 85.95, the US stock market appears overbought, implying that prices have increased too rapidly.
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Short interest in the S&P 500 as a percentage of market capitalization remains well below historical norms
By: Markets & Mayhem | August 27, 2024
• Short interest in the S&P 500 as a percentage of market capitalization remains well below historical norms
Chart: Goldman Sachs.
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$SPY Can you HANDLE it?
By: TrendSpider | August 26, 2024
• $SPY Can you HANDLE it?
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$QQQ Trouble at the volume shelf continues
By: TrendSpider | August 26, 2024
• $QQQ Trouble at the volume shelf continues.
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$QQQ & $SPY Bulls Stepping in
By: Cheddar Flow | August 26, 2024
• $QQQ & $SPY Bulls Stepping in
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Easing Cycle Set To Begin Next Month; Historically, Equities React By Declining
By: Hedgopia | August 26, 2024
It is early, but tech is beginning to lag. This is taking place even as the Fed is getting ready to begin an easing cycle. Historically, stocks tend to rally into this and then head lower.
Tech is beginning to take a back seat. Last week, the Nasdaq 100 increased 1.1 percent. This compares with the 1.5 percent rise the S&P 500 put together (Chart 1). The tech-heavy index normally tends to outperform the large cap index.
The relative underperformance in recent weeks is beginning to adversely impact the Nasdaq 100’s performance for the year. With nearly eight months gone, it is up 17.2 percent, versus the S&P 500’s 18.1 percent rise. When the two indices peaked last month, they were up 23 percent and 18.9 percent for the year, in that order.
Viewing it the other way, the S&P 500 (5635) is merely 0.6 percent from its high (5670) from last month, even as the Nasdaq 100 (19721) is 4.9 percent from its (20691). The latter also is yet to fill a July 17th gap at 20200s, while the S&P 500 filled its at 5630s last week. Last but not the least, the Nasdaq 100 is just above its 50-day at 19502, with the average flattish; in contrast, in the case of the S&P 500, the average at 5488 is slightly rising.
If there is any commonality between the two, they are both beginning to lose momentum. The S&P 500 ended last week with the daily RSI in the low-60s, while the Nasdaq 100 finished its in the high-50s. When the indices peaked last month, the metric was well into the 0.70s, even hitting the low-80s at one point. This is particularly relevant for the S&P 500 as the index is within striking distance of its record high.
Importantly, the risk-off behavior evident in tech action – or a lack thereof – is taking place at a time when the Federal Reserve is beginning an easing cycle next month.
There were enough hints during last month’s FOMC meeting that a cut was forthcoming. This was confirmed last Friday when Jerome Powell, chair, told the annual Jackson Hole Symposium attendees that “the time has come for policy to adjust.”
Since July last year, the fed funds rate has been left unchanged at a range of 525 basis points to 550 basis points. Earlier, the central bank began to tighten from zero to 25 basis points in March 2022.
As things stand, fed funds futures have priced in a 25-basis-point cut next month, slated for 17-18. And markets being markets, anytime there is macro data that suits – perceived or actual – their bias, they aggressively jack up easing expectations. These traders currently expect 100 basis points of cuts this year and another 100 basis points’ worth next year, ending 2025 between 300 basis points and 325 basis points (Chart 2).
A lot can happen between now and December 2025. Their projection is just that – projection. For context, late last year-early this year, they were expecting up to seven 25-basis-point reductions. But if the fed funds rate does indeed end next year 200 basis points lower, this will only have come at a time of economic pain. Further, the Fed in all probability would have stopped reducing its balance sheet, which is in progress currently.
In this scenario, it will be interesting to wait and watch how Chart 3 evolves.
The Fed was forced to aggressively tighten as various measures of inflation reached decade-highs in 2022. Core PCE, which is the central bank’s favorite measure of consumer inflation, was rising at an annual rate of 5.6 percent in February that year. This was a 39-year high. The metric since has softened quite a bit. In the 12 months to July, core PCE rose 2.6 percent, which remains above the Fed’s stated goal of two percent.
The 525-basis-point tightening since March 2022 took time to filter through to the economy, but signs of deceleration are showing up. The unemployment rate reached a 54-year low of 3.43 percent in April last year. In July, it increased 20 basis points month-over-month to 4.25 percent. For the technically oriented, the red line in the chart looks like a saucer bottom, in which case it is headed higher in due course.
For a while, the Fed singlehandedly focused on taming inflation. Employment – its other mandate – was going gangbusters. Inflation is yet to reach the Fed’s goal but is trending in the right direction. Policymakers’ focus can shift to jobs.
Assuming the fed funds futures traders are playing their cards right, the jobs picture will only worsen in months and quarters to come. Otherwise, it does not make sense to expect the Fed to be loosening by 200 basis points over the next 16 months.
Historically, the S&P 500 has shown a tendency to rally into the beginning of an easing cycle and then take a breather (Chart 4). This could very well be occurring in the tech land. The sector inherently leads when investor mood is decisively risk-on, which was the case until not too long ago. This is changing as investors seek the protection of defensives. This will only pick up speed in the months and quarters to come.
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The 10 Top/Bottom S&P 500 Index percent net change performers
By: Thom Hartle | August 26, 2024
• Today (8:34 CST), the 10 top/bottom percent net change performers in the S&P 500 Index.
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The 10 Top/Bottom NASDAQ 100 Index percent net change performers
By: Thom Hartle | August 26, 2024
• Today (8:34 CST), the 10 top/bottom percent net change performers in the NASDAQ 100 Index.
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Here's What Could Push the S&P 500 to New Highs
By: Schaeffer's Investment Research | August 26, 2024
• The S&P 500 has traveled in a "V-shaped" pattern of late
• A high rate of put-buying and short interest on SPX components could fuel the latest rally
If you had disappeared and ignored the stock market beginning in mid-July and re-engaged on Friday, you would have thought the market had moved sideways in that six-week period, with the S&P 500 Index (SPX -- 5,634.61) trading around the same level as mid-July.
Instead, the SPX has covered considerable ground, traveling more than 1,050 points from its mid-July closing high to the Aug. 5 intraday low and back to Friday’s close in a “V-shaped” pattern.
In that period, panic stemming from fears of a recession and a U.S. Federal Reserve that could be too slow to lower interest rates after an early August Federal Open Market Committee Meeting (FOMC), has calmed. Following the period of panic, a few economic data points didn’t come in as bad as feared. And on Friday morning, Fed Chair Jerome Powell sent a strong signal indicating a policy change could be on the immediate horizon, during a speech at a world central banker annual gathering in Jackson Hole, Wyoming.
A perfect illustration of the calm that preceded the panic and then the ensuing calm is the Cboe Market Volatility Index (VIX -- 15.86), which some view as the market “fear gauge” as it reflects the pricing of SPX 30-day options, which many use to purchase portfolio protection via put purchases. When demand for the portfolio is strong, it will drive up the price of such options.
Note in the graph below the early-August surge in the VIX, followed by the collapse in this fear gauge.
“…the SPX is above its key 30-day moving average at 5,470…With the gap above the 30-day trendline on Thursday morning, bulls are hoping this is a buy signal like that of early May…The sentiment backdrop is certainly supportive of bullish price action in the weeks ahead…note that option buyers on SPX components have reached a level of pessimism that existed at the April trough. The ratio of put buying to call buying is in a zone that is typically bullish for stocks. A rollover of this ratio could be a sign that buyers are in the early stages of returning.”
- Monday Morning Outlook, August 19, 2024
Per the above excerpt from last week’s commentary, a combination of improving SPX price action and a sentiment backdrop favorable for bulls was enough to push the SPX through its levels around the time of the last FOMC meeting.
Going into last week, the ratio of put buying (bearish bets) to call buying (bullish bets) on SPX component stocks was at a level that marked a bottom during the March- April selling.
When this ratio hits extremes, the market is vulnerable to contrarian buy or sell signals. For example, the higher the ratio, the more pessimism, and the more likely the market will turn higher (with so many in agreement that it is headed lower).
And vice versa when the ratio is low, which signals vulnerability to a selloff with speculators in agreement the next move is higher and buying power exhausted.
Note that as the market peaked in mid-July, the ratio of put buying to call buying hit a low consistent with where the market peaked in July 2023. The circles in the chart below denote extremes in optimism and pessimism that were contrarian bearish and bullish signals.
As it stands now, the decrease in this ratio from the high levels favors the bulls, as we are currently in the middle of an unwind of the extreme in fear that was present in early August. If the ratio gets to previous lows, it will signal higher potential than normal for a loss of momentum or another selloff.
In fact, as equity option buyers grow more optimistic, the SPX is only one-half percentage-point below its all-time closing high of 5,667, which is the next obvious level of potential resistance. Support is in the 5,475-5,510 area, while the 5,475-5,480 area is in the vicinity of the 30-day and 50-day moving averages, the latter trendline is still sloping higher in a testament of how quickly the three-week decline has been reversed.
Many new highs have been made in 2024, and this is a situation in which another new high may be imminent. Per comments I have made this year, there is a sizeable short position on SPX component stocks that is in the early stages of being unwound (see chart below). This data is from the end of July (mid-August data comes out this week). If we see an uptick as of mid-August, we can be fairly certain that many of those fresh short positions are already underwater.
When stocks succumbed to selling earlier this month, the shorts may not have felt the urge to cover. But with the SPX once again knocking on the door of new all-time highs, short covering may continue.
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Sentiment: With a current value of 72.88, the Market Greed/Fear Index indicates a strong sentiment of greed among investors, reflecting their willingness to take on higher risks in the US stock market
By: Isabelnet | August 26, 2024
• Sentiment
With a current value of 72.88, the Market Greed/Fear Index indicates a strong sentiment of greed among investors, reflecting their willingness to take on higher risks in the US stock market.
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S&P 500: When the daily advancing volume on the NYSE is ten times greater than the daily declining volume, it typically leads to higher S&P 500 prices over the next 12 months, with an average gain of 12.8% since 1979
By: Isabelnet | August 26, 2024
• S&P 500
When the daily advancing volume on the NYSE is ten times greater than the daily declining volume, it typically leads to higher S&P 500 prices over the next 12 months, with an average gain of 12.8% since 1979.
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The next two months have NOT been kind to $SPY during election years...
By: TrendSpider | August 25, 2024
• BUYERS BEWARE.
The next two months have NOT been kind to $SPY during election years.
Over the last 25 years:
September 33% win rate, -2.95% average return
October 17% win rate, -3.62% average return
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$QQQ One gap filled, one more to go
By: TrendSpider | August 24, 2024
• $QQQ One gap filled, one more to go.
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