Sell Rosh Hashanah, Buy Yom Kippur?

Friday’s triple witching (option and futures contract expiration) provided an expected and significant expansion of volume for US equity markets. Volume on the New York Stock Exchange rose by 63.36%. Volume on the Nasdaq expanded by 48.16%. That expansion of volume, as a result of triple witching, coupled with another move lower by the broader market in terms of prices, amounted to another distribution day for stocks. On Friday, the Nasdaq gave up 117 points or 1.07% while the S&P 500 fell 1.12% or 37.54 points. Not unexpectedly, the Dow Industrials slipped a more modest 0.88% or 244.56 points.

In last week’s note, we discussed the technical significance of where all three major market indices closed out the previous week. In the previous week’s note, we took solace in the Nasdaq’s ability to exhibit a dramatic intraday reversal off its 50 DMA on Friday, September, 4.

From a technical perspective, our focus over the past three weeks has been and remains on the 50 DMA for all three major US equity market indices both relative to one another and independently for obvious reasons. If anything, last week’s price action underscored, and to a large degree, validated, the significance of our focus.

US equity markets traded in a relatively tight range last week with the 50 DMA acting as a seemingly soft demarcation between support and resistance. Thematically, Monday and Tuesday provided a modest lift to share prices while Wednesday through Friday reflected general pricing weakness. We closed out the week with markets unwilling or unable to pierce their 50 DMAs with conviction or with non-derivative-centric volume in either direction. The S&P 500 (3319.47) and Nasdaq composite (10,793.28) both did close marginally below their respective 50 DMAs on Friday though the Dow Industrials (27,657.42) managed a close above its 50 DMA.

For the week, the Dow Industrials were basically unchanged (-0.03%). The S&P 500 slipped 0.64% and the Nasdaq gave back 0.56%. Most interestingly, the Nasdaq Composite has now closed at or below its 50 DMA four times since the September 4th reversal we touched upon earlier in the note. The Nasdaq Composite has also led markets lower in our most recent 4-week pullback. We closed out last week with the Nasdaq Composite 11% below the closing high it established on September 2nd. The S&P 500 is lower by 7% and the Dow Industrials are off 6% over the same period.

All three major US equity market indices closed out Friday of last week in a precarious position. Sector rotation, and the continuing weakness exhibited by former market leaders, as a result, continues to advance as it has for a solid four weeks. A clear indication of that rotation can be seen in equity market sector performances over that period of time above (CME data).

Though I remain cautious over the near-term, I remain unequivocally on the long side of this trade in the longer term. As I mentioned on Bloomberg a little over a week ago, I am concerned about our civil discourse as a nation and about the potentially negative impact it may have on business and consumer confidence if it continues. The social contract – the social fabric of our country appears to be undergoing a level of stress testing that the everyday person is unfamiliar and uncomfortable with. The passing of Supreme Court Justice Ruth Bader Ginsberg 2 short days ago only elevates my concern.

Why am I so adamant about my bullishness in the longer term generally speaking?

  • The US dollar is under significant pressure. A cheaper dollar gives the US export sector significant cost competitiveness. Honestly, I firmly believe that President Trump’s eagerness to head off the potentially severe economic contraction with an unabashed flurry of deficit spending was meant to at least in part make the US greenback more globally competitive.


  • As Fed Chair Powell indicated last week, and will likely reiterate this week, Federal Reserve monetary policy will keep interest rates near zero for an extended period of time. Where else are investors going to allocate their capital? Almost by default equities stand to gain in the current interest rate landscape and that refers to the entire global interest rate landscape.

Last week’s economic calendar highlights:

Industrial Production for August, though not disappointing, did come in a degree less robust than many expected. M/M the topline reading was 0.4%. Manufacturing Output M/M was 1.0% and the all-important Capacity Utilization Rate stands at 71.4% – up from July’s revised reading of 71.1%. Retail Sales for August were softer than consensus across the board. Retail sales M/M were 0.6%. The control group was -0.2%.

Fed Chair Powell, as expected, assured the street that rates would remain near zero for longer than was initially thought.  Housing starts and permits were a degree softer than consensus as well. Starts were 1.416 M – down from the previous month’s revised reading of 1.492 M. Permits were 1.470 M — well below Econoday consensus of 1,530 M.

This week’s economic calendar highlights:

The most significant theme to play out this week revolves around Federal Reserve Chairman Powell’s three scheduled speeches. He will be speaking on Tuesday at 10:30 am, and on Wednesday and Thursday at 10:00 am.

On Tuesday morning we receive Existing Home Sales data for August. The entire housing vertical (starts, permits, new home sales, existing sales) have generally continued to provide investors with better-than-expected results in 2020. Econoday consensus for August, at an annualized rate, is 5.965 M. July’s results were 5.860 M. The year-over-year growth in Existing Home Sales stands at 8.7%.

On Wednesday at 9:45 am, the flash Composite Purchasing Manager’s Index (PMI) for September is released by IHS Markit. As a reminder, this index is focused primarily on private-sector output. In August the composite reading was 54.7, the manufacturing vertical in the index was 53.6, and the services vertical stood at 54.8 – all in expansion mode and consistently stronger than many on the street have been expecting in Q2 and thus far in Q3.

On Thursday at 8:30 am, Weekly Jobless Claims hit the tape. In many respects, this data point has been most emblematic of the economy’s COVID-19 fueled deep dive into an unprecedented shutdown and the ensuing and evolving recovery. Last’s week’s reading, for the week ending 9/12, was 860 K which was stronger than many expected. Importantly, it was the 140 K break below 1 million weekly claims after the previous week’s 893 K tick that provided the encouragement many needed to believe that our COVID-19 recovery was not in a stall. As of last week’s report, the 4-week moving average stands at 912 K.


Our market outlook remains: Rally Under Pressure


On Thursday we also receive the New Home Sales data for August. Econoday consensus stands at 875 k – down from the prior reading of 901 K.

Durable Goods Orders for August are released on Friday at 8:30 am. Historically this monthly release does reflect a degree of seasonality and it also tends to be very volatile. Econoday consensus for New Orders M/M is 1.5%. Ex-Transports and Core Capital Goods M/M are expected to come in at 1.2% and 1.7% respectively.

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