Updates for Monday 8/2/21

We trade 3x ETFs such as TQQQ TNA SOXL LABU using proprietary analysis of volatility.

Updates 1:00 AM EST - Monday 8/2/21

This coming week the market will focus on employment data, with the job report coming out on Friday, and the earlier peak at the data coming on Wednesday (ADP report).

There was a lot of data that came in last week to process, and at times the data conflicts with each other.   We think it's helpful to sort the current economics and market data into two buckets:  forces that provide bullish tailwinds for stocks, and forces that generate bearish headwinds for stocks.

Forces that provide bullish tailwinds for stocks
Liquidity:   Despite the Fed inching towards tapering, liquidity is still plentiful.  This is most evident in the amount of cash being parked overnight in the Fed reverse repo market.   It has reached over $ 1 trillion on Friday.  

Strong earnings:   Q2 earnings has been eye-popping.   The S&P growth rate for this quarter is 85%.   This is likely to be peak earnings growth for this year.  Still, analysts are projecting 27% rise for 3rd quarter, and 20% rise for 4th quarter (compared to a year earlier).   

Money flow:   According to Financial Times, in the first half of 2021, inflows into global equity funds are the largest on record.  And according to Bloomberg, ETF inflows are set to smash record in 2021. 

Corporate buybacks:   Companies are buying back stocks at pre-pandemic, which is a sign of economics optimism at the corporate level.    

Negative real yields:   According to WSJ:  "Yields on government bonds in the US and Europe have dropped to records when adjusted for inflation...  Analysts say that the decline in real yields is one sign that investors around the world are paring bets on rapid recovery...At current levels, they imply investors will lose money holding 10-year government bonds to maturity after factoring for inflation.  That prospect can push investors to buy riskier assets such as stocks..."

Strong consumer demands:  Consumer demand is still rising strongly, according to the latest PCE report.

Vaccination instead of lockdown:    Increasingly, the official view is that COVID is something the world will have to learn to live with, and do so with the aid of vaccination instead of drastic lockdown.   While we may see certain events and places close up due to a Delta breakout, we are unlikely to see across-the-board shutdown of everything.

Forces that generate bearish headwinds for stocks
Delta variant scare:   As the summer winds down, autumn and winter mean more time spent indoor.   And with a large percentage of kids going back to school unvaccinated, we may see more Delta outbreaks.   These outbreaks may cause knee-jerk responses in the market, 

Fed tapering sooner than promised:   While the probability of this happening is low, any sudden move by the Fed is likely to freak out the market, at least in the first 24 hours.   If the Fed suddenly steps on the brakes, we may see rapid exits out of stocks, followed by taper tantrums.

New Fed chairman:   In coming months, Biden will have major opportunities to influence the makeup of the Federal Reserve, including whether to renominate Jerome H. Powell to another term as chair.  New FOMC members may bring new monetary policy and direction.

Weakening market internals:   

• The charts of NYSE and Nasdaq A/D net issues are still showing bearish divergence from $SPX $NDX prices.
• S&P 500 and Nasdaq charts showing percentages of stocks above the 200-day EMA have been forming lower high tops, and are continuing to do so.

$VIX  $VXN $RVX
We show on $VIX $VXN $RVX charts below the levels to expect $VIX $VXN $RVX to reach by mid-August.
Charts and projections are available in full post for members.

$SPX $NDX IWM
Charts and projections are available in full post for members.

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