The standard deviation bands (blue) are squeezing in the tightest since last year (blue box) indicating that a big point move is coming, however, the bands do not predict direction. Think of it as a tube of toothpaste that is squeezed, squeezed, squeezed, then pop, the cap flips open and toothpaste flies out in a big stream but you don't know where it is going.
The technicals for the chart say down, as well as the uber complacency in play for the last month. In addition, the daily coronavirus doom and gloom, weakening economic numbers and increasing job losses create a negative vibe. The US Monthly Jobs Report is released on Friday, 8/7/20. The top question is, after a few months of job gains trending higher, will there be a negative jobs print? Lots of folks are getting canned lately and restaurants are facing the grim reality that many of them will go belly-up.
The bull side, however, has fire power; a Keynesian-worshiping Federal Reserve who's only solution to every economic and market problem is sending rates to zero (ZIRP; zero interest rate policy) and printing money like madmen. Nonetheless, the 11-plus years of easy money has created the stock market records and enriched the wealthy class beyond their wildest dreams. At the same time the Fed is providing monetary stimulus, due to the pandemic, the US government is providing fiscal stimulus. Of course the greedy wealthy grabbed the government funds for their businesses while Ma and Pa's local stores were spit on. The daily hype about a coronavirus vaccine also maintains elevated stock markets.
Novice traders are entering the market through platforms that allow trading of micro-shares. If you do not have the money to trade, don't. You would be better off to learn the art of trading, and find out if you are a fundamental trader or technical trader, or what combination of each, by trading on paper rather than to play around with a bunch of nonsense. The novice folks are buying a lot of the FAANG (FB, AAPL, AMZN, NFLX, GOOGL) stocks as well as MSFT, TSLA, and chasing the latest fad and hot pick. The small retail players coming into the stock market now, however, is really not moving the needle much. Investors and traders are kneeling and worshiping at tech's altar each day. The tech and chip stocks have driven stocks to the moon. The biotech stocks pop on the vaccine hype and provide afterburner fuel for the bulls.
Thus, you have the sick charts, technicals and uber complacency forecasting the tight band squeeze to be a big down move in the stock market. As a two-handed economist would say, on the other hand, you have the never-ending monetary and fiscal stimuli, vaccine hype and tech stock bubble love preventing stocks from falling. If the US Congress announces an agreement to the latest stimulus plan, traders will rip off their clothes and begin buying stocks in an orgy so obscene that it would make Caligula blush. There is a lot of good news built into the markets right now. It is amazing how the SPX is in a state of suspended animation for the last couple months floating higher through space and time but tethered by the negative technicals that it knows it must face some day forward.
The stochastics are at overbot levels agreeable to a pullback. The RSI is coming off overbot levels from June. The red lines show negative divergence across all indicators that wants a spankdown. The ADX is down at 16. The last strong trend was the rally higher off the March bottom into April but that is where it ended (pink box). This behavior clearly indicates that the rally since late April is on monetary and fiscal stimulus; of course it is. That price cluster when the strong trend failed (pink circle) is a 2730-2930 target range that price may want to seek. The Aroon green line is overbot and the red line oversold both indications are bearish going forward. The trading volume candlestick is green for Friday only because of the big rally into the closing bell; the bulk of the volume during the session was actually selling but the candlestick is credited as green. The Friday price candlestick is a hanging man which typically signals a trend change.
The full moon peaks for the month at noon tomorrow (Monday) and stocks are usually bullish through the full moon. The jobs talk will dominate markets in the back half of the week. Congress may be waiting on the job numbers since happy data will embolden the republicans to provide less in stimulus, while weak job numbers, and especially a negative jobs print, will have Americans screaming bloody murder, and the democrats will be emboldened to keep pressing for a mountain of stimulus money. It is over for America. The huge US, state, local, corporate and individual debt is unmanageable going forward. It is only a matter of how the crony capitalism system will unravel over the coming months and years.
The expectation is for a negative divergence smackdown for the days ahead. If Congress announces a deal, or if there is more vaccine hype to begin the week, or FAANG hype, or if Fed Chairman Powell promises to drop more money from helicopters, the stock market will keep receiving the mini-reprieves. The stock market should be weakening now but the rich Uncle's, Fed and Sam, are propping it up. The drama continues. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
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