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Equities: Bullish Conditions Persist

Seeing the US Federal Reserve avoid mentioning the timing for tapering its asset purchases and instead expressing concern for the risks to the economy from the Delta variant extends the bullish environment in equities for another month at least. The stubbornly high daily US infection counts are troublesome, but if infections plateau, it could be justification for sharp gains in equity prices. Democrats are progressing toward the largest spending bill in US history, and the Fed extending very low rates further into the future should embolden investors, particularly those influenced by the fear of “missing out.”

On the other hand, we could have moved into a situation where good economic data is bad news for stocks, particularly if the data comes in the form of a strong monthly nonfarm payroll reading. US scheduled data has settled into a pattern of mediocrity, and the special unemployment benefits largely remain in place until September. (Some states have already halted them.) Expectations for the August nonfarm payroll report scheduled for release on September 3 call for a jobs gain of 665,000, compared to 943,000 in July. If the report comes up short of expectations, it could be seen as another reason to delay tapering

From a technical perspective, the stock market has maintained a uniform uptrend channel, with periodic corrections balancing overbought conditions and prompting bargain-hunting. We would go as far as to suggest that the uptrend in the stock market since June 2020 has been the most uniform of any futures market over that period. The recent Commitments of Traders report showed the spec and fund net long in the S&P to be less than 100,000 contracts, leaving them with significant buying capacity. One could suggest that the E-mini-S&P is not even moderately overbought until the speculative traders are net long 250,000 contracts. Longer-term uptrend channel support in the September S&P is down at 4385.40, with closer-in support seen 4469.00 and upside targeting at 4600.00.

e-mini s&p 500

Originally Published on August 27, 2021

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