September Dawn, Return of The Fed

The FOMC minutes hit today and they read fairly hawkish to me. The elusive Fed pivot was no where to be seen in the minutes and the drop in commodity prices was addressed as being insufficient to convince them that inflation is a done deal.

Recent earnings reports were a mixed bag from the giants at $WMT, $LOW, $HD, and, of course, $TGT. Combined with the recent decreased productivity economic reports an ever clearer picture of a slowing economy and flat growth is coming into view. This is a fundamental problem for the market. Some companies are doing well, but others are not. This implies a quality spectrum is being applied during trading. Take $AAPL for instance, arguably the greatest company on the market with a fortress of a balance sheet. It has gained tremendous value and is probably benefiting from a bunker in quality mentality, defying downward market movements and lifting.

What I take from this is that the money in the market is slowly rotating into quality growth, but that can only last so long. The first folks getting into a name like $AAPL will be the safest, but eventually if enough money flows out of other stocks and only into the quality names, the indicies will start to drag, thereby pulling down the market. The lifeboat will get overweight and sink.

This means–to me–that the rally is probably in danger.

There’s evidence for this in the charts too. CMF has been quite high this past month as money surged in but looks to be at an exorbitant level now. RSI (momentum) looks to be curling too–implying a fricative force (selling) is ontop of it. This force I would guess is the decreasing gains of people piling into ever expensive safety-in-quality stocks. As the price of each % absorbs more and more money the size of each move grows smaller. The bottom, may be falling out of this top.

Early projections look for a retracement that lasts until at least Sept 27th.
Noted Bear Entries: July 26th, August 5th, August 17th.

Even averaged on a 2D time frame we can see that the moving averages are getting weaker as the days go by. Seasonally, this makes sense too. September is a bad month for equities historically. This is only compounded by the ever important Jackson Hole and FOMC meetings. Some traders may start reducing risk in the coming days. There will be a race to be first to protect gains, but if good news comes out of the meetings a surge back in could happen. Either way, I expect volatility to return in the last half of August.

It’s also worth noting–to me, at least–that this represents a 3rd entry attempt by the bears since the rally began. Since the bears were defeated in Mid July (July 18thish) they’ve attempted to re-enter the market 3 times: July 26th, August 5th, and August 17th. The previous two entries were fleeting, quickly recovered by the market and with a lot less strength in the bears’ paws. They lacked conviction. This new one however, on August 17th, looks to be different.

The previous attempts were at lower price levels, with the first significantly so. It looks to be an attempt that the rally would quickly fade–which didn’t–and was quickly abandoned. August 5th to August 9th of course was the market afraid of the CPI print on the 10th. Since then we’ve been developing the rally with the assurance gained on the 10th and the bears ran back to their caves. However, recent earnings reports are painting a less than rosy picture of the economy. Additionally, the idea of the fed pivot is slowly being rethought. The voices of the FOMC governors are getting louder and the minutes left the bulls wanting more certainty that a pivot was on order. The bears have started to re-enter–not yet at the same strength as July 26th–but certainly standing their ground. I expect more volatility ahead if the bears decide that this is their time and grow their strength. With the 200 SMA just barely above us, it’s logical for bears who believe this to be a bear market rally to enter here. Time will tell if they are rewarded.

The market could erase the fear here for a third time, but with decreasing energy in the RSI, I am not so sure if it can. Bulls need a positive jolt of news and are probably looking for it from Jackson Hole.

I myself will be short for the month of September, in part because of this renewed bear presence. Trade safely, trade wisely. These are my raw thoughts and assessments of the current market. I don’t promise their accuracy. Just observations.

I am not a professional. Please seek the appropriate professional for any financial, investing, or trading decisions you may make. I am not responsible for any decision you may make based on the information above. I am a retail trader, and not a professional. Please see the disclaimer for more information.

Written by Kryptonite, 8-17-2022

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