Last week, as expected, Bears were able to break below 214 and that triggered the next wave of selling. We then hit our September low target. This week, bear’s must do more. If we do not break last week’s low, we could be looking at a double bottom here. Bulls could then push to a new high. However, we currently think 210 will break before we see a new high.
Outflows have begun to slow a bit as the threat of an immediate hike has passed. (Also, on a long term view, not hiking now begins to increase chances of inflation down the line). It is clear that the market wants Hillary to win due to the status quo factor. A Trump win, which is less likely will be seen just similar to the Brexit vote by the market. Also, long term yields on bonds have begun to act differently than in recent years. This could be an issue if yield keep on quickly rising.
Again, we are in another blackout period. This cuts off one of the main sources of buying for the market. In 2016 this has not mattered as much as in the past due to the large inflow from Europe. However, since these inflows have weakened, the blackout is now having a larger effect this time around.
We saw about a 6-7 point drop in the last few weeks. Bulls still have a weak buy the dip card. This means there is a slightly better chances that bulls will buy this pullback. However, we think we first see a break of 210 back into the 2 year range. The key to find out if the bulls will be able use the card will be on how strong the selloff is into the range. The stronger the selloff into the range the better chances that the bear might be real.
Long-Term Market Outlook (Updated 9/5/16).
We are particularly interested in seeing raw economic data over the next few weeks. We have started seeing signs of some slowing in some of the data such as trucking and mortgages. We will look to see if that trend shows up in other data.
Trend Following Models:
My long term models are Bullish.
My medium term models are Bearish.
My short term models are Bearish but trending Bullish.