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Analyzing August’s Stock-Market Trends: Will the Stumble Transform into a Rout?

/ August 19, 2023

The drop in the American stock-market rally in August 2023 was anticipated. In a note on Friday morning, Tom Lee from Fundstrat stated that the S&P 500’s recent decrease of 5.6% over a 15-day period is a usual situation for August. Despite this, Lee, who is well-known for his positive outlook on the stock market, expects this decline to be temporary and connected to the month of August. In August, there are usually difficulties in the financial market, with high levels of unpredictability seen in the VIX reaching its highest point. Moreover, trading conditions tend to have low activity, particularly towards the end of the month, as the holiday season ends. The speaker states that stocks are being sold off due to several reasonable factors. These factors consist of a 50 basis point rise in the 10-year Treasury yield, causing it to reach its highest level in 15 years, the strengthening of the US dollar, and a long-awaited increase in the Cboe Volatility Index. Both the S&P 500 index and Nasdaq Composite suffered losses for the third week in a row on Friday. Additionally, the Dow Jones Industrial Average experienced a decline of 2.2% for the week. According to Lee’s definition, what conditions must be met in order for the slide to be classified as a significant decline, which is a 10% decrease leading to the S&P 500 reaching the level of 4,150? In order for the increase in yields to have a notable effect, Lee states that it would either have to present a risk of causing significant harm or require some other external disruption. Lee stated that he is not claiming that this is an impossible scenario. He gave an example to support his point, stating that if there is a sudden 10% rise in oil prices along with indications of increasing wages, it could potentially result in a larger decline in market value. The reason for this is that such factors might raise doubts among investors about the consistency of inflation reduction. Lee states that at present, inflation is not the primary worry for investors as their attention is primarily directed towards the rising bond yields, which have a detrimental impact on price-to-earnings ratios. They are also apprehensive about the prospect of a stronger U.S. economy, which could lead to the Federal Reserve implementing further interest rate hikes. Furthermore, Lee highlights the slight concerns among U.S. investors regarding weak economic data and property matters in China. Lee mentioned that there are signs in the market suggesting that stability may soon return. Firstly, he stated that the acceleration in the rate at which the 10-year yield is increasing is having a negative effect on stocks. However, it is not unusual for such abrupt increments to occur towards the end of a period when equities are being sold. He highlighted that the recent 50 basis point rise in the Treasury 10-year yield, which happened in just 21 days, is comparable to the increases in yield that were observed on September 23rd and March 2nd in the previous year. It is important to note that during those occasions, stocks reached their lowest point between 8 and 16 days later. Furthermore, the McClellan Oscillator reveals that there is currently an excess number of stocks, with a value of -50. This particular situation has only happened on 39 occasions since 1990. Lee’s analysis suggests that in 51% of these occurrences, stocks reached their lowest level within five days, while in 72% of cases, stocks reached their lowest level within 15 days. Lee proposed some dates that could hold importance for the future of the market. One of these dates is August 24th, which comes after Nvidia, a company that manufactures chips, discloses its financial performance for the second quarter. The outstanding outcomes that Nvidia achieved earlier in the year were understood to have sparked enthusiasm around artificial intelligence, ultimately causing a rise in the stocks of major technology companies. On Friday, August 25th, investors will be paying attention to Federal Reserve Chair Jerome Powell, who is scheduled to deliver a speech at the annual symposium of the Kansas City Fed in Jackson Hole, Wyoming. Lee remembered that Powell’s speech in Jackson Hole last year indicated the conclusion of a recovery for the S&P 500, resulting in a subsequent drop of 19% in stock prices over the ensuing eight weeks. He was unsure if stocks would see a 20% increase after this year’s Jackson Hole conference, but he admitted that unforeseen events could still happen. 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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New Day, New Hope: U.S. Stock Futures Rise, Focus on Walmart

/ August 17, 2023

On Thursday morning, the futures for U.S. stock indexes experienced a slight rise after previously reaching a six-week low, which was caused by the surge in bond yields. How are stock-index futures trading On Wednesday, there were declines in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite. Specifically, the DJIA saw a drop of 181 points, the S&P 500 decreased by 34 points, and the Nasdaq Composite fell by 156 points. What is propelling the markets forward? The increase in bond yields has had an impact on the stock market, leading to uncertainty in the futures market. After the Federal Reserve released meeting minutes suggesting a possible increase in borrowing costs to manage inflation, government bond yields reached their highest level in 15 years. This caused the S&P 500 index to close at its lowest point in six weeks. As a result, investors are now reconsidering the timing of inflation concerns and whether higher interest rates will last longer than anticipated. Technology stocks, particularly the Nasdaq and S&P 500, have been heavily affected by the wave of selling due to their sensitivity to higher interest rates. Nonetheless, the overall market performance remains positive, with the Nasdaq up 29%, the S&P 500 up 15%, and the Dow Jones Industrial Average up 5% for the year. Cisco Systems, a manufacturer of network equipment, is anticipated to have a positive impact on the technology industry on Thursday as its stocks are predicted to rise by over 2% in the premarket. This follows the announcement of impressive quarterly earnings by the company, which were made public after the market closed on Wednesday. In the United States, there will be various economic updates on Thursday. These updates consist of two important events: the weekly report on initial jobless benefit claims as well as the August Philadelphia Fed manufacturing survey, both set to occur at 8:30 a.m. Eastern time. Furthermore, the leading economic indicators report is expected to be released at 10 a.m. on the same day. Mark Newton, Fundstrat’s head of technical strategy, advises keeping a close watch on Treasury yields, comparing it to the vigilant observation of a prey by a “Hawk-eye”. According to him, the recent rapid decline in stock prices coincided with both TNX and TYX surpassing the 4.00% mark. The TNX XX:TNX and TYX XX:TYX are the CBOE indices that indicate the yields of 10-year and 30-year Treasury bonds. Newton mentioned that the previously mentioned support level for SPX, ranging from 4350 to 4400, will be tested sooner than anticipated. Despite this decline, Newton remains confident that it is only a temporary setback and expects a resurgence in the market afterwards. However, it is possible that this rally will be postponed until after the Jackson Hole summit. The Jackson Hole Economic Symposium, which is expected to feature a speech from Federal Reserve Chair Jay Powell, has been planned for the dates of August 24th to 26th. Companies 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

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Timing Your Exit: Should You Pull Money Out of the Stock Market?

/ August 15, 2023

Investing can cause stress as we aim to make the best decisions for our future financial situation. However, it can be challenging to navigate through unpredictable market conditions. More specifically, individual investors frequently contemplate how they should respond during a market decline or when experts predict an approaching economic downturn. In times of uncertainty, you might consider transferring your investments from stocks and stock funds to cash. Nevertheless, whether or not you should make this decision depends on which part of your investment portfolio you are specifically referring to. When it comes to the portion of your investment portfolio that you utilize to pay for expenses, such as your child’s upcoming tuition bill, it might be prudent to convert those assets into cash. This is because if you are required to make a payment of $25,000 at the start of the following month, it would not be practical to have a balance of only $20,000. The word “cash” can encompass tangible money, such as funds in a bank account or a money market fund, as well as short-term bonds or bond funds that have stable values resembling cash. On the other hand, what about the money you have set aside for your future? What about the bank accounts you are utilizing to save for your retirement, which could still be many years or even decades in the future? Completely committing to holding cash is not a suitable strategy for this long-term portion of your investment portfolio. Should you consider selling your stocks when prices are decreasing? Why is it not advisable to withdraw money from the long-term portion of your investment portfolio? Instead, why not consider selling stocks and stock funds as a way to mitigate or avoid additional financial losses? Experienced investors, who may have grown used to changes in the market, still feel upset when the value of their investment portfolios goes down. However, it is crucial to distinguish between a decrease in value and actually losing money. The losses are only considered genuine and concrete when the investments are sold. Some investors think they can handle difficult market situations by selling their investments when prices are low and buying back when the market improves. However, accurately predicting the best time to enter or leave the market is very difficult, and even experienced experts often fail. This is especially true for investment funds. Sell High, Buy Low? Investors, especially those relying on funds like regular savers with retirement accounts, often make the error of selling their assets at low prices when trying to determine the optimal time to invest in the stock market. This not only results in incurring losses but also causes them to miss out on potential profits by not actively participating in the market during a rally. This is due to the fact that rallies typically commence without warning, causing individual investors to hesitate in getting back into the market. They worry that these fresh rallies are merely short-lived and have long been ridiculed as “dead-cat bounces” by investors. According to the Dalbar Quantitative Analysis of Investor Behavior report, the average stock investor had a 17.29% growth in 2020, indicating the reliability of the data. While this increase is not considered bad, it is slightly lower than the overall market growth of 18.40%. In 2021, the gap became wider as the average worth of stock investments among individual investors went up by 15.25% in the first six months. Nonetheless, this increase was lower than the overall market’s progress of 17.36%. Why the gap? According to Corey Clark, the Chief Marketing Officer at Dalbar, individual investors commonly make unwise choices when attempting to predict the market. They frequently sell stocks when their prices are at a low point and purchase them when prices are high. Furthermore, their decision-making is typically flawed, resulting in significantly greater losses compared to their gains. This implies that their main problem stems from making more incorrect predictions than accurate ones. Learning to Live With Volatility After any market decline, no matter how severe, the market always recovers its value. The same goes for properly diversified investment portfolios, as they also bounce back. Therefore, it is not beneficial to repeatedly enter and exit the market as it has a negative impact on your portfolio’s performance. Experts advise that individuals must acknowledge and embrace the fact that market volatility is a regular event in the stock market. They emphasize the importance of either enduring or reducing its impact to a manageable level. In the beginning of the 21st century, the S&P 500 Index experienced a substantial decrease in value of nearly 50% due to the bursting of the dot.com bubble. This was followed by the Great Recession, which occurred from 2007 to 2009 and led to an even larger drop of approximately 60% in the index’s value. In more recent times, the outbreak of the Covid-19 pandemic resulted in a swift decline of the S&P 500, with a decrease of 34% occurring within a single month in March 2020. Nevertheless, following each of those decreases and subsequent periods of declining stock prices, there was a subsequent rise. The S&P 500 not only rebounded but also surpassed previous high points. On average, since 1929, periods of declining markets have experienced decreases of 37.3%. Conversely, the subsequent periods of rising markets since 1921 have experienced average gains of 164%, as stated by Sam Stovall, the chief investment strategist at CRFA Research. The obvious conclusion is that individuals who maintain their investments for an extended period of time are given benefits by the market. Remain focused and maintain self-control, even in situations that are not easily foreseeable. It is clear that there are benefits to maintaining self-control and sticking to your plan when the market is unpredictable. However, many people struggle to bridge the gap between understanding what is correct and actually implementing the necessary steps. Research suggests that the pain resulting from monetary loss outweighs the pleasure derived from financial gains. Both emotions and

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Bull vs. Bear: The Summer Challenge That Could Shape the Stock Market

/ August 14, 2023

Historical records show that August and September tend to be tumultuous months for the American stock market. Therefore it would not be surprising that there is instability during the beginning of the month. Since the S&P 500 index grew by 20% from January to July 2023 many investors have been hoping that the market would balance out after a sharp rise. As of October 16 the market has increased by 25% since its lowest point after the bear market which occurred on October 12 when it was 3,577.03 What could possibly put an end to the 2023 rally? Essaye commented in a note last week that if this situation materializes it would significantly weaken the three cornerstones of the rally; as such investors should prepare for a significant drop in stocks regardless of the recent retreat. He continued to mention that in the event of this happening more than 10% reduction can be forecasted thus possibly erasing almost all the enhancement of stocks since June and conceivably all the profits made this year. That scenario has yet to materialize. Last week it was reported that the US consumer price index had gone up from 3% in June to 3.2% in July which was higher than the rate from the previous year. On the other hand the core rate (excluding food and fuel prices) had decreased from 4.8% to 4.7% The July producer price index which records wholesale costs was a bit more favorable than anticipated; however investors still think the Federal Reserve will hold the rate when they convene in September. Policy makers are anticipating to view another collection of employment information such as the August job report and inflation numbers before their upcoming meeting. At the same time a sharp increase in Treasury yields with the 10-year interest rate surpassing 4.15% after peaking at its highest point since 2023 near 4.2% is causing the stock market to remain weak. This rise in bond yields makes government bonds more attractive than other investments as well as increasing businesses’ expenses when it comes to borrowing money. The price of stocks has climbed since the end of last year as investors’ fears ended up not being realized however that trend has now come to an end. The market rally was sparked by a pessimistic environment but the idea that inflation the Federal Reserve and the economy will be in balance — referred to as a “Goldilocks” situation — could spell trouble for those who are overly optimistic according to Hackett. Although these expectations don’t seem too extreme at the moment they still should be monitored closely. Investors are concerned about the typical patterns seen throughout the year. According to data provided by Dow Jones Market Data the S&P 500 has been relatively inactive in August in comparison to other months in the year since 1928. It has shown a mere increase of 0.67% which ranks August fifth as the worst month for the S&P 500. Meanwhile September stands as the worst with an average decline of 1.1% And then there’s volatility. He advised that attempting to be overly shrewd with the market is not ideal since it is likely going through a typical time of stabilization. He declared that it will not continue enduring a prolonged period of hardship. 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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Walking the Tightrope: How Tech Stocks’ Downturn Could Shake 2023’s Stock-Market Rally

/ August 13, 2023

The Nasdaq-100, being the leading performer among key U.S. stock indices this year, has just encountered its toughest two-week period since December, according to data from Dow Jones Market. On Friday, the tech-focused index ended a fortnight slide of 4.6%, dropping 100.77 points or 0.7%, to close at 15,028. This signifies the most significant loss since December 23 when the index witnessed a 5% retreat, according to Dow Jones Market Data. The latest information indicates a dip in the usually robust market momentum of surging technology stocks. According to a report from Wednesday, the widely tracked Invesco QQQ Trust Series 1 QQQ exchange-traded fund on the Nasdaq-100 index, for the first time since March 10, concluded below its 50-day moving average, as shown by FactSet data. The index has consistently finished below its moving average for three consecutive sessions. Technical analysts interpret this as a possible sign of the index’s gains in 2023 continuing to dwindle. Approximately 40% of the Nasdaq-100’s worth is composed of a handful of highly valuable large tech stocks. The diminishing strength of a number of these important stocks, which played a major role in the U.S. market’s rebound in 2023, is amplifying fears that the market may be edging towards a more substantial and possibly widespread sell-off. The shares of four prominent firms, referred to as the “Magnificent Seven” – Apple Inc., Nvidia Corp., Microsoft Corp., and Tesla Inc., all concluded the week below their 50-day moving averages. Experts infer that signs of a growing technology rundown may be subtly concealed within the market’s structure. BTIG’s chief technical analyst, Jonathan Krinsky, issued a research note to clients and the media on Thursday. In this note, he suggested that QQQ, along with several other tech-based ETFs, is coming close to a “volume pocket.” This implies these ETFs may face a swift decline in their value. A review of the volume-at-price data over the last three years indicates that a sustained decrease below $368 for QQQ might lead to its quicker liquidation. This prediction relies on previous volume-at-price analysis, a tool used by stock market specialists to find possible areas of support and resistance for a certain security. Krinsky conducted an examination of the trade volume of a particular security at diverse price levels within a set time period, utilizing the volume-at-price assessment. His investigation encompassed data from the last three years. In a phone interview with MarketWatch, Krinsky revealed that support and resistance mechanisms are dependent on the historical values of prices. He went on to explain that due to the participants’ incomplete memory of price ranges within these confines, there can be a faster rate of price fluctuations, Krinsky further discussed. Krinsky highlighted that QQQ experienced a roughly 16% increase over a period of six weeks from the end of April to mid-June. This substantial growth implies the risk of a potentially faster decline. As of the market close on Friday, QQQ has observed a 37.5% growth since the beginning of the year, a fact supported by FactSet data. Analysts have credited various factors for the retreat, including over-focused investment, overvalued high-performing stocks, rising treasury yields, and corporate earnings that failed to meet the lofty expectations of investors. Rising Treasury yields have heightened the stress on stocks, especially on high-performing tech stocks which are significantly vulnerable to fluctuations in interest rates. The main worry currently is whether the ongoing deterioration of Big Tech will pull the broader market down with it, or if other market segments will step up to offset this deficit. Here’s the thing: The significant recalibration that happened on Monday led to four major changes in the Nasdaq 100. James St. Aubin, the main investment director at Sierra Investment Management, indicated that it seems investors are content to divert their attention to other areas of the market that are not as significantly valued as the large tech companies. St. Aubin informed MarketWatch during a phone discussion that the leading participants are seeing a reduction in their lead, but the ones lagging behind are starting to close the gap. He added that it would be more concerning if funds were consistently being withdrawn and being reinvested in cash and bonds. U.S. stocks saw a minor uptick on Thursday, but couldn’t hold onto the majority of their early gains. The market got a lift initially when the July inflation data came out, matching economists’ forecasts. However, the President of the San Francisco Fed, Mary Daly, asserted that considerable efforts are still needed from the Fed to manage inflation. This resulted in higher Treasury yields, which caused a swift turnaround in the stock market. The S&P 500 SPX ended the day with a fall on Friday, marking a reduction of 4.78 points or 0.1%, finishing at 4,464.05. This signals the second week in a row of decreasing performance. The Nasdaq Composite COMP, which includes a broader selection of stocks than the Nasdaq-100, also experienced a descent of 93.14 points or 0.7%, concluding the day at 13,644.85. The Dow Jones Industrial Average (DJIA) experienced a positive growth, rising by 105.25 points, an increase of 0.3%, to reach 35,281.40. The 10-year Treasury yield BX:TMUBMUSD10Y experienced a significant increase last Friday, rising to 4.156%, its peak for the week, as shown by data from Dow Jones Market. 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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From Relief to Restraint: Analyzing the Transition as Stock Markets Stabilize

/ August 12, 2023

The substantial growth in the stock market observed in the early portion of the year has now concluded. Investors should prepare themselves for reasonable returns from this point up until the end of 2023. Barry Bannister, the chief equity strategist at Stifel, alerted clients in a message on Thursday that the economic rally witnessed during non-recessionary times has ended. He additionally warned that there’s still a chance of a recession affecting the US economy in the initial quarter of 2024. Bannister claimed that the repercussions of past policy limitations, ongoing surveillance by the Federal Reserve, the potential for a slight oil crisis, and the impending total utilization of economic resources all contribute to the likelihood of a conventional, but not harsh, U.S. recession at the onset of 2024. Bannister’s viewpoint largely depends on the commitment of the Federal Reserve to lessen inflation to its long-term target of 2%, even though it’s currently approaching 3%. Bannister expressed that the previous ceiling for inflation has now turned into the base level of inflation. He suggested that considerable work and strategy would be necessary to reduce the inflation rate from about 3% to close to 2%. The Consumer Price Index (CPI) report for July likely reinforced Bannister’s viewpoint, as it disclosed a 0.2% monthly price escalation and an approximate 3.2% annual increment over the last year. These increases are more significant than the 3.0% recorded in June. Since the start of the year, the S&P 500 has seen an increase of around 17% but has experienced a decrease of about 3% since the onset of August. Bannister forecasts that the S&P 500 will close the year at 4,400, suggesting a likely fall of close to 2% from its current levels. Bannister anticipates that the stock market will remain fairly stable from now until the end of the year, a trend that seasonality data suggests would not be uncommon. Information from the Bank of America shows that during the third year of the Presidential Cycle, the stock market yields are typically lower from July to December. The Presidential Cycle is a four-year period in the stock market that corresponds with the tenure of the US President. Stephen Suttmeier from BofA issued a comment on Tuesday, highlighting the ongoing period of lower activity for the S&P 500 within the Presidential Cycle. He explained that average and middle monthly returns indicate the S&P 500 generally performs well from January to July during the third year, but it typically faces underwhelming performance from August to November. Nevertheless, it often recovers with a surge in December. Bannister’s perspective on the stock market nearing 2024 doesn’t seem too optimistic, given his existing projections on earnings. His forecast of the S&P 500 is to register earnings per share at $205 in 2023 and just a slight increment to $209 per share in 2024. This is notably lower than the widespread forecast of the S&P 500 yielding $226 earnings per share in the next year. “Bannister asserted that if our forecast of a relatively steady Earnings Per Share proves to be accurate, then the S&P 500 could possibly remain stable as well.” 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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