Signs of a hick up. Are we going to trade upside down?

Signs of a hick up. Are we going to trade upside down?

den 6 september 2021 författare Carlsquare

The US employment figures on Friday 3 September were a disappointing, adding only 235 thousand jobs instead of the 720 thousand expected by Wall Street analysts. It was restaurants and tourism that disappointed, which in turn is explained by the fact that the Delta variant of Covid has slowed the outlook for these sectors again, at least temporary. There has also been a decline in flying, linked to this recent trend shift. Tourism and leisure is typically a job-creating sector in the US. This can be seen by looking at the following summary of new jobs by sector from the Bureau of Labor Statistics.

But Friday also saw the release of the ISM purchasing managers' index, indicating that shortages of labor and materials may also have played a role in the lower number of new jobs. As we've written about before, many Americans are still choosing to stay home on unemployment benefits rather than look for work. This might change when part of the unemployment benefits in the US expire today, Monday 6 September. The unemployed will have fewer cheques to spend. Another trend is that many new jobs cannot be recruited due to a lack of skilled labor. Taken together, these factors explain why economic growth is now falling back slightly.

Nevertheless, looking at the trading of S&P 500 index, markets did not go bananas over the numbers, nor did it sell off in panic. Job statistics is always difficult to trade because it takes some time to go through and digest all the different numbers and the implications of the same. Especially in times like these when the numbers can be adjusted due to the pandemic. How much adjustments the market can accept is a close to a black box – making it even more difficult to evaluate.

As shown in the graph below, trading was calm with little intra day volatility. The index is still trading above a rising EMA9 and MA20 as well as the ceiling of a small rising wedge. Now may not be the time to buy-in, instead sit on your hands and look for better opportunities…like MA50 bounced several times this year.

S&P 500 index graph, January 4th to September 3rd, 2021

S&P 500 index, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

Hard to ignore is the fact of a long-term positive correlation between the S&P500 index and job creation in the US. That is because jobs is a fundamental factor for company growth and profitability. In July and August 2021, we have seen rising corporate profits for S&P500 companies for the fifth time when looking at the first two months of the quarters since the Covid-19 downturn that occurred in Q2 2020. At the same time, however, note that the rate of increase is weaker than the previous two quarters (Q1 and Q2 2021). See graph below:

Change in S&P500 company EPS, first 2 months of quarter, Q4 2016 until Q3 2021

Source: FactSet

At the sector level profit growth is strongest in the energy and commodities sectors, mainly due to underlying price increase. Increasing commodity prices is negative for consumer discretionary and has depressed the growth rate of the economy.

Interesting is that the 10-year US government bond yield increased on Friday 3 September. If the economic data would have created concerns, one should think that interest rates would have moved in the opposite direction. Perhaps we are moving into a period where trading is “upside down” – meaning that good data is bad as it increases probabilities of a quicker and more aggressive tapering, and vice versa. The next Fed meeting is scheduled for the 21-22 September where more clear information can be gathered.

The US 10-year government bond yield from 4 January to 3 September 2021

As we mentioned in our last weekly trading note, growth stocks have closed the gap to value stocks in the US. This trend continued on Friday, even though rates increased. This favored Nasdaq 100 that outperformed the broader S&P 500 index.

As shown in the picture below, Nasdaq 100 remains trading above the ceiling of a short rising trend channel. As for S&P 500, this may not be the most obvious place to buy in from a technical point of view. Sitting on hands and buy-in on dips may be a more attractive option from a risk reward perspective.

Nasdaq 100, January 4th to September 3rd, 2021

Nasdaq 100, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

Microsoft share closed flat on Friday as other large tech companies ended up on plus. As shown in the graph below, the share is also trading close to EMA9 under a positive but falling momentum – as shown by MACD. A downwards movement towards MA20 may create an interesting opportunity.

Microsoft share price graph from January 4th to September 3rd, 2021

However, in terms of RSI the Microsoft share is overbought in the weekly graph. This is however not a sell signal stand alone, but could take out its right if accompanied with a break of EMA9 in the weekly graph

Microsoft, weekly five-year share price graph

Note: Past performance is not a reliable indicator of future results.

Tesla is a share that is valued on its technology, but also on the character of Elon Musk. The valuation is motivated by high expected future growth. A continued move upwards for interest rates would be bad news for stocks such as Tesla. As shown in the graph below, Tesla is trading just below the ceiling of a rising trend channel. Will the floor be tested? If so, EMA9 and MA20 must first be broken:

Tesla share price graph, January 4th to September 3rd, 2021

In the five-year weekly graph below, one can see how the Tesla share is consolidating in a large neutral wedge formation. This is typically a formation followed by a larger move – up or down, depending on if the break is to the up- or downside.

Tesla, weekly five-year share price graph

Note: Past performance is not a reliable indicator of future results.

Even though the yields in the US rose, the USD weakened against the euro on Friday. Resistance can be found right around or right below the 1.195-level. However, one should note the bearish shooting star-like doji that was created on Friday 3 September. Support can be found right below the 1.182-level.

EUR/USD graph, January 4th to September 3rd, 2021

EUR/USD, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

The weaker move in euro is good news for European companies selling in USD but reporting in euro.  Nevertheless, the German DAX index is stuck in its consolidation phase. MACD is positive but falling increasing the probabilities of a break to the downside. However, one should note the ascending triangle-like formation. These typically break in the same direction as the longer trend – in this case to the upside.

DAX index graph from January 4th to September 3rd, 2021

DAX index, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

Swedish OMXS30 index is also consolidating under a falling momentum. Buying at MA50 could almost look scary – even though it has been the winning concept during the year.

OXMS30 index graph from January 4th to September 3rd, 2021

OMXS30 index, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

Gold is getting interesting from a technical point of view. Resistance is being tested. MACD has recently generated a buy signal. In case of a break to the upside, the next level can be found around 1 860.

Gold price graph from January 4th to September 3rd, 2021 

Gold, weekly five-year price graph

Note: Past performance is not a reliable indicator of future results.

Full name for abbreviations used in previous text:

EMA 9: 9-day exponential moving average

MA20: 20-day moving average

MA50: 50-day moving average

MACD: Moving average convergence divergence

Important notice

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future performance.

2021-12-06 01:28:03

 

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