[Chart courtesy of MarketWatch.com]

1. Moving the markets

Yesterday’s “reckless advance,” as I titled it, hit the skids today with a long overdue correction instilling some reality in the markets that nothing can go up forever nor in a straight line.

As a result, the major indexes plunged with the Nasdaq setting the dubious record of giving back the most, namely almost 5%, while snapping a 10-day winning streak and surrendering all of September’s gains.

However, given its relentless rally over the past few months, this was to be expected, the question in my mind was only “when” and “how much?” The Fang stocks like Apple, Amazon, Netflix, Facebook, Google and Microsoft all donned red numbers for the session.

The question now remains if today’s negative action was an outlier or a sign of things to come. Opined Liz Ann Saunders, investment strategist at Charles Schwab:

“I’m not sure that just today’s weakness is sufficient enough to ease some of those excesses and tell the short-term folks this is the kind of dip you want to buy. I don’t have a clear crystal ball more than anybody else, but certainly the excess suggests something more than a single-day compression in the high-flyers may be necessary to kind of right the ship.”

For clarity, ZH pointed to this chart showing the divergence between the Nasdaq and the 10-year yield closing, which could be an ominous sign of things to come, as the longer term chart demonstrates.

On the economic front, none of the numbers were able to provide market support. We learned that US Services data weakened in August amid a “highly uncertain path ahead,” as ZH called it. Filings for First-Time Unemployment benefits fell below the 1 million mark, but stilled showed a horrific number, namely 881,000 Americans looking for assistance.

Estimates as to where the S&P 500 might end up by the end of the year vary wildly, but I had to chuckle when I saw BofAs forecast range of 2,200 to 4,000. Hmm, why not make it 1,000 to 5,000 just to be safe? Of course, I am being facetious here, but looking at those kinds of wide-ranging estimates is simply a waste of time.

Despite today’s correction, none of our trailing sell stops were triggered. Gold dropped as well but to a much lesser degree than equities.  

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Yesterday’s positive 1^st trading day in the historically volatile month of September continued full force with the major indexes surging, as the S&P 500 and Nasdaq set new records in the process.

Traders took some profits out of highflyers like Apple and Tesla and rotated into more beaten-down shares in other parts of the markets. For a change, the Dow and S&P 500 lead the major indexes, while the Nasdaq lagged for this session.

Anything is possible, as MS equity strategist Mike Wilson explained:

“I remain very constructive over the next 12 months,” Wilson said. “I think we’re a little bit overcooked … It’s impossible to try to time these types of corrections,” Wilson said. “It would not surprise me if we got a 10% correction, but it wouldn’t be surprising if we didn’t, either. We’re in a bull market.”

Today’s ramp was based on, well, no supporting news. Sure, US factory orders surprised to the upside, but remain down YoY.

And:

• Congressional leaders in Washington appear to be as far apart as ever on agreeing to another relief package.
• A much-touted plasma treatment does not appear to be effective against Covid-19, based on current research.
• ADP said private payrolls grew by 428k in August vs. expectations of a gain of 1.17 million

The above was nothing market moving, but from a technical point of view, the S&P 500 has now reached a critical resistance level, according to ZH. Whether history repeats itself, is anyone’s guess.

Gold dropped again, as the US dollar rebounded sharply and took the starch out of the precious metal, while bond yields dropped to a level last seen in late August.

It was another wild and crazy day in the markets with odd things happening in the VIX arena, while this rally was supported with nothing but hot air.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After yesterday’s modest pullback (Dow and S&P), all of the major indexes came screaming back with the Nasdaq and S&P 500 ending up in record high territory, while the Dow did not set any records but sported a solid gain of +0.76%.

To no surprise, the Nasdaq took top billing with a studly performance of +1.39%, which was bested by our Telecom holding IYW, which catapulted an amazing +2.14%. GLD rode the roller coaster, but a late spike assured a green close of +0.11%.

Equities shifted into overdrive late in the session, after a report showed that American manufacturing stormed ahead for the 4^th straight month, with the ISM index rising to 56 in August from 54.2 in July.

Commented an economist interviewed by MarketWatch:

“Some of the manufacturing data that came out really helped boost investor confidence today. You have to acknowledge that a lot of this economic data is coming off extremely low and distressed numbers,” she said. “But what’s most important to the market is that we’re moving in the right direction.”

Another historic event happened today when AAPL finally caught up with the Russell 2000 meaning it surpassed its entire market cap, as this chart shows. In other words, the market is defined by the direction of Apple.

Even though we don’t see it yet, we have to accept that we may be stuck in biggest stock market bubble in history, however, it is unknown how much further it can or will expand before it finally bursts.

Therefore, I continue to sound like a broken record: “You must have an exit strategy to protect your portfolio should this market euphoria come to an end.”

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The Dow and the S&P 500 started the session in the red, bounced around their unchanged lines but could not muster enough upward momentum to achieve a green close. The Nasdaq, on the other hand, never slipped into the read and closed +0.68%, which was off its intra-day high.

The Dow slumped all day, as traders tried to figure out how its so-called divisor, used to mitigate the impact of stock splits (Apple) as well as the removal and addition of companies to its composition, would affect this price-weighted index.  

Because the value of the Dow is determined by calculating the sum of the prices of its components using a divisor that also factors when a company splits its shares, S&P Dow Jones Indices felt compelled to adjust the makeup of the benchmark. Stock splits can swing the balance of influence for any one blue-chip component.

MarketWatch

Much of today’s optimism came from the same source, namely potential coronavirus cures, along with hopes for fast-tracking vaccines, and making them available before the end of final stage trials.

Some of this confidence was offset by the reality that additional fiscal stimulus is necessary, yet the warring parties are not even close to an agreement on the amount of next-round stimulus spending.

Last week’s Fed change in using average inflation targeting implies that the Central Bank may remain in low interest rate mode for a longer period, a fact that will assist equities but could cause issues should inflation run hotter than anticipated.

For sure, uncertainty rules, which makes this a good environment for owning precious metals, but patience is required to deal with sudden short-term setbacks.