Mid-week market update: The market almost flashed a Zweig Breadth Thrust buy signal this week, though there is some dispute over the calculations. As a reminder, a ZBT buy signal is triggered when the market rises from oversold to overbought within 10 trading days. According to StockCharts, the market never reached the oversold condition on August 2, the day of the market panic, but did become overbought on Monday, which was exactly 10 trading days later.
However, Ryan Detrick observed that there is a considerable difference in advancing and declining stocks on August 2 between StockCharts and NDR. According to NDR, the ZBT buy signal was triggered on Monday. Ed Clissold of NDR admitted that data issues may cloud the picture. The use of all securities traded, common stock only, or a “transaction only” dataset could account for the difference.
In the interests of conservatism, I will call it a near miss, but the market action can still be characterized a a breadth thrust, just not a ZBT. Generally speaking, breadth thrusts are characterized by strong price momentum that persist for months. Though the market often pauses to take a breather after the initial buy signal. The accompanying chart shows eight instances when both the ZBT Indicator and the NYSE McClellan Oscillator were overbought. Six (pink) of the eight saw the market pause afterwards.
In the absence of major macro news, this week’s stock market action can be described dominated by technicals and waiting for Fed Chair Powell’s Jackson Hole speech scheduled Friday.
A Jackson Hole preview
The market will be waiting for bated breath to hear what hints Powell might drop on the future trajectory of interest rate policy. As the Jackson Hole symposium is supposed to be a discussion of policy approaches, Powell’s speech will likely be short on specifics. With inflation falling, I would expect him to start discussing the balance of risks. Watch for comments on the Fed’s full employment mandate.
The Fed has described the employment market as “balanced”, but the latest New York Fed Labour Market survey shows increasing anxiety about job loss and a corresponding decline in workers expecting to move to a new employer, particularly among workers aged 45 and under.
Equally important for Fed policy makers is the latest BLS revisions to the NFP establishment survey. It revised down by -818,000 jobs over the 12 months ended March, which translates to an average reduction in monthly payroll gains of 68K a month and the biggest revisions since 2009. Bloomberg’s U.S. chief economist Anna Wong pointed out that the Q1 QCEW county data implies an even bigger revision of -958,000. These figures are consistent with the FOMC minutes that the “vast majority” of members “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting”,
Stock market reaction
What does that mean for the short-term outlook for stock prices?
Some of it will depend on how the market reacts to Powell’s speech. Will it be disappointed by the lack of specifics? How much is priced in? According to the CME FedWatch Tool, the market is expecting a half-point cut some time this year which sounds overly ambitious.
Marketwatch reported that Nicholas Colas of DataTrek studied the market reaction to past Jackson Hole speeches by the Fed Chair, and it tended to have a bullish bias,
However, averages can vary greatly. Specific to this year, the market is just starting to consolidate sideways after a breadth thrust, and it faces possible uncertainty ahead as it looks forward to the election in November.
From a technical perspective, the S&P 500 appears to be pausing its advance as it approaches its all-time high resistance with a possible significant market moving event Friday morning. This is a time to exercise some caution and reduce overall portfolio risk.
This is not 2022 after a bear market. It is two years into a bull.
BLS data report quality is consistent with the declining quality of workers there who are mostly PhD’s from just a few schools, basically an old boys/girls club. And this also applies to all other depts of fed gov which are monopolized by only a few schools. US fed gov is increasingly ruined by these people and some of them are hyper-partisan. This is consistent with my experience with these people the last 20 years. The odd thing is that I sensed an increasing level of smugness going with less and less substance.
Zoom out a little bit and this is expected. Most of our readers probably remember the data fraud the last two years coming out of some big name schools: Harvard, Stanford, etc. It involves award-winning professors and school presidents. My own estimate of extent of data fraud in colleges is astounding. The worst case is that probably 90% of publications have various level of data machination. In this era of social media it seems every phase of society is geared toward garnering attention and seeking financial gains. Our collective human IQ today is probably lower than that of 100 years ago. Boeing sent people up there and now they are stuck at the Station. Where is the action to get them back? How long can they stay there? Media doesn’t report it anymore. People are not interested. New NFL season is approaching. That’s more exciting.
I just watched a clip on YT where a former NIH researcher in cognitive science was in an interview. This guy was originally from China and moved back there after a few decades here in US. I am not targeting Chinese. It just so happened that he is a typical example of oozing smugness. Cognitive science today is a little like Indians circling a wagon and don’t know how to attack. No one knows the real underlying mechanism but there are already enormous amount of publication about observation. I don’t know how to make of the AI models trained on all these data.