Will The Technical Factors Dominate Price Action

Commenting on today’s price action trading Gorilla Trades strategist Ken Berman said:

Price Action

3844328 / Pixabay

The current three-day winning streak could mean that the worst of the pullback is behind us, especially since today’s rally ‘lifted all boats’ again. Two ‘bullish thrust’ days, meaning that a large majority of stocks closes in the green, in a row usually indicate that an important bottom has formed, and with the positive long-term trend in mind, today’s price action has to be an encouraging sign for bulls.

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Q2 hedge fund letters, conference, scoops etc

Besides the extension of the Huawei ban’s delay, the better-than-expected quarterly earnings of cosmetics giant Estee Lauder (EL) also boosted equities today. The stock surged higher by more than 12%, closing the session at a fresh all-time high. While today, most of the key sectors gained ground, from a broader perspective, the divide between financials, industrials, and the leading consumer goods remains wide. Looking at the past six month, consumer-related issues are up by an average of almost 10%, while industrial and financials are flat due to the trade tensions and the declining Treasury yields.

Even though yields are still close to their recent multi-year lows, we saw a healthy bounce in rates, today, and the other key safe-haven assets, such as the Japanese yen and gold also pulled back. The Volatility Index (VIX) hit its lowest level in almost three weeks, dipping below its 200-day moving average and finishing the session below the 17 level. In recent months, the VIX was a reliable indicator of investor sentiment, so the fact that it's showing a positive divergence compared to the major indices suggests a material improvement in sentiment, compared to last week’s gloomy days.

We will have another quiet day in terms of economic releases and that could mean that technical factors will be dominating price action.  Thanks to today’s rally, some of the key short-term technical indicators got close to flipping positive again, so the rally’s momentum could be enough to carry stocks even higher ahead of the Jackson Hole Symposium. Wednesday’s FOMC meeting minutes could set the tone for the symposium but tomorrow, the major indices could easily hit new three-week highs, which could increase inflows from traders using momentum-based strategies.

President Trump targeted the Fed ahead of the key meeting, stating that the Central Bank should cut its benchmark rate by ‘at least 1%’ and added the ‘perhaps some quantitative easing’ would also be needed to counter the global economic slowdown. Without a full-blown recession, the Fed is unlikely to restart its quantitative easing program, especially in light of the dissenting votes against its recent rate cut, but according to the bond market, the 1% rate cut could come true this year. The European Central Bank’s (ECB) monetary strategy might play an important in determining the Fed’s moves, and this month, the ECB sent a clear message that it’s ready to ease again. 

The major indices closed notably higher for the second day in a row, getting close to erasing their worst day of the year thanks to the renewed trade optimism and the prospect of further monetary and fiscal stimulus.  The Dow was up 250 or 1.0%, to 26,136, the Nasdaq gained 107, or 1.4%, to 8,003, while the S&P 500 rose 35, or 1.2%, to 2,924. Advancing issues outnumbered decliners by an almost 5-to-1 ratio on the NYSE, where volume was slightly below average.




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Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and three kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own 2.5 grams of Gold