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Five Little Words August 28, 2022

Posted by Tom in Thoughts.
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August 27,2022 –  All it took was five little words from Chairman Powell at the Jackson Hole meeting and the market dropped like a rock in less than 60 minutes on Friday morning.  Chairman Powell said “until the job is done” in reference to the question “How long will interest rates rise?”.  The markets were hoping for a hint of a pause in the rate hikes or at least a slowdown, but nope . . . not yet (apparently).   The chart below of the NASDAQ Composite Index for reference:

click on chart to enlarge

The orange zig-zag line is my previous thoughts on an expected retracement and the blue is my new ‘worse case’ prognostication.  Will the 12093 level hold on Monday or will it go further down the price support level to 11533, or (worse) lower?  I’m thinking Monday will be lower, then late in the day (or Tuesday) a retest of 12093, then lower. ( i.e. the blue line.)

Even though the large cap S&P 500 Index lost over 4% for the week I note that all in not lost.  Volume Flow is neutral and the total volume (lower chart) on the Friday sell off was well below the 20 day average of trading volume.  So panic has not set in, at least not yet any way.  Overall long term, I’m still Bullish, but this market needs to pause to reset.  Remember that the overall economic state and world conditions have not changed.  The market has got ahead of itself, and that’s OK, it needs a ‘breather’.

Energy is up with continued strength in defensive Utilities.  China has had a bounce due to the Chinese Bank lowering interest rates.  But lowering rates to stimulate a sluggish economy is not a very positive sign, so I’m skeptical about longer term Chinese strength. 

The Short Term Sector Strength table is shown below –

We’ll see how investors react early next week about this correction.  If volume comes in, it could get ugly.  Where is the strength (volume on up bars) and where is the weakness (volume on down bars)?  Have a good week and stay observant.     …………  Tom  ……………

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