Economic Strength vs. Market Weakness: A Complex Picture
The Pendulum Swings for Tech - From Hero to Villain.
The fall continues and the context becomes more turbulent
The decline accelerated, and a healthy pullback is in progress. The recent overextension foreshadowed a significant decline that began last week.
The VIX jumped after crossing the anticipated 13.8 level two weeks ago, triggering the decline. Seasonality does not contradict this current development.
As anticipated last week, SPX fell to $5400, somewhat unbelievable by then, but that was exactly the move and this edition will study the next stage of this pullback.
NDX reached it’s 20 Weekly Average, deeper than expected but a technical destination mentioned in other editions, while IWM continued moving up as the intriguing weekly chart suggested last week.
TSLA and all the Mag 7 declined as expected, NVDA reached -25% decline as the AAPL case in 2020 that studied in the June 8th edition of this publication.
Macro Note Related to FED and Interest Rates Before the Technical Charts
The US economy defied expectations with a robust 2.8% annualized growth rate in the second quarter of 2024, exceeding both initial forecasts (2.3%) and revised estimates (2.4%). This strong performance was fueled by a 2.3% increase in consumer spending.
Despite a gradual cooling compared to last year, the underlying strength of the economy remains intact. This positive outlook suggests that the Federal Reserve can exercise patience in adjusting monetary policy, likely postponing interest rate cuts until later in the year, with September being a possible starting point due to recent data indicating a cooling labor market and easing inflation.
Consumer spending experienced a notable 2.5% increase in Q2, propelled by strong demand for durable goods, particularly motor vehicles. This surge was anticipated by the robust June retail sales figures and positive adjustments to earlier months' data.
While services spending also grew, its 2.2% increase represents a more moderate pace compared to previous quarters, primarily due to a slowdown in healthcare spending.
Spending on food services and accommodations defied expectations of a broader pullback in discretionary spending, bouncing back with a 1.0% increase after a dip in the previous quarter.
The Top Is More than Confirmed - The beginning of a Major Crash?
Since Interest rates aren’t likely to be cut in the near term, the indexes may not see an immediate macro element refueling the rally. That is not very encouraging, anyway the top was reached in a very uncommon way, through a breadth thrust, a concept presented at the very moment it was triggered in the educational content "Level Up Your Trading." You can read about it in this link:
This Breadth Thrust educational content included twelve occurrences from 1962, and as I wrote back then, more occurrences would be included in today's Weekly Compass. I knew last week that sentiment was going to be very different by now due to the weekly bearish setup and particular overextension.
Today, I'll chart more cases so you can have additional references regarding this rare signal and its historical outcomes, balancing a very bearish weekly setup and the technical indicators. So let's delve into this special Weekly Compass edition and elaborate on the next destination for SPX.
SPX Breadth Trust Cases - More References to Close the Conclusions in Turbulent Times: