Outlook
US INDICES AND GLOBAL MARKETS WEEK IN REVIEW
US indexes finished the week with a disappointing performance relinquishing its early week gains and on course to finish flat. This seems to be a reoccurring theme of late as markets appear unable to hold onto gains or losses with fast recoveries in both directions. This ambivalence is set to continue in the short-to- medium term as uncertainties around the Globe and diverging central bank policies threaten to undermine what has thus far been a decent year. US Markets and Indices have experienced a great year but there are indicators the good times may be at an end.
The S&P 500 and Nasdaq 100 have both seen excellent rises in 2023 as the correlation between the two continues to deepen. This in light of the growing dominance of mega size tech stocks leaning on the SPX as the rise of AI strengthened the tech sector in 2023. This past week has seen market conditions globally exhibit severe signs of deterioration while the US economy begins to show a few cracks despite the robust nature of some of the data. The US is set to face some tougher questions in Q4 as the end of the student loan exemption falls away. The spike in energy costs which was mostly responsible for the uptick in this week’s CPI statistics also hint at the possibility for inflation to remain sticky. This was a factor that no doubt played on the thoughts of the ECB ahead of a surprise 25bp raise this week. The lack of bullish momentum following the rate hike could be regarded as a hint that that market players believe the ECB may be overtightening as the European economy falls.
US indexes for their part increased nicely in the early part of the week attributable to an improvement of attitude as well as a continuation of positive US data. Sentiment did take a bit of a knock ahead of the US inflation statistics and a bit of a negative welcome to the Apple product announcement before bursting to life on Wednesday and Thursday in particular. Global sentiment also got a boost thanks to a successful Arm IPO and the Peoples Bank of Chinas (PBoC) decision to decrease the reserve ratio requirement. However, Friday witnessed a significant selloff which I feel is mostly a result of Profit taking ahead of a major week of data as well as some selling in chipmaker stock on demand fears. A increase in US Treasury Yields also impacting on US markets ahead of the weekend.
FED MEETING AND RISKS FOR THE WEEK AHEAD
Stock indices face an intriguing week as the FED meeting will no likely take center stage. It seems a given at this stage that we will get a pause from the FED and market players will likely be more interested in the FED direction and future projections as well as the comments by FED Chair Powell. I will be particularly curious by the FED perspective on inflation given the upgraded estimates by the ECB who boosted their expectations and given the upswing in US inflation and the current surge in oil prices.
Also throwing a spanner into proceedings, on Friday word came regarding a walkout by the Union of Auto Workers (UAW). The walkout is likely to begin with 12.7k workers at three sites with workers from Ford, General Motors and Stellantis ready to take part. The issue derives from the fact that the walkout could damage as much as 146k workers by next week which could impact upto 46% of US auto manufacturing. According to sources on Bloomberg, a 10-day UAW strike would cut US GDP by $5.6 billion, with a strike lasting than a few days putting Midwest States into a recession.
September is a typically tricky month for US indices and the hesitation and inability to hold onto gains threatens another year of disappointment. Any aggressive signal from the FED at next week’s meeting or an upgrade to inflation estimates could drag on US indexes as in my eyes at least the fight against inflation remains far from over.
TECHNICAL OUTLOOK
S&P 500
From a technical perspective the S&P on a monthly period printed a gigantic hanging man candle close in August and as we are midway through September appear to be following through. Attempts to the rally higher of late have been met by selling pressure as acceptance over the 4500 level has been tough since breaking below at the beginning of August.
It must be noted of course that we have also failed to push significantly lower with the initial breach below the 4500 mark meeting support at the 4350 handle. We have an area around the 4550 level which may be challenged before a continuing to the downside as we did have a gap over the 1st and 2nd of August.
On the daily timeframe below, we are also trading within a triangle pattern with a negative break leading to a retest of the 100-day MA around 4375 before support at the 4325 mark comes into focus.
Key Levels to Keep an Eye On:
Support Levels:
4400
4375 (100-day MA)
4350 (Swing low)
Resistance Levels:
4500
4550
4600
Nasdaq 100
The Nasdaq 100 is a close mirror image of the SPX chart considering the increased similarity in movements during 2023. Also now constrained to a triangular pattern and closer to a breakout than the SPX, pricing has broken below the 50-day MA. Monday could be significant here and determine price activity ahead of the FED meeting on Wednesday. A break and daily candle close below the triangle pattern will bring a retest of the 100-day MA resting at the 14815 handle which coincides with the August 24 swing low and could prove a tough nut to crack.
Alternatively, a break to the upside will see the 16000-handle come into focus and a potential retest of the 2021 and all time-highs at 16757 come into focus once more. This though does seem a bit implausible at this moment considering the indicators of worsening around the global economy.
Key Levels to Keep an Eye On:
Resistance Levels:
15500
16000
16757 (All-Time Highs)
Support Levels:
15190
14810
14228
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