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Updates for Monday 8/9/21

8/8/2021

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

​Updates 1:30 AM EST - Monday 8/9/21

There are a number of Fed officials speaking this week, and a whole lot of Treasury auctions happening.   Attention will be on Treasury bond yields (see more below).

Forces that provide bullish tailwinds for stocks
Strong earnings + fat profit margin:  
  • S&P earnings projected to grow 90% from 2nd quarter 2020
  • Operating margin for is expected to come in at 13%, almost a record. 
  • According to WSJ: "At a time of increased attention to inflation, the results show that big U.S. companies have succeeded in growing their sales while managing their costs." 

Robust job growth: 
  • US economy added 943,000 jobs in July.   
  • Unemployment fell to 5.4% in July, a drop from 5.9% in June.  

Growing GDP: 
  • US GDP grew at 6.5% annual rate in second quarter.
  • US economy has exceeded pre-pandemic size.
  • Growth is expected to slow down in the coming months.

Business spending likely to rise:   According to WSJ:  "Businesses are sitting on record amounts of unused credit from U.S. banks, another quirk in the economic recovery that bankers say could help unleash pent-up spending in the coming months."

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

Household spending rising:  Household spending increased by 1% in June.

Crypto market signal >> "risk-on":  Major crypto currencies such as BTC and ETH have been steadily climbing up since their lows on 7/20.   The mood in the crypto market has definitely turned bullish, reflecting a "risk-on" attitude.

Forces that generate bearish headwinds for stocks
Feds tapering:
  • The robust job growth means the Fed is likely to begin tapering its $120 billion in monthly asset purchases later this year.
  • Fed officials are beginning to speak about rate rises, maybe in 2023.​

Too much short-term cash - may be signaling stress:   Liquidity is a good thing for stocks, but too much liquidity can yield unexpected problems.   A prominent sign of perhaps too much liquidity is the fact that money market funds and banks are parking over $1 trillion of cash overnight at the Federal Reserve in exchange for securities.   

Analysts are warning that the markets for short-term funding appear to be vulnerable to disruption, given how much short-term cash is sloshing around.  Short-term cash market is highly important to the healthy functioning of the economy and all markets.


Treasury bond yields rising:   US10Y chart formed a short-term double bottom last week at 1.127.   In the next few weeks, it may rise back up towards 1.6 - 1.7.   The last time US10Y rose like this was from early February to mid March.   And as a result, $NDX dropped during this period.   We may see similar market behaviors again, but it's not a guarantee.

Market internals still weak:   
  • The charts of NYSE and Nasdaq A/D net issues are still showing bearish divergence, but they are also showing some traction.  That is they are no longer dropping and are forming a base.   
  • The percentage of stocks above 200-day MA are still diverging bearishly from $SPX $NDX prices.

$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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