Week review · w/c 22 August 2022 · Jackson Hole, after the four-week winning streak ends
Friday's selling imbalance ended four days of balance with a long-liquidation b profile, and the weekly profile is OTFU but closes near the lows. My weekly profile overview marks the levels into Jackson Hole week, with flash PMIs, the second Q2 GDP estimate and core PCE in the same week.
WK HIGH 4327.5 | WK LOW 4220.75 | CLOSE 4231.5 · 24-hour session
The week in brief
A four-week winning streak for US equity markets was broken as losses on Friday sent the major benchmarks into the red for the week. Markets fell after Federal Reserve members reaffirmed their commitment to tighter monetary policy despite signs that inflation was slowing. The Nasdaq fell 2.6%, the S&P 500 lost 1.2% and the Dow fell 0.2% for the week.
As hawkish remarks from Fed members sparked a sell-off in government bonds, the yield on the 10-year Treasury note rose, closing the Friday session at 2.98%. Early in the week oil prices briefly dropped to their lowest levels since late January on worries about slowing global demand and renewed lockdowns in China. West Texas Intermediate (WTI) crude briefly fell below $87 a barrel on Tuesday and Wednesday, before rallying to end the week at $90.
Weekly profile overviewA balance week, then a break out of balance and a price discovery week, and now this week's profile: OTFU, but it closes near the lows.
Day by day
Friday's selling imbalance followed 4 days of balance: Tuesday's spike extreme, a lower low on Wednesday, and an inside day Thursday. Buyers had gotten overly excited and were now trapped. The lack of buying initiative on Friday's gap open opened the floodgates to an impulsive long-liquidation move, resulting in an obvious b profile.
Friday's selling imbalance and long-liquidation b profile: more selling is highly probable.
The weekly structure
Daily auction now OTFD. A build-up of inventory inside balance gives fuel for bigger moves, and we are exiting 4 days of balance: the prior balance high is 4327.5 and the prior balance low 4255.
The weekly imbalance profile lacks definition. Open it up, expand it and view the individual days.
Why look at the weekly and monthly?Using the composite profiles gives me a lot of clarity in understanding the market. Understanding the story and the basic mechanics of what is going on simplifies almost every other aspect of my trading, especially timing.
By identifying areas of balance and acceptance in the auction I have a natural edge: I can identify value and the pivots of change. In balance I look to fade the extremes. When activity leaves an area of acceptance, I monitor the strength and conviction of the move, using volume and value as my guide. As a general rule, if a move is genuine, volume and value will move away from prior acceptance to a new area.
Levels for next week
The afternoon PB 4245 high, along with the prior balance lows at 4255, will be key targets for buyers to regain control of the auction. Sellers will want to maintain the momentum and set the tone early to break the weekly lows at 4221: this should open up further downside targets. Sunday's re-open to set the tone?
The rest are marked on the weekly profile overview, above and below.
Data ahead
Key takeaways: Jackson Hole
- Federal Reserve officials gather for the annual Jackson Hole Symposium from Thursday; this year's conference is titled 'Reassessing Constraints on the Economy and Policy'.
- The latest update to the Personal Consumption Expenditures (PCE) price index is released on Friday, tracking price gains for common household expenditures in July.
- More updates on the housing market are due, including new and pending home sales for July.
The economic preview (IHS Markit)August flash PMIs will be in full focus this week, updating economic conditions at the crossroads of weakening global demand and intensifying inflation. US economy watchers will be kept especially busy with a string of data, including US July core PCE, the second Q2 GDP estimate and the Fed's Jackson Hole symposium on 25-27 August, where there will no doubt be a jam-packed agenda. Central bank watchers will also be eyeing the monetary policy meetings in South Korea, Indonesia and China. Finally, Q2 GDP updates are also released for Mexico and Germany.
Fed watchers' attention turns to the Jackson Hole symposium after last week's FOMC minutes suggested further, albeit smaller, rate hikes in the pipeline. The second Q2 GDP estimate (forecast: -0.9%) is set to reiterate deteriorating economic conditions, while core PCE is likely to show persistently high inflation.
In Europe, growth cooled according to the July PMIs, so the August flash figures will be watched with particular interest to see how regions have responded to difficult trading conditions. Inflation concerns, supply issues and macroeconomic uncertainty are expected to weigh on growth and, in some cases, lead to contractions in output. Meanwhile, Q2 GDP growth for Germany is forecast to slow to 1.4% (Q1: 3.6%) on the back of inflation hitting 7.5% last month. There are concerns on the energy front too, with threats to gas supply adding to consumer woes. Confidence data, in the form of the Ifo business climate and GfK consumer confidence figures, are projected to reveal subdued sentiment.
Monday 22 August
- Palo Alto Networks (PANW), Zoom Video Communications (ZM), Nordson Corp. (NDSN) and Legend Biotech (LEGN) report earnings.
- Chicago Fed National Activity Index (July).
Tuesday 23 August
- Intuit Inc. (INTU), Medtronic (MDT), JD.com (JD), Bank of Nova Scotia (BNS), Pinduoduo (PDD), J.M. Smucker Company (SJM), Advance Auto Parts (AAP), Dick's Sporting Goods (DKS), Aluminum Corp. of China (ACH), Toll Brothers (TOL), Macy's (M), Nordstrom (JWN), Urban Outfitters (URBN) and La-Z-Boy Inc. (LZB) report earnings.
- S&P Global Composite PMI, flash estimate (Aug).
- Richmond Fed Manufacturing Index (Aug).
- New Home Sales (July).
Wednesday 24 August
- NVIDIA (NVDA), Salesforce (CRM), Royal Bank of Canada (RY), Snowflake Inc. (SNOW), Autodesk (ADSK), China Life Insurance Company (LFC), NetApp (NTAP), Williams-Sonoma (WSM) and Petco (WOOF) report earnings.
- Durable Goods Orders (July).
- Pending Home Sales (July).
Thursday 25 August
- TD Bank (TD), PetroChina Company (PTR), Dollar General (DG), VMware (VMW), Marvell Technology (MRVL), Dollar Tree (DLTR), Dell (DELL), Ulta Beauty (ULTA), Grab Holdings (GRAB), Burlington Stores Inc. (BURL), Gap Inc. (GPS), Peloton Interactive (PTON) and Abercrombie & Fitch (ANF) report earnings.
- US GDP Growth Rate, second estimate (Q2 2022).
- Real Consumer Spending (Q2 2022).
- Kansas Fed Composite Index (Aug).
- Day 1 of the Federal Reserve's annual Jackson Hole Symposium.
Friday 26 August
- Personal Income and Spending (July).
- PCE Price Index (July).
- Goods Trade Balance (July).
- Michigan Consumer Sentiment Index, final (Aug).
- Day 2 of the Federal Reserve's annual Jackson Hole Symposium.
Weekend readingBloomberg on Powell's chance to reset market expectations at Jackson Hole, and Reuters on Powell's Jackson Hole speech on 26 August.
Key lessons
Trade well and prosper.
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