'Natural Period Of Consolidation': Stock Market Update For The Week Ahead

The Past Week, In A Nutshell

What Happened: Last week ended negative with mega-cap and technology stocks regaining strength into week-end.

Remember This: “Markets had embedded substantial optimism in early September, with the valuation of the S&P 500 at the highest level in 20 years and sentiment at extreme highs, setting the stage for a natural period of consolidation,” noted Mark Hackett, chief of investment research for Nationwide.

"Investors are now struggling to find a positive catalyst, as the prospect for fiscal stimulus fades, economic data begin to reflect rising coronavirus cases and earnings season remains a month away.”

Pictured: Profile chart of the Micro E-mini S&P 500 Futures

Technical

Broad-market equity indices ended lower with the S&P 500 correcting as low as $3,200.

Recapping Last Week’s Action: Monday's test of the $3,200 high-volume area offered responsive buyers an opportunity to get in at favorable prices. Buying continued through Tuesday, before resisting an area of resting liquidity at $3,300.

After disappointments in business activity data and stimulus talks, on heavy-volume and supportive delta, Wednesday's liquidation erased the entire week’s gains. Alongside improvements in home sale data, buyers in mega-caps and technology led the market higher, through Friday's close, away from value.

Overall, in the bigger picture, the market is churning above $3,200, the site of a large high-volume area that denotes the market’s recent perception of value. When prices trade to a high-volume area, on a swing-up auction, then trade should slow allowing responsive longs a good place to enter. Should prices trade and spend time below this area, then perceptions have changed and longs are no longer favorable, at least in the near term.

Scroll to the bottom for non-profile charts.

Fundamental

John Authers, a Bloomberg columnist, suggested gold is falling due to a rise in real yields.

“When real yields rise then gold, which pays no income, can be expected to fall. This is true even if real yields are rising from deeply negative territory. To explain the intuition behind this, gold is widely regarded as a hedge against central banking irresponsibility. Recent speculation is that the Fed may not print money and cut rates with quite the gay abandon that had been assumed. This may or may not be good news for the U.S. economy, but it raises real yields and for investors in gold and in risk assets, who might benefit from currency debasement, it is definitely bad news.”

Simply put, the theory that the Federal Reserve exhausted itself has buoyed real yields, which have an inverse relationship to metals.

Key Events

Monday: Fed Mester Speech.
Tuesday: Goods Trade Balance, Fed Williams Speech, Fed Harker Speech, CB Consumer Confidence, Fed Williams Speech, Presidential Debate.
Wednesday: MBA Mortgage Applications, ADP Employment Change, GDP Growth Rate, Core PCE Prices QoQ Final, Corporate Profits, GDP Price Index, PCE Prices QoQ Final, Pending Home Sales, EIA Cushing Crude Oil Stocks Change, EIA Distillate Stocks Change, Fed Kashkari Speech, Fed Kaplan Speech.
Thursday: Core PCE Price Index YoY, PCE Price Index YoY, Continuing Jobless Claims, Core PCE Price Index MoM, Initial Jobless Claims, Jobless Claims 4-Week Average, PCE Price Index MoM, Personal Income MoM, Personal Spending MoM, Markit Manufacturing PMI Final, ISM Manufacturing PMI, Construction Spending MoM, ISM Manufacturing Prices, Fed Williams Speech.
Friday: Non-Farm Payrolls, Unemployment Rate, Average Hourly Earnings MoM, Average Hourly Earnings YoY, Average Weekly Hours, Non-Farm Payrolls Private, Participation Rate, Fed Harker Speech, Michigan Consumer Sentiment Final, Factory Orders MoM, Michigan 5 Year Inflation Expectations Final, Michigan Inflation Expectations Final.