Market Continues Moving Up Amidst Volatility and Economic Data
An Analysis of August's Stock Market Performance and Key Levels to Watch for the Week and Month Ahead: 25+ Charts Including U.S. & International Indexes, The 7 Tech Mega-caps, GDX, Bitcoin and more.
Time to make a pause and think, measuring key indicators and market outlook
After a significant and overextended sell-off at the beginning of the month, with the S&P 500 losing as much as 7.3%, the market recovered to finish August on a positive note. The Dow and Nasdaq also experienced significant declines but were able to rebound.
Last week's technical analysis accurately considered a rebound in the DXY and a turbulence in the SPX, consistent with the analyzed breadth threshold, the decline bounced on Friday based on economic data that will be summarized below. As anticipated by the weekly setup, the NDX declined for the week. The DJI continued its rally, and the turbulence signals studied for META and GOOG proved to be correct.
TSLA failed to break above the resistance diagonal included in last week’s chart, instead continuing its downward trend. The DAX and Nikkei both continued their upward movements, as indicated by technical analysis. The Nikkei remains within a high-volume profile zone, while Bitcoin encountered resistance precisely at the annual support/resistance level marked on the chart.
Last Wednesday, the educational edition of Level Up Your Trading presented the second installment of its analysis on rate cuts and rate hikes. Turbulence is inevitable; there have been no exceptions. Macroeconomic data is crucial for determining the potential direction of the market, next week the series will land in the macro indicators to consider. Those publications are a must read, charts are facts, so you can have your own opinion and don’t get lost on many statistics around there.
MACRO NOTES:
The personal consumption expenditure price index, the Fed's preferred inflation gauge, increased by 0.2% in July compared to the previous month and by 2.5% year-over-year. This result aligned with economists' expectations, maintaining year-over-year changes at 2.5% and 2.6%.
This positive data slightly dampened expectations for a 50-basis points rate cut at the September FOMC meeting, with participants focused on the upcoming August employment report, which is anticipated to significantly influence the Fed's decision.
Currently, a 25-basis points rate cut is fully priced in, while the likelihood of a 50-basis points cut decreased to 30.5% from 34.0%.
Other figures support the market's view that the U.S. economy can avoid a hard landing and that the Fed may cut its policy rate as inflation approaches the 2% target:
- Personal income rose 0.3% month-over-month in July, following an unrevised 0.2% increase in June.
- Personal spending increased by 0.5%, after a 0.3% rise in June.
- The PCE Price Index was up 0.2%, holding steady at a year-over-year rate of 2.5%, unchanged from June.
- The August Chicago PMI registered at 46.1, up from July's 45.3. A reading below 50.0 indicates contraction, but the improvement suggests a slowdown in the pace of contraction.
- The final reading for the August University of Michigan Index of Consumer Sentiment stood at 67.9, slightly up from a preliminary reading of 67.8. The key takeaway is that consumers’ short-run and long-run economic outlook has improved.
This edition includes the most important monthly charts, I brought more than 25 charts so you can have a complete perspective of the market.
SPX - Monthly Chart