Late last week, Tropical Storm Henri was barely worth a mention in our local Long Island weather forecasts. An Atlantic storm that could screw things up for boaters or surfers. Nothing of interest for us landlubbers. Within 24 hours, the storm had been upgraded to a hurricane and a direct hit on western to central Suffolk County was consensus. Long Island had not suffered a direct hit from a hurricane in more than 30 years. Store shelves emptied. Long lines formed at gas stations and lasted until there was no more gasoline to be purchased.
Sunday morning. Game time. Raining. Our local forecasters had prepped us to expect as much as eight or nine inches. Much less wind than expected. Flip on the local channel. Apparently, now the storm had shifted out east, and was trying to kick a field goal in between Montauk (The eastern end of Long Island and Block Island (an island 30 miles east of Long Island, which is part of Rhode Island). The severe winds never really materialized near us. Somehow, with the storm shifting out east, the heaviest rains were felt further west. New Jersey, New York City, and Nassau County all suffered heavier rains than did most of Suffolk County despite being much closer to what was left of the eye wall as the storm had been downgraded back to a Tropical Storm prior to making landfall.
The point is that, because folks paid attention to the local forecast, the storm went within 48 hours, from off the local radar, to "worst-case" scenario, to a rainy, breezy Sunday that prior to the age of technology... nobody would have thought connected to anything more than just that.
The coming week brings with it much uncertainty, as fiscal and monetary uncertainties crash ashore and into the last gasps of second quarter earnings as well as some rather key macroeconomic data, by week's end. All on top of a cranky geo-political landscape in a depressing public health environment. As I worked my way through "back day" (physical exercise) in my garage on Sunday, my wife mentioned how easy life is for "weather" people that they can get so much wrong, so regularly, and everyone still pays attention. I told her... you mean "just like me and my kind"? Market pundits? Economists? We don't get our forecasts right with any more regularity than they do. Fact.
Last Week
Equity markets closed out a still "down week" with a second consecutive "up day." The breadth was actually fantastic on Friday, with winners beating losers by a rough 5 to 2 at both of New York's primary exchanges, and advancing volume beating declining volume by around 3 to 1 at both exchanges as well. Still unfortunately... aggregate trading volume significantly evaporated on Friday from Thursday.
For the week, the five cyclical, or more dependent upon economic growth, sectors all finished in the red, and took places six through 11 on the weekly sector performance table. Defensive sectors took the top three spots, and the fifth spot, while growthy sectors took places four and six. Sticking with the market theme that appears to represent a troubled economic forward looking picture, the Dow Transports, as well as small to mid-cap indices all badly underperformed the headline level large-cap indices, though all were indeed lower over the five day period.
Much of this was in response to the FOMC Minutes that are published with a three week lag, but showed a growing faction within the central bank in favor of moving forward with slowing the pace of accommodation as consumer level inflation has been if not any more or less transitory than expected (too early to tell), at least cresting at a higher level of acceleration than once projected. Both Minneapolis Fed Pres. Neel Kashkari (whom Sarge would call a "Dove"), and Dallas Fed Pres. Robert Kaplan (whom Sarge would call more pragmatic.), both cautioned that the Delta variant of the SARS-CoV-2 virus could impact a move toward "tapering" the Fed's monthly asset purchase program.
Just to top off the week with a little more in the way of mixed messaging, St. Louis Fed Pres. James Bullard (whom Sarge likes more than most) showed confidence late in the week that this Delta variant would not greatly impact the U.S. economic recovery and an actual rate hike could be on the table by early 2022. Possibly important here might be the fact that none of those three are voting members on monetary policy this year, but that St. Louis gets its vote back in 2022, while Minneapolis and Dallas both must wait until 2023.
Jackson Hole
Investors come into this week with 'all eyes' on the Kansas City Fed's economic symposium come week's end. What was at first expected to possibly be an event where the Fed would lay down, or set up a potential kick-off for a tapering of asset purchases as soon as the next policy meeting, culminating with a September 23rd policy statement has become something possibly far less exciting as the symposium has gone from a three day (26 Aug through 28 Aug) in-person event to a one day (27 Aug) virtual event, highlighted by an address by Fed Chair Jerome Powell.
Many pundits and economists are out surmising that the Fed can not possibly signal that economic conditions remain on track for a return to "normal", despite the Delta variant... when the Fed itself can not hold their annual "dog and pony" show the way they normally would have, thanks to the variant. A gathering of the global elite in central banking becomes a lot less exciting on Zoom Video (ZM) than it would have given the visuals of the meeting of minds before a magnificent backdrop of Mother Nature's physical beauty.
While Powell will have to decide just how much he is willing, or wants to signal on Friday, he will know that moving forward, he has the support of Treasury Secretary Janet Yellen, who it was reported on Saturday, has endorsed Powell to keep his job beyond the expiration of his term in February. Yellen's voice is important as she is a highly respected member of the president's cabinet, having chaired the central bank herself. The alternative would be Federal Reserve Board Gov. Lael Brainard, who both politically and ideologically seems to be more in line with the fiscal aims of progressive left of the Democratic party, and will have the support of those advising the president from that direction.
Meanwhile, In Washington...
The Biden administration's fiscal agenda faces some challenges this week... from inside his own party. Earlier this month, the Senate passed the $1 trillion-ish bi-partisan infrastructure bill, as well as a budget resolution (not quite a bill) worth something close to $3.5 trillion in spending on mostly social issues. This week, the House, at the behest of Speaker Nancy Pelosi, comes back from recess early in order to consider the two packages for passage.
The deal is that the Democratic party is far from united on where it wants to go here. The idea would be to pass the smaller infrastructure bill and send it to the president's desk for a signature. That bill has support on both sides of the aisle and seems like a slam dunk. The larger spending plan is far more contentious, as it will likely have anywhere between no support and close to no support from the right, and mixed support from the left. Pelosi would like to pass the spending plan along with the infrastructure bill and send the spending plan back to the Senate where as a bill, the plan would no longer need to have the usual 60 votes for passage but through using the "reconciliation" process could pass with a simple majority, which they would have only if united and using the vice president as a tiebreaker.
The problem (if you're on board with that plan) would be that in the House, where the Dems can not lose more than four votes, there are at least six fiscal conservatives or political moderates who think the plan should be reduced in size, and there are at least six "progressives" who think the plan is currently too small. Even if passed in the House and sent back to the Senate, the Dems could not lose a single vote. There are currently at least two Dems in the Senate that are considered fiscal conservatives and would likely suffer consequences at home moving forward if they signed on to such legislation.
There is no slam dunk here, and any headlines regarding the nation's fiscal future will have at least as much impact on financial markets as will Jerome Powell's speech at the end of the week. Especially now that expectations for that speech are starting to be ratcheted lower.
Rumor Has It That...
...The FDA, still without permanent leadership, may move at some point this week to grant full approval of the messenger RNA Covid-19 vaccine jointly developed by Pfizer (PFE) and BioNTech (BNTX) . Pfizer had filed for such approval back in May. This is important because polls show that roughly 30% of the U.S. unvaccinated cite the lack of a full FDA approval as the, or a reason for their reluctance. Pfizer's two dose vaccine received Emergency Use Authorization in December of last year.
In addition, full approval makes it far easier for employers and institutions to require mandatory vaccination. Once fully approved, the vaccine could also be prescribed off-label, such as could be the case for booster shots. This expectation could also be the reason for the Advisory Committee on immunization Practices having delayed this week's meeting out into next week, prior to making a recommendation to the CDC.
Because you asked, Moderna (MRNA) is said to possibly be a month behind Pfizer on this timeline, while Johnson & Johnson (JNJ) has mentioned plans to file for full approval later this year.
Breakout !!
Last Thursday, I wrote to you concerning my re-established long position in Nvidia (NVDA) . I showed you this chart, and opined that we were either looking at a "Double Top'', which would be bearish, or the foundation for the development of a handle (attached to a cup)... which would be bullish. I dare say that I think we have an answer.
Nvidia closed Friday just above a $207 pivot point. In reaching pivot, NVDA had also retaken both its 50 day SMA and 21 day EMA on Thursday. Now, we have a stock primed for liftoff, paired with neutral readings for both Relative Strength, as well as the Full Stochastics Oscillator. In addition, the daily MACD offers up a 12 day EMA poised for a bullish crossover of the 26 day EMA.
Nvidia
Pivot: $207
Target Price: $250
Add: down to $198 (21 day EMA)
Panic: $193 (confirmed break of 50 day SMA)
Post- Breakout
Sarge's other semiconductor fave is further along in its technical development.
Advanced Micro Devices (AMD) broke past a $95 pivot in late July, and broke out it did, peaking in early August above $122. Reality hit fast for this stock, and now on Monday morning, AMD is about to enter the fourth day of a dog-fight at the 21 day EMA. Holding this line is key to keeping the breakout story intact. The peak, as quick as it came, was above target price ($118). Did you sell any? Hope so.
Given how quickly that peak came and went, I am leaving the target where it is, and I will take off a second tranche if retaken. However, should support at the 212 day line falter, the next stop is pivot. While the RSI is still neutral, and the daily MACD presents a semi-ugly set-up, the Full Stochastics Oscillator is screaming out loud that this name is badly oversold, Perhaps it is.
Economics (All Times Eastern)
09:45 - Markit Manufacturing PMI (Aug-Flash): Expecting 62.9, Last 63.4.
09:45 - Markit Services PMI (Aug-Flash): Expecting 59.4, Last 59.9.
10:00 - Existing Home Sales (July): Expecting 5.82M, Last 5.86M SAAR.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (PANW) (1.44)
(Nvidia and Advanced Micro devices are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
