• S&P 500 still at all-time highs
  • Crude oil continues to find buyers
  • Gold crushed
  • Bond markets sold off

Lately, we have seen more of a “risk-on” type of trading environment. The marketplace tends to move in highly correlated fashions, so keeping an eye on this can help trading, regardless of which market one specializes in.

For example, the USD/JPY pair is a highly sensitive currency pair when it comes to risk appetite. It tends to rise when traders are willing to take a bit more risk, as the Japanese yen is considered to be a major “safety currency”.

Stock markets

The global markets, as far as equities are concerned, have been doing quite well. It’s no secret that the United States stock markets have been very positive for some time, but we are starting to see some signs of hope in Asia as well.

the S&P 500, one of the major benchmarks for traders around the world, is still close to the all-time highs

In China, it looks as if the stock market is getting ready to break out, which would be a major boon for a “risk-on” type of trade going forward. That being said, the S&P 500, one of the major benchmarks for traders around the world, is still close to the all-time highs. Therefore, it has to be looked at through the prism of healthy earnings through that index.

Crude oil

The crude oil markets are all over the place, but when seen from a longer-term perspective, they are simply consolidating. Using the West Texas Intermediate Crude market as a benchmark, it’s plain to see that the market is hanging about between the $50 level on the bottom and the $60 level on the top.

This is typical behavior for the crude oil market as it does tend to be very technically driven. But at the end of the day, what it does show is that there are numerous headwinds and tailwinds at the same time out there for the global economy.

While the market is somewhat consolidating, what it tells us is that there isn’t exactly panic out there. Considering the oversupply of crude oil, that’s pretty significant as we are treading water.

Gold

The gold market has been sold off rather drastically. This is probably the biggest “risk-on” type of signal that has been shown in the marketplace lately. By selling off the way it has, it shows that traders aren’t trying to find as much in the way safety as they had been previously.

Granted, gold markets are still in an uptrend, but they certainly have taken quite a bit of a break recently, reaching as low as the $1450 level again.

Bonds

Bond markets in the United States have sold off quite drastically recently too. That, of course, is a very good sign for risk appetite as well. Bonds are considered to be the “de facto risk-free asset” for the world, as as long as the US treasury market continues to find sellers, that’s an excellent sign of potential “risk-on” trading.

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  • S&P 500 shoots higher after FOMC
  • Pulls back early on Thursday
  • Still in major uptrend

The S&P 500 has pulled back during trading on Thursday, reaching down towards the 3030 level. At this point, the market has taken back a lot of the gains during the training session on Wednesday.

Keep in mind that the jobs number comes out on Friday, as that is going to have a monumental influence on this market. With this being the case, it’s very likely that the value hunters will start to appear, especially if the jobs number looks relatively good.

Federal Reserve

The Federal Reserve released its interest rate statement yesterday, and while the market had already priced in the idea of the 25 bases point cut, it was the statement that was crucial. The statement suggested that the Federal Reserve was possibly on the sidelines for a while, and although it was implied that rate cuts weren’t coming anytime soon, the door was left open in case the data did warrant that type of action.

This has been exacerbated by the advent of so-called “passive investing” as large funds are starting to jump into ETF markets

Remember, the S&P 500 and the stock markets in general move on liquidity measures by the Federal Reserve, and not necessarily earnings, like they used to. This has been exacerbated by the advent of so-called “passive investing” as large funds are starting to jump into ETF markets.

As long as the Federal Reserve seems willing to keep an easy monetary policy, that should continue to drive the market higher. That doesn’t mean there won’t be the occasional pullback, but the Federal Reserve has essentially been “trained” recently that they can’t tighten monetary policy anytime soon. This was due to the massive sell-off in December in reaction to the slightest hint of hawkish behavior from Jerome Powell.

Technical analysis

Dec. 2019 S&P 500 futures

The technical analysis for the market continues to show a bullish uptrend, as the 50-day EMA is starting to curl much higher. The 200-day EMA has offered significant support every time the S&P 500 E-mini contract has reached towards it, and therefore it looks as if traders continue to find dips as potential buying opportunities.

The 3000 level is the “point of control” over the last 30 days. This is an area where we have seen the most amount of trading, meaning it should continue to offer support. This major area of interest has the most probability of showing buying pressure.

Beyond that, the beginning of the “value area” starts at the 3010 level, which is the beginning of 70% of volume. In other words, there is a lot of water flow underneath it should continue to send this market to the upside.

The 3050 level above continues to be an area of resistance as it was the most recent high, and it should continue to be broken to the upside. After all, the biggest move lately was very impulsive and bullish.

It’s very likely that an initial “knee-jerk reaction” to a jobs number could be an opportunity to buy this market at lower levels.

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  • Federal Reserve likely to be accommodating
  • On the verge of major breakout
  • Volume profile suggests several support areas

The S&P 500 E-mini contract is currently testing the highs again, after initially dipping overnight. This was the same story that was seen ahead of the Federal Reserve statement. Now that that is out of the way, traders will start to focus on fundamentals and then liquidity measures after that. Jerome Powell made it very clear that the Federal Reserve was watching the markets, and traders will take a certain amount of solace in that idea.

Volume profile

sp500 contract

S&P 500 September contract

The volume profile suggests that over the last 30 days, the most volume has been at either end of the 2980 level, or below at the 2940 level. There had been a significant amount of resistance at the 2940 level previously, but now that the market has cleared that area, it should act as support.

The 2980 level has offered support several times over the last ten trading sessions or so, as the price level was previously showing resistance. As the volume profile extends out further in that area, it shows that there is obviously quite a bit of interest in that region. Simply put, the volume profile over the last 30 days suggests that there are buyers at both of these levels.

Federal Reserve to elevate market

The stock market loves low rate environments. This is because traders will be forced to find yield in equities instead of bonds. If the “risk-free rate” is extraordinarily low, like it has been for the last ten years, then treasuries offer very little as far as appeal is concerned. Beyond that, the Federal Reserve looks ready to step in and do what it can to elevate the markets.

While the interest rate cut was only 25 bps, the reality is that the Federal Reserve also left the door open to further cuts. That’s exactly what the stock market wants to hear. Beyond that, we are on the verge of breaking the highs again. This isn’t necessarily what one would expect, based on some of the extraordinarily bearish rhetoric that has made its rounds lately.

The trade going forward

The trade going forward in this market is quite simple: buying the dips continues to work. The 3000 level will offer some psychological support, as it is a large, round, psychologically significant whole number. Below there, the two support levels come into play. It isn’t necessarily a case of the market exploding to the upside and continuing to go forward, but it certainly looks as if pressure is building for such a type of move to happen. Do not be surprised if it takes a couple more attempts, but short-term traders can continue to look for value on these pullbacks, as it seems as if momentum is bullish.

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  • 130,000 jobs added for month of August
  • private payrolls add 96,000
  • median estimate 150,000

The United States released its monthly job report on Friday, announcing an addition of 130,000 jobs for the month of August. This was slightly lower than anticipated, as the median consensus by most analysts around the world expected a gain of 150,000. Beyond that, the previous couple of months were guided lower as revisions came out. All things being equal, there are a couple of things to pay attention to.

Digging through the numbers

Digging through the numbers shows quite a bit of stability, even though we did miss for the month of August. The average monthly jobs gain number at this time of the year is 150,000, which is considerably lower than the 223,000 level in 2018. At this point, we have had enough hiring to keep the labor force in line with population growth. The United States is currently at extreme lows that have not been seen since the 1960s.

The private payrolls rose by 96,000, which is a three-month low. This is quite concerning, especially when you take into account that 25,000 temporary government workers were added for the 2020 consensus. That does mean jobs will disappear in a few months, so they can only be taken with a grain of salt. However, there were some silver linings. For example, there was a rebound in the workweek length, and at least a halt in the falling of income growth. This helps the idea of workers spending more money, which is a major driver of the US economy.

The participation rate of the working-age people in the labor force has increased to 63.2%, which is a healthy sign for the US economy as well. Ultimately, with baby boomers retiring, it makes sense that the labor force is starting to shrink a little, while at the same time we are starting to see a demand for hiring at relatively all-time highs.

Reaction in the market

The reaction in the market was that the equity markets rose, albeit somewhat slowly. We continue to see a lot of bullish pressure and risk appetite, although we are reaching fairly high levels. The 3000 levels in the S&P 500 will attract a lot of attention, but the recent breakout of consolidation measures for a move to 3100. As long as the job numbers continue to look relatively healthy, there’s no reason to believe that the S&P 500 won’t reach that level, given enough time.

Precious metals took a hit as they are probably exhausted at this point. After going straight up for several weeks, it’s perhaps time that they pulled back to offer a value proposition for those who have missed out. All things being equal, it looks as if a “steady as she goes” type of market is starting to present itself for traders in the month of September.

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