EB Daily Market Report - Thursday, August 20, 2026
It looks to me like a typical monthly options expiration week as prices slowly gravitate lower to wipe out a ton of net in-the-money call premium. Our major indices are all lower, with the S&P 500 down 0.71% and slightly beneath its rising 20-day EMA. Failure to hold that key moving average, currently at 7657, could open the door to additional short-term selling:
The good news, in my opinion, is that selling in semiconductors (SOXX, +0.10%) has slowed as the group has been trading around its flat line throughout much of the day. There is still some room to the downside in many semiconductor stocks in order to reach max pain, so we still need our guard up. The bigger problem, however, is that the SOXX is rolling over after a rather feeble attempt to regain its key moving averages:
The entire rebound occurred with the AD line moving mostly lower. Also, volume fell to almost nothing at the recent top and challenge of the 50-day SMA. That's not exactly showing a lot of belief in the rally. Now we're rolling over again as interest rates climb and the seasonally-weak month of September approaches.
There's reason to worry in the near-term, though I remain very bullish the long-term.
I mentioned interest rates. Yesterday, the Treasury announced it would double its buybacks of treasuries on the long end of the yield curve. Clearly, it's an attempt to sway other buyers of treasuries in order to take some pressure off mortgage rates. The problem is that I believe the Fed was fairly happy allowing the bond market to help slow the economy with rates being a bit elevated. This move by the Treasury, which is scheduled to take effect on September 9th, could backfire as the Fed meets one week later and it could coerce the Fed to act sooner rather than later and raise short-term rates. Falling long-term rates and rising short-term rates hit banks, particularly regional banks, right where it hurts.
I find it very interesting how Wall Street is now selling banks, particularly regional banks (KRE), since this Treasury announcement:
The KRE has reached a critical short-term inflection point. Will the group bounce off its 50-day SMA test, as it has in previous tests during this uptrend? Will RSI hold 40 support, which typically holds during uptrends? And what about the AD line turning rapidly lower the past few days, along with the uptick in volume that accompanied yesterday's big selling? These are all signals that I'm watching closely.
Personally, I'm growing a bit more cautious with short-term stock market action. I don't see anything major from a long-term perspective, but I'm growing more concerned about the end of summer. Banks have performed well since the April 2025 bottom, aiding the current rally. They're looking about as vulnerable right now as any time over the past 16 months or so. And with semiconductors wavering, the bears are likely to get their chance over the next 4-6 weeks.
Finally, I'm keeping a VERY close eye on the 10-year treasury yield ($TNX). It is stubbornly remaining near 4.75% and I think a surge to 5.00% could coincide with much more weakness in our major indices. That's been the history over the last few years and it's something I plan to talk about on Saturday morning at our LiveStream event at 10:00am.
I hope you can make the event, but if not, be sure to check out the recording at your convenience.
Happy trading!
Tom