EB Daily Market Report - Quick Update - Thursday, September 7, 2023

This will be a very quick update today as I'm in meetings all day.

One thing I definitely want to point out is that yesterday's equity-only put call reading was 0.98, the 4th highest reading of 2023. The 5-day SMA is still hovering near the .80 level, which is EXTREME pessimism. This is not a guarantee that prices will go higher from here, but it does give us a sense that most market participants are very bearish. I've shown plenty of charts on the CPCE that show what happens when market participants are this bearish.

I maintain my position that U.S. equities are at or very near a MAJOR bottom and that we'll move higher into year end and into 2024. I believe the pace of gains in aggressive areas will slow, perhaps even stall, but any money coming out of those areas (think technology, communication services, consumer discretionary) will find a new home in more value-oriented areas like industrials and financials.

If aggressive areas continue to push higher into year end and into Q1/Q2 2024, next summer could be a real problem for those groups. Any new highs in semiconductors ($DJUSSC), software ($DJUSSW), internet ($DJUSNS), and several other aggressive industries, would result in negative divergences on weekly charts. That doesn't always result in an immediate drop, but the longer these groups rising with slowing momentum, the riskier trading these groups becomes.

We started the day with weak futures, a weak open, and continued weakness thus far during the trading session. It all fits within what I believe is a period of consolidation that is likely to last throughout September. After that, once we get the next Fed meeting behind us, look for a pre-earnings run to carry us back to new highs or at least to test the most recent high.

Happy trading!

Tom