In my ‘Closing Bell’ article at the start of July, I wrote:
‘The dealers are closing long positions and adding to short positions. Leveraged funds are running away from the large short position they have been carrying and other market players have been short covering as well.
‘That makes me suspicious of the rally.
‘The S&P 500 is rallying into large overhead resistance so I reckon we will see a reversal fairly soon.
‘But that reversal hasn’t happened yet, and the weekly trend is up.
‘Until we see the selling emerge, I have to remain bullish on the S&P 500 in the short term.’
Fast forward to today, and the S&P 500 rallied for another month after I wrote that article, but in August, the expected selling erupted from the sell zone of last year’s correction.
I pointed out the weekly sell pivot to you a couple of weeks ago and said we should expect to see more downside in the short term.
Now that we are two years into this correction, we are getting closer to the end of the bear phase, but that doesn’t mean we won’t see another correction in prices in the short term.
The selling pressure is accelerating, and there is a good chance we see a monthly sell pivot confirmed at the end of August.
When a short covering rally runs out of steam, you can be surprised by how quickly prices fall back to Earth.
Bond markets around the world are seeing strong selling pressure, and 10-year bond yields are testing highs not seen in a decade in the US, UK, Germany, Japan, and Australia.
It’s clear that Chinese growth is struggling to gain much traction, and their property market is under pressure. Chinese import and export figures collapsed a few weeks ago, and they have lowered rates in a surprise move.
The yuan has been falling as a result, and the government has pressured banks to support the yuan in the last few days.
There is a chance that China will add to the selling pressure in US treasuries as they look to support the yuan.
Commodities have been selling off, with copper, gold, nickel, zinc, aluminium, iron ore, lithium, and rare earths all trending down.
Oil, gas, and uranium have been holding up well in the face of the onslaught, which hints that their path of least resistance may be up.
We are close to the weakest month of the year for stocks in September (the September effect), and the technical setup is flashing red, so I thought I’d give you a detailed look at the S&P 500 and S&P/ASX 200 in today’s Closing Bell video to prepare you for what may be coming.
In the Closing Bell video above, I show you the path markets could take if a sell-off takes hold and point out the areas where the buyers will probably step back in.
Until next week,
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Murray Dawes,
Editor, Money Weekend
