Commenting on today’s trading looking at the fundamental and technical perspective, Gorilla Trades strategist Ken Berman said:
The major indices treaded water today ahead of the Fed’s highly-anticipated symposium, erasing a brief, but sharp morning dip in the second half of the session. The Dow was up 50 or 0.2%, to 26,252, the Nasdaq lost 29, or 0.4%, to 7,991, while the S&P 500 declined by 1, or 0.1%, to 2,923. Advancing issues outnumbered decliners by a 6-to-5 ratio on the NYSE, where volume was below average again.
David Einhorn's Greenlight Capital returned -2.9% in the second quarter of 2021 compared to 8.5% for the S&P 500. According to a copy of the fund's letter, which ValueWalk has reviewed, longs contributed 5.2% in the quarter while short positions detracted 4.6%. Q2 2021 hedge fund letters, conferences and more Macro positions detracted 3.3% from Read More
Although the major indices still haven't made much progress this week, today's intraday recovery could mean that the recovery will soon resume in earnest. The odds of a final Brexit deal rose significantly today, thanks to Angela Merkels surprising proposal, and while the Fed might still shock the market, the latest plot twist in the Brexit saga could boost global risk assets, and today's rally in the pound is already great news for bulls.
As the major indices, the key sectors also had a mixed session today, and the Treasury market continued to be in focus due to the uncertainty regarding the Fed and the mixed economic numbers. The recently struggling financials and industrials bounced back as Treasury yields ticked higher, while consumer goods and utilities were also among the leading sectors. Tech stocks lagged the broader market after leading yesterday's rally, but the Nasdaq remains relatively strong from a technical perspective, and today's small loss doesn't effect the bullish underlying trend.
The Fed and Chairman Jerome Powell will be at the center of attention tomorrow, with the Jackson Hole Symposium's most anticipated speech being scheduled for 10 am EST. New home sales will also be out during the morning session, and bulls will be looking for another confirmation that the housing market is finally improving following a year of weakness. Despite this week’s bounce in Treasury yields, financial conditions haven't been so easy for years and mortgage rates are near their multi-year lows, which should support activity in the sector.
Philly Fed President Harker dropped a 'hawkish bomb' today amid the rampant Fed-related speculation, stating that there is no need for another rate cut in light of the stable domestic economic trends. While his views might have no major effect on the Fed’s strategy, a lot of investors took some chips off the table ahead of Mr. Powell's speech. The Chairman will likely reiterate the Central Bank’s flexible stance, but any strong hint on further rate cuts could be enough to reignite the rally in stocks.
It will be interesting to see how President Trump’s ongoing quest to push the Fed towards an easier monetary path will effect the Jackson Hole meeting. The President even suggested another round of quantitative easing (QE), and since the the European Central Bank (ECB) seems to be ready to increase its asset purchases, the idea is not as far-fetched as some analysts think. Compared to the other major central banks, the Fed has much more room to ease, given the fact that outside the U.S., the average yield on government bonds is now negative, but Mr. Powell will likely wait for a more pronounced domestic slowdown before restarting QE.
Despite the stability of the major indices, the short-term trend remains bearish on Wall Street, but bulls would only need one strong day to flip most of the key short-term indicators. The positive long-term trenx is in no danger, as the benchmarks are well above their rising 200-day moving averages of 7,590 for the Nasdaq, 2,802 for the S&P 500, and 25,616 for the Dow, but the inndices are still stuck below their flat 50-day moving averages of 2,948 for the S&P 500, 8,053 for the Nasdaq, and 26,617 for the Dow.
If investors take a step back and, for a moment, forget about the gloomy trade related headlines and the slowdown in Europe and China, the long-term charts are still looking great. Following the volatile swings in May and June, the major indices hit new all-time highs in July, but they got slightly 'overbought' due to the furious rally. So, while this month's pullback might have been scary in light of the mounting global risks, from a technical perspective, nothing extraordinary happened. Stocks could simply be gathering strength, waiting for a bullish trigger that could kick-start the next leg higher in the bull market. Stay tuned!