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U.S. Stock Market Watch: The Effect of Trend-Following Fund Adjustments

/ October 5, 2023

Adding to the array of challenges facing the U.S. stock market, a new concern emerges: systematic trend-following funds are reducing their market exposure, potentially exacerbating downward pressure on the markets in the upcoming weeks. Goldman analysts estimate that commodity trading advisors (CTAs), a subset of trend-following hedge funds typically engaged in futures markets, shed approximately $40 billion worth of exposure to U.S. stocks last week. This rapid pace of CTA selling, according to Goldman’s data, sets a record. Fortunately, the Goldman team anticipates that the selling pressure from systematic funds will diminish in the coming days. However, not everyone shares this optimistic outlook. A team at UBS, in a recent note obtained by MarketWatch, forecasts an additional $20 billion to $30 billion in CTA selling over the next two weeks. According to their analysis, this would result in systematic funds holding a net short position on stocks for the first time since November of the previous year. The S&P 500 faced a 3.6% decline in the quarter ending in September, marking its first quarterly downturn in a year. Since then, stocks have continued to slide, with the index decreasing by another 0.5% since the beginning of October. In total, the S&P 500 has experienced a nearly 7.5% drop since its peak on July 31. By comparison, the index closed at 4,263.75 on Wednesday following a 0.8% increase, marking its most significant daily gain in three weeks, according to FactSet data. On the flip side, the Nasdaq Composite saw a 1.4% rise on Wednesday, closing at 13,236.01, while the Dow Jones Industrial Average climbed 127.17 points, or 0.4%, reaching 33,129.55. Easing Treasury yields were seen as a potential factor in this uptick, offering stocks a temporary respite. Increasing yields on Treasury bonds, particularly for longer-dated maturities, have exerted pressure on stocks, with the yields on the 10-year and 30-year Treasury bonds reaching their highest levels in 16 years earlier this week. Rising bond yields can lead to higher borrowing costs for corporations, potentially impacting economic growth, while also diminishing the appeal of U.S. equity valuations compared to bonds. For instance, these rising yields have recently driven the U.S. equity risk premium to its lowest level in over two decades, hovering just under 0.90 earlier this week, as per Dow Jones Market Data. This indicates that the compensation investors can expect for holding stocks rather than bonds is currently less attractive, at least in theory. Investors have also pointed to the lofty valuations of mega-cap technology stocks and concerns about the Federal Reserve’s plan for higher interest rates as contributing factors to the ongoing market selloff. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

S&P 500’s Support in the Face of Bond Market Pressures

/ October 4, 2023

Key Insights for Today’s U.S. Trading Session While you were away, the yield on the 30-year Treasury briefly exceeded 5% earlier today, indicating ongoing turbulence in the bond market. Influential figures in the world of finance are sounding the alarm: Amidst the stock market’s erratic performance, technical analysts are closely monitoring a critical level for the S&P 500, the focal point of our discussion today. Michael Kramer, the founder of Mott Capital Management, emphasizes the importance of the 4,200 level. He points out that it not only corresponds to the 200-day moving average (DMA) but also signifies the S&P 500’s loss of a 20% gain from its October 2022 lows. The S&P 500 closed at 4,229.45 on Tuesday, reflecting a 1.37% decline. Kramer highlights the potential for investor unease if the 200-day moving average is breached, signifying the end of the bull market. The 200-DMA is a critical indicator for many technical analysts in assessing long-term trends. Despite Tuesday’s sell-off, the S&P 500 remains 21% above its October intraday low. A 20% decline from its July 31 high would be necessary to exit the bull market. Kramer underscores the significance of the 4,200 level, both from a technical and psychological perspective. He suggests that a breach could lead to further deterioration, especially if weak job data on Friday triggers a collapse in rates. Heisenberg (@Mr_Derivatives), a commentator on the stock market, has also been discussing a pivotal moment for the S&P 500. He anticipates a visit to the 4,200 level in the near future, possibly overshooting to 4,185 to 4,190, followed by a reasonably strong rally. On a different note, Keith Lerner, the Co-Chief Investment Officer and Chief Market Strategist at Truist Advisory Services, sees an opportunity as the stock market approaches its most oversold condition since autumn 2022, particularly as it nears the 4,200 support level. He expects a temporary dip below this level, given the high number of observers. The good news is that “the percentage of stocks within the S&P 500 trading above their 50-day moving average is now below the 20% threshold considered oversold and sits at 15% currently,” according to Lerner. This suggests indiscriminate selling and historically tends to precede market rebounds, especially in stronger markets. However, the outcome will hinge on yield stabilization and the upcoming earnings season. For investors below their benchmark equity targets, there may be an opportunity to “increase equity exposure and bring weightings closer to a neutral position,” Lerner suggests. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Dollar Dominance: How It’s Affecting Stock Performance

/ October 3, 2023

U.S. Equity Futures Swing Amid Dollar’s Rally and Fed Rate Hike Concerns On Tuesday, U.S. equity futures exhibited a see-sawing performance, influenced by the surging dollar and apprehensions surrounding potential Fed interest rate hikes, along with surging Treasury bond yields. The U.S. dollar index, which gauges the greenback against six major global currencies, recorded an overnight gain of 0.13%, reaching 107.047. It crept closer to its highest levels since November of the previous year. These fluctuations followed statements from Federal Reserve officials, including Cleveland Fed President Loretta Mester, emphasizing the necessity of raising interest rates to curb inflation in the robust U.S. economy. Mester articulated, “I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time as we accumulate more information on economic developments and assess the effects of the tightening in financial conditions that has already occurred,” during a public event in Cleveland. The CME Group’s FedWatch tool currently indicates a 25.7% likelihood of a quarter-point rate hike at the conclusion of the Fed’s upcoming two-day policy meeting on November 1. The odds of a December hike, whether a quarter or half point, stand at just under 45%. Meanwhile, Treasury bond yields continued their ascent, following the most significant one-day increase in nearly a month on Monday. Benchmark 10-year notes reached a new 2007 high of 4.702%, and 2-year notes hovered just below 5.1%. These substantial upward movements, combined with the hawkish rhetoric from Fed officials, place considerable attention on this week’s job market data. Investors are eager to discern if labor market tightness will fuel inflation pressures in the final months of the year. Key economic events this week include the Bureau of Labor Statistics’ monthly jobs openings report, scheduled for release today at 10:00 am, ADP’s monthly employment report on Wednesday at 8:15 am, weekly jobless claims on Thursday at 8:30 am, and the crucial September non-farm payrolls report ahead of the opening bell on Friday. As Wall Street prepares to commence the trading day, S&P 500 futures indicate a modest 4-point gain at the opening bell, while Dow Jones Industrial Average futures suggest a 22-point uptick. Nasdaq futures show a slight 4-point increase. In international markets, the strengthening dollar has contributed to global stock market pressures, with the MSCI World index sliding 0.3% to a four-month low. The Asia ex-Japan benchmark experienced a significant 1.4% decline. In Japan, the Nikkei 225 closed 1.64% lower as the yen reached a multi-year low of 149.87 against the dollar. Japanese Finance Minister Shunichi Suzuki discussed the possibility of currency intervention. Japan resorted to purchasing yen to stabilize the currency in international markets, marking the first intervention in 24 years since it dipped below the 145 mark in September of the previous year. In Europe, the Stoxx 600 opened 0.3% lower in Frankfurt, while the FTSE 100 saw a 0.28% rise as the pound depreciated to 1.2067 against the U.S. dollar. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Q4 Stock Market Potential: What Could Set This Year Apart?

/ October 2, 2023

Ryan Belanger, a strategist from Claro Advisors, has expressed concerns that the fourth quarter of 2023 might not live up to historical averages. He cites macroeconomic forces indicating a potential recession as the reason behind this apprehension. While the third quarter of 2023 adhered closely to stock-market seasonality patterns, with both August and September proving to be challenging months for U.S. equities, some market experts see the possibility of a stock-market resurgence in the final quarter. Historically, the fourth quarter has been the strongest quarter for the U.S. stock market, with the S&P 500 index showing remarkable gains, nearly 80% since 1950, and an average increase of more than 4%, double the next best quarter, according to Ryan Detrick, Chief Market Strategist at Carson Group. October is renowned for its extreme volatility and historical stock-market crashes, including the Panic of 1907, the Wall Street Crash of 1929, and Black Monday in 1987, all occurring in October. However, Detrick suggests that, in general, October has been a “fairly decent month,” especially following two consecutive months of stock declines. Recent increases in Treasury yields and the strength of the U.S. dollar, along with seasonal market weakness, contributed to the stock market’s downturn in September. The Federal Reserve’s interest rate decisions and Jerome Powell’s press conference further accelerated these trends. Simultaneously, energy prices remained high in September, hovering above $90 a barrel, creating concerns about inflation and the potential need for more interest rate hikes. As a result, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all posted losses in both August and September. Ryan Belanger, founder of Claro Advisors, anticipates that despite strong seasonal factors, the fourth quarter of 2023 may fall short of historical performance due to indicators pointing toward a recession, such as elevated bond yields and the Federal Reserve’s contemplation of raising interest rates. However, Ryan Detrick of Carson Group remains cautiously optimistic, noting that historical data indicates a potential stock-market rally in the fourth quarter, especially after weak August and September performances. Detrick points out that in the past, when stocks declined 1% or more in the preceding two months, October rebounded with gains of 10.8%, 8.3%, and 8.0%, respectively. Furthermore, the fourth quarter has shown positive returns in 12 out of 13 instances since 1950, with an average increase of more than 7.0%. Moreover, when the S&P 500 has risen between 10-20% for the year leading into the traditionally strong fourth quarter, Detrick expects even more significant gains, averaging over 5%. In 2023, the S&P 500 has already advanced over 12%, indicating a potentially promising outlook for the final quarter of the year. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

S&P 500’s September Suffering: Inflation’s Toll on Markets

/ September 30, 2023

In September, the S&P 500 experienced its most substantial monthly decline since December of the previous year, with a 4.9% loss. On Friday, U.S. stock markets closed with most indices in the red as investors assessed the latest inflation data from the Federal Reserve. This marked the conclusion of a turbulent month for stocks. Here’s a snapshot of how key indices performed: For the week, the Dow registered a 1.3% decline, the S&P 500 dropped by 0.7%, while the Nasdaq Composite managed to eke out a 0.1% gain. All three indices reported both monthly and quarterly losses. Factors influencing the markets: The S&P 500 wrapped up Friday with a slight decline, marking its fourth consecutive week of losses. Initially, U.S. stocks posted gains at the opening bell following the release of the latest inflation data. Investor sentiment has been fluctuating between concerns about a potential U.S. economic recession and the possibility of a “soft landing” facilitated, at least in part, by Federal Reserve interest rate hikes aimed at combatting inflation. According to Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management Co., this uncertainty has left investors searching for answers. September saw the S&P 500’s worst monthly performance, with a 4.9% decline, according to FactSet data. Schutte characterized it as a “tough month for stocks.” Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, noted that the declining breadth in the U.S. stock market might have attracted some “dip buyers” on Friday morning. She added that the inflation data from the Federal Reserve’s preferred gauge, released before the market opened, didn’t significantly impact stocks, as there were no major surprises in the data. The PCE (personal-consumption expenditures) index showed that core prices, excluding volatile food and energy categories, increased by 0.1% in August, a lower-than-expected rise. Additionally, the year-over-year inflation rate eased to 3.9%. However, rising energy prices contributed to a 0.4% increase in the headline PCE price index in August, marking its most significant increase in seven months. According to Carol Schleif, Chief Investment Officer at BMO Family Office, the core PCE still remains nearly double the Fed’s 2% target, prompting the Fed to consider the possibility of another interest rate hike. Callie Cox, U.S. Investment Strategist at eToro, highlighted the decline in services inflation, with prices rising by 4.9% from the previous year in August. This moderation in services inflation aligns with the Federal Reserve’s goals as they approach the end of rate hikes. Higher long-term yields have continued to exert pressure on stocks. On Friday, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) decreased by 2.4 basis points to 4.572%, although it remained near 16-year highs reached earlier in the week, according to Dow Jones Market Data. In other economic data released on Friday, the Bureau of Economic Analysis estimated that personal income increased by 0.4% in August, with consumer spending also up by 0.4%. There are signs of cooling consumer spending, particularly in the services sector, as per Northwestern Mutual’s Schutte. Investors also received updates from the Chicago Business Barometer, which registered at 44.1 in September, representing its first drop in three months. Meanwhile, the University of Michigan consumer-sentiment index showed sentiment improving slightly at the end of September, with the final reading rising to 68.1 from 67.7 earlier in the month. The University of Michigan data included a reading on inflation expectations, showing respondents expected inflation to decrease further to 3.2% in a year’s time. Some analysts attributed Friday’s fading stock-market gains to portfolio repositioning by funds as they prepared for the fourth quarter, which began the following Monday. The market has been characterized by a risk-off environment for much of September. Notable stocks in focus: John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

? S&P 500 Alert: The Mother of All Trend Lines Unveiled

/ September 29, 2023

Following what appears to be the most challenging month for stocks this year, some investors are closely analyzing a chart that signals an impending showdown for the S&P 500 SPX. This chart was shared by a stock market commentator on X, known as Heisenberg, who goes by the handle @Mr_Derivatives: The S&P 500 has experienced a 5.1% decline so far this month, following a 1.7% drop in August, which ended a streak of five consecutive months of gains. Rising bond yields and the possibility of higher interest rates in the coming year have significantly impacted high-performing tech stocks, leaving investors feeling apprehensive. Other contributing factors to this decline include surging oil prices and concerns about potential slowing consumer spending, particularly as student loan payment moratoriums conclude. October is historically known as the most volatile month of the year. Michael Kramer, the founder of Mott Capital Management, emphasized that the chart represents a “major trendline stemming from the October lows.” He pointed out that the Nasdaq Composite has already broken a significant uptrend, which is a bearish sign, coupled with the presence of a head-and-shoulders and diamond reversal pattern. The head-and-shoulders pattern often signals a shift from a bullish to a bearish market, while the diamond reversal pattern suggests a trend reversal following an extended period (learn more here). Kramer’s chart illustrates how these patterns have affected the Nasdaq Composite, which has fallen by 6.7% in September, making it the worst month of 2023: Kramer expressed skepticism about the next significant move for the S&P 500 off that trendline, stating, “If that breaks, we could see a sharp drop back to 4,100.” He also highlighted the climbing 30-year Treasury yield (BX:TMUBMUSD30Y) as a critical factor. “If 4.8% breaks, there is no resistance until 5.4%,” potentially leading to more significant stock declines, including the Nasdaq-100 index (NDX) dropping to around 13,300 from its current 14,580. See his chart for reference: Regarding the 10-year Treasury yield (BX:TMUBMUSD10Y), Kramer noted key resistance at 4.69%, with no significant resistance until it reaches 5.25%. He attributed the onset of market stress to changes in the Bank of Japan’s negative interest rate policy in July, allowing the 10-year JGB (BX:TMBMKJP-10Y) to rise to 1%. “This whole thing started after the July BOJ meeting,” he observed. Kramer also pointed out international developments, referring to it as a “global reset.” The U.K. 10-year gilt yield (BX:TMBMKGB-10Y) surged from a low of 3.08% to 4.5%. He added, “Additionally, I think the market is saying the Fed policy is not restrictive enough.” However, there might be a silver lining in the “mother of all trend lines” chart for the S&P 500, according to Adam Kobeissi from The Kobeissi Letter. He cautioned against assuming that if the trendline breaks, the entire market will collapse. Instead, he sees a different scenario. “If that trendline holds, we should prepare for the next significant upward move,” Kobeissi suggested. Nevertheless, he acknowledged that the near-term trend has been leaning downward, with the S&P 500 establishing lower lows and lower highs. In his analysis, the 4,200 level is crucial support for the index, as it aligns with the high from February 2023. Kobeissi believes that the technical indicators are showing signs of being oversold and anticipates “some sort of a bounce in the 4200-4250 range, which may have already started yesterday, leading into 4335. A rejection of that level would form a lower high and open the door for new lows, while breaking above that level opens the path to 4400. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

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