Yesterday’s close: Settled at 2926.75, up 37.00
Fundamentals: What a week, the S&P is 4.5% off the Sunday night low and the FOMO melt-up is engaged. The last piece to a bullish puzzle is a close above our rare major four-star resistance discussed in the Technical section below. The previous high settlement in this area was on August 13th after President Trump announced he will delay additional tariffs on China until December. The S&P responded by gaining nearly 2% on the session before failing to chew through resistance. Volatility has certainly not subsided since but as it was mounting on the August 13th rally, we sarcastically noted the following morning:
The volatility that ensued after this announcement, favorable or not, must further raise investors’ awareness of how emotional and susceptible this market is to such headlines because it can go both ways. Although everyone has witnessed impacts causing a selloff, many investors fail to remember. In and of itself, such a move could keep investors from taking on additional risks at higher levels without additional certainties on trade. Hahaha! Who are we kidding, FOMO (the Fear of Missing Out) will take over in such a scenario.
Not only has the FOMO set in, the same tariffs that were once delayed invigorating the August 13th rally have been partly re-established for September 1st and upping the ante China announced retaliation last Friday. Both sides came out of the weekend with an amazing slew of jawboning and the only focus this week has been that both sides want to deescalate the trade war while completely deflecting the fresh tariffs ready to go in effect Sunday. Also, President Trump’s willingness to avoid increasing tariffs on consumer goods or potentially offsetting such an impact by decreasing taxes in a creative manner has gone a long way to lift sentiment.
The economic data this week has been nothing to write home about, but nonetheless it has been stable. In fact, the market is higher despite there being a 4.2% chance the Fed does not cut rates at their meeting in three weeks. The Core PCE Index is due at 7:30 am CT, this is the Fed’s preferred inflation indicator. It's accompanied by Personal Income, Spending and Consumption components which will be watched closely. One of the highlights from yesterday’s first revision on Q2 GDP was the increase in the already surging Real Consumer Spending numbers. The consumer is alive and well and as long as the tariffs avoid kamikazeing the consumer, the market could find both fundamental and technical tailwinds out above major four-star resistance.
Technicals: Yesterday’s quick move to key support at 2904.25-2899.50 with a low of 2905.25 proved to be the buying opportunity. We said here yesterday that, “To the downside, 2899.50-2904.25 in the S&P will act as first support and bring a swing trade opportunity upon the first test.” Even knowing the tape has continued higher, that buy was only a swing opportunity because the tape is not bullish until it can prove it by closing out above our rare major four-star resistance at 2932-2944.25. To the downside, our momentum indicators are rising just above settlement levels and this is major three-star support at 2926.75-2927.50 and 7712-7715. First tests to this level are buy opportunities, however, as we always say, a decisive move through here on strong volume will encourage accelerated selling.
Resistance: 2932-2944.25****, 2952-2958**, 2969.75***, 3000***
Support: 2926.75-2927.50***, 2915.50*, 2899.50-2904.25**, 2888.50-2891.50***
Support: 7712-7715***, 7681*, 7648.50**, 7599.25-7618.25***, 7548.50**, 7490-7504.50***