Sellers Relentless Ahead of Employment Data

Sellers remain relentless during these “dog days of summer doldrums” simply because they can. 

The time from August’s monthly expiration through Labor Day week is historically a listless time for bulls as they focus on wrapping up what is left of summer.  Fundamental and economic data thins out and support levels become more vulnerable as “skeleton crews” keep the status quo on trading desk… in this environment, that’s “keep selling.”

Note the NYSE McClellan Oscillator, a measure of Advance-Decline breadth, closed at its lowest level since January. The Put/Call ratio has also jumped up to its highest readings since June, reflecting more bearish bets on this pullback.  This is quite aggressive behavior that doesn’t tend to last in the short-run, so the odds of a bounce into September ahead of the holiday weekend is shaping up.

Of course, we have to monitor Initial Claims, ISM Data, and Employment data released on Thursday and Friday as September gets underway, feeding into the interest-rate saga encompassing the market. 

From a technical perspective, this is all in line with what has been expected after the market raced up to challenge resistance along its 200-day moving averages.  That mid-August strength created a short-term “overbought” condition that has led to a pullback in prices back to the 50-day moving averages.  This lines up around the “psychological” 4,000 mark and the 3950 area where the July 27 breakout occurred.

Bottom line is traders should remain nimble at best under current market conditions, easing off the accelerator and hedging where needed in order to maintain control of risk.

For traders interested in more specific opportunities on both a Swing-trading and Day-trading basis, be sure to tune in on the Trader Audio feature on the Briefing Trader service.

Intermarket Analysis:

Transports (IYT) breakdown below Aug 9-10th gap support, eyeing up the 50-day sma like most other areas of the equity market.

The 10-Year Yield ($TNX) rates breaking into fresh multi-week highs after stalling round 3.10%. Recall June displayed a significant Monthly reversal bar after reaching a decade high near 3.50%.  If buyers retrace more of that reversal bar, especially above 3.25% could trigger further upward momentum.

The US Dollar ($USD) strong breakout over its multi-week range highs/resistance after consolidating off its 50-day moving average support zone. July highs are back in play to slow it down.

Crude ($WTIC) Consolidating around the $90-95 zone in August, now edging higher to challenge key downtrend/resistance.  If it clears that, then look to the $100-mark and 50-day ma.  Note Aug-Sept seasonality is often weak for CrudeNatural Gas (UNG) has stolen the spotlight in the Energy space as it pushes to decade highs of $10. The Russia-Ukraine situation is the main culprit for its rise. Heating Oil has actually been strongest in the Energy complex, rallying up to fresh 2-month highs recently.

Gold ($GOLD) slumps from its mid-August highs down to close the late-July gap zone around 1725/1750.  US Dollar strength and rising rates continue to take their toll on the commodity.

Sentiment and Breadth Readings:

The VIX readings above 20 favor a “risk off/bearish” approach to markets. A steady decline since the June peaks above 30-readings, hinting that volatility has been declining and the market has been discounting and adjusting for known risks accordingly. The VIX broke its 2-month downtrend line, clearing the 50-day ma to reintroduce higher volatility into month-end.

The Put/Call Ratio Averages have been gradually sliding back around the 1.0 “neutral” area, reflecting more of a neutral/bullish tone headed into August.  Big spike over 1.20… its highest reading since June. 

The NYSE McClellan Oscillator measures the spread between the 19 and 39 day moving averages of Advancing vs. Declining NYSE stocks. Falling aggressively back into neutral/bearish territory last week. Aggressive drop below -90 sets the market up for a significant rally sooner than later.

The Weekly AAII Sentiment (as of August 24, 2022) Bullishnessfell another -6 points from the prior week, now below its historical average by about -16 points.  Bearishness rose another +8 points, currently +20 points above its historical average. Note during May, this indicator revealed some of its most bearish readings since the 2009 lows.The Fear & Greed Index dropped as low as 6 during mid-May. It is currently back around 48 for a neutral reading that remains a big improvement on Q2’s extremely low readings.

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