Updates for Monday 8/9/21

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.

Signal Trades
Click here for Signal Trades spreadsheet.
...
Subscribe now to read the rest of this post.   Subscribe at our introductory low rate of only $39 per month!   ​