September 24, 2022

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Why Bulls Have Reason to Worry Before Jackson Hole: Morning Brief

Why Bulls Have Reason to Worry Before Jackson Hole: Morning Brief

This article first appeared in the Morning Brief. Get your morning feed sent straight to your inbox every Monday through Friday by 6:30 a.m. ET. Subscription

Wednesday 24 August 2022

Today’s newsletter by Jared Bleecker, a market-focused reporter at Yahoo Finance. Follow him on Twitter Tweet embed.

S&P 500 Index (^ Salafist Group for Preaching and Combat) has a breadth problem.

the summer The rally in stocks faded last week after a massive 17.4% rally for the S&P 500 index from its mid-June lows to its mid-August highs.

But echoing a common complaint in the so-called FAANG era in the years before the pandemic, 30% of the heavy lifting was once again done by a handful of stocks – Apple (AAPLMicrosoft (MSFT), Amazon (AMZN) and Tesla (TSLA).

And as these trades lose steam, culprits like the rising dollar make their presence known once again, the latter The rally appears to be more volatile than some weak sessions might suggest.

Apple, arguably the most important leading stock on earth, suffered its worst two-day drop in two months on Friday and Monday, after hitting major trendline resistance. This drop caused the stock to break a separate – and sharp – trend line to the downside; The stock is now sitting on the 20 day moving average.

Over the summer, Apple jumped within 4% from its high – an impressive rebound for a stock that fell about 30% from late March through mid-June. This quick reversal, however, got Apple’s stock in full swing.

Apple (AAPL) failed to resist the long-term trendline, broke the potential support of the sharp trendline, and is now sitting on its 20-day moving average.

Over a similar period, Microsoft has amassed a 21% rally that has led the stock to within 16% of its all-time high. But five days later, the arrow confirmed that island reflection pattern on daily candles. Amazon is in a similar boat, but is still “on the island” – consolidating what was a 45% gain at its most recent peak.

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Meanwhile, Elon Musk’s Tesla looks a little stronger after a 50% rally that wasn’t as steep and unsustainable as Apple’s. However, the stock struggled to break halfway down from record highs, indicating short positions still have an advantage on the longer-term time frame. Just above $1,000 a share we expect the Tesla bears to start throwing in the towel.

None of this, of course, would be too worrisome if the broader market had been more involved in the preparation.

It is true that some internal market metrics have been showing bullish signals lately. For example, the percentage of S&P 500 components trading above their 50-day moving averages crossed 90% last week for the first time in more than a year.

But major leaders and industry groups — such as the high-yield bond market and the semiconductor industry — underperformed during the summer rally and were quick to fall back. short coverage Unwanted rallies from the bottom The market can only take so far.

Meanwhile, bullish investors are on the alert, as they count the minutes until Federal Reserve Chairman Jay Powell’s keynote address, Jackson Hole, on Friday morning.

But most strategists think Investors may soon forget this Powell pivot In the Fed rate hike cycle. The Fed chief has openly stated several times at his press conference in late July that the Fed’s next moves are about incoming data – read: inflation statistics – and not much.

Most worrying for the market is that US stocks accounted for 86% of global equity gains during the recent rally, according to Michael Hartnett’s team at Bank of America Securities. If we look away from the US stock market, it is no coincidence that we find the recent risk rally has boomed as the Dollar pulled back from its sharp rally.

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However, this relief already seems fleeting, with a 7-session rally in the US dollar index (DX-Y.NYB) erased the same 20-session low, bringing the dollar back near two-decade highs.

Now, the euro is back down parity In dollars – a boon for tourists but a curse for Europe, which is now facing recession and Leading the world’s economy to follow suit, for example some experts.

Unless Powell says something that knocks the dollar off its lofty base, don’t expect much help from the Federal Reserve.

Investors looking for the next bullish catalyst may cheer for any hints from Powell toward ending the Federal Reserve’s balance sheet reduction program – the so-called quantitative tightening – Which puts pressure on currencies, bonds and money markets.

But as Bank of America Global Research’s equity derivatives team said in a Tuesday note: “We believe risky assets have cause for concern about Jackson Hole.”

Letting investors better serve, as always, simply Not Fight the Federal Reserve.

What are you watching today

Economic calendar

  • MBA Mortgage Applications

  • durable goods ordersJuly (+0.8% expected, +2% previously)

  • Durable goods orders excluding transportationJuly (+0.2% expected; +0.4% previously)

  • Pending home salesJul (forecast -2%, previous -8.6%)

earnings

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