EB Daily Market Report - Quick Update - Friday, September 1, 2023
I wanted to publish today's DMR early, because of new technical developments.
First, I've eliminated my leverage and am invested roughly 80% between QQQ and IWM, with the majority weighting in IWM. If we see a market pullback over the next week or two, I'll likely fill out these positions to 100%. I probably won't do anything with leverage again until late September. Historically, we know September can be difficult and we're certainly not out of the woods in terms of this selling/consolidation period. There's also a technical warning sign that has encouraged me to lessen my leveraged exposure.
Brief Market/Technical Update
Many of you may be willing to take on the added risk with leverage and that's fine. Everyone needs to evaluate their own situation and then make the best decision for you. Technically, the current breakout is printing negative divergences on the hourly charts - and they're across the board. Check this out:
Dow Jones:
S&P 500:
NASDAQ 100:
Russell 2000 (IWM):
I don't believe these are MAJOR warning signals, actually quite the opposite. Hourly divergences can play out over 1-3 trading days. If we see a 50-hour SMA and/or hourly PPO centerline test, the divergences are negated. So it's possible the IWM, for instance, could fall 2 or 3 bucks and be in a much better position to advance - at least with less short-term risk.
Please keep in mind that the daily charts have improved immensely and the long-term weekly charts have never wavered from being bullish. Getting overly defensive presents serious risks as well. Long-term investors should remain fully invested, in my opinion. Short-term traders, trying to catch the ebbs and flows of short-term market inefficiencies, certainly trade out with expectations of jumping back in. Remember, however, that negative divergences are NOT guarantees of lower prices ahead. I showed a prior hourly negative divergence on the Dow Jones chart above where the Dow Jones continued pushing higher for a few days before a brief selloff occurred.
For me personally, after holding the leveraged TNA (ETF that tracks the IWM at a 3 to 1 clip) and being down quite a bit, this is an opportunity to lessen my exposure after cutting my loss on this leveraged position. I plan to be back in when I feel the risk is reduced.
Economic Report
The August nonfarm payrolls report was released this morning and here's what it showed:
August nonfarm payrolls: 187,000 (actual) vs. 170,000 (estimate)
August private payrolls: 179,000 (actual) vs. 147,000 (estimate)
August unemployment rate: 3.8% (actual) vs. 3.5% (estimate)
August average hourly earnings: +0.2% (actual) vs. +0.3% (estimate)
The positive reaction in the stock market this morning could certainly be due to that significant increase in the unemployment rate. That, combined with the unexpected drop in average hourly earnings, likely resulted in an imbalance of buyers vs. sellers at the opening bell. Not only did the average hourly earnings fall short of consensus estimates, but it was also HALF of the +0.4% rise in July. This data suggests to me the Fed is likely to pause later this month and continue to watch the data come in. Of course, we still have to see the August CPI and PPI, which will be released on the mornings of September 13th and 14th, respectively.
I believe this economic news is welcome news for the bulls for the long-term. But that doesn't necessarily mean it'll translate into further gains in the near-term.
Market Closed on Monday
The bond and stock markets will be closed on Monday, September 4, 2023, in observance of Labor Day. I hope everyone has a great weekend with family and friends!
Happy trading!
Tom