The S&P and Nasdaq had their best week since November. We break it all down and give you the gameplan on what to look out for this week with Jackson Hole front and center, and where the E-mini S&P and E-mini NQ can go next.
E-mini S&P (September) / E-mini NQ (September)
S&P, last week’s close: Settled 5578.25, up 10.75 on Friday and 208.00 on the week
NQ, last week’s close: Settled at 19,605.75, up 24.50 on Friday and 989.75 on the week
The E-mini S&P and E-mini NQ secured their best week since November. Looking back, the roadmap we gave you played perfectly, but not even we could have predicted such a monster week. Soft earnings from big tech, a post-Fed reversal, news of Warren Buffett’s AAPL sale, and, of course, the Japanese Yen unwind had suffocated the risk appetite, and the result was a VIX spike through 50. As we noted at that time, such a Sunday night panic, like August 2015 and February 2018, has typically led to great opportunity. But where to now?
Jackson Hole highlights the week ahead and culminates in Fed Chair Powell’s keynote speech on Friday morning. Since that August 5th panic, we have gotten some decent economic data, and “good news” has been good for the market. Last week, calm inflation data was Goldilocks, allowing for the Fed to loosen policy but also not signaling an economic downward spiral; we believe inflation coming off extremely hard and showing disinflation would also be negative for the market, triggering recession fears. Thursday’s Retail Sales was surprisingly a blowout number and accompanied by an improvement in weekly Jobless Claims. With GDP hanging around 3.0% and the consumer showing signs of summer reinvigoration, there is no recession in sight. Additionally, with inflation confirming its downward trajectory and some holes poking in the labor market, the Fed can move ahead with rate cuts. The CME Group’s FedWatch Tool now shows four cuts this year with a 60.7% probability.
At the onset of this new week, and things seemingly Goldilocks, we must play devil’s advocate and ask ourselves how long this can last. The three themes we will be watching most closely are the E-mini S&P clearing its July 23rd gap. This is a level at 5599.25, where the market settled prior to GOOG and TSLA earnings, and was pinged briefly on the heels of the post-Fed strength on the August 2nd opening bell, but price action reversed dramatically. This level stands as rare major four-star resistance and is highlighted in our levels below. Next, despite political crosswinds in Japan, the Japanese Yen is again strengthening and again poses unwind risks if it continues. Lastly, due to the sharp rebound in risk sentiment and fear of the market’s reaction function, it is fair to believe Fed Chair Powell may not show his true hand on Friday, and this could be perceived as hawkish.
On the downside, any pullback must be received well against support aligning with Friday’s opening range and Thursday’s high-volume spike. It is perfectly normal to see some back-and-fill after such a strong finish to last week. Traders can use our Pivot and point of balance highlighted below as a marker to strength being surrendered. We will be watching major three-star support in the E-mini S&P at 5547.50-5551.75 most closely.
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