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Week Ahead: Fresh Catalysts Could Trigger Added Equity Market Volatility

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewSep 26, 2021 05:58AM ET
www.investing.com/analysis/week-ahead-fresh-catalysts-could-trigger-added-equity-market-volatility-200603081
Week Ahead: Fresh Catalysts Could Trigger Added Equity Market Volatility
By Investing.com (Pinchas Cohen/Investing.com)   |  Sep 26, 2021 05:58AM ET
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  • China’s Evergrande remains a threat to global markets
  • Analysts warn of market weakness ahead of historically most volatile month of the year

Expect markets to remain at last week's levels of raised volatility through at least the Sept. 30 government funding deadline if the US Senate vote on Monday doesn't enable the suspension of the debt ceiling. Should the motion not pass, it could force a government shutdown at the end of the month, weighing on stocks.

Still, even if US lawmakers are able to avert a shutdown, additional global equity market risk remains in play, fueled by China's heavily indebted real estate developer Evergrande (HK:3333) (OTC:EGRNY). The company missed a key, dollar-denominated, bond coupon payment on Thursday, leaving global investors even more jittery about the chances of a collapse of the Shenzhen-based property company—which many believe could start a cascading stock market tsunami.

A third potential market-mover could be Fedspeak, as Chairman Jerome Powell will testify before Congress on Tuesday, even as other policymakers are slated to speak at events throughout the week.

Rounding out the list of probable market drivers is next Friday’s Nonfarm Payrolls print, more than a week away but still a heavily watched, always anticipated critical monthly report that inevitably moves markets. As well, weekly COVID data is released every Friday, which could also affect traders.

October Effect About To Play Out?

The month of October is considered to be a time when stocks historically decline, giving rise to the term the 'October Effect.' As a rule, equities have been 36% more volatile than average in October, according to Sam Stovall, Chief Investment Strategist at CFRA. Stovall characterizes October as a “seismic month,” during which “volatility is higher...you have a greater number of pullbacks, corrections and bear markets that either start or end in the month.”

Stovall also points out that technical indicators are signaling distribution—a term referring to selling by the 'smart money' to what's often referred to as 'dumb money,' creating a top—signaled as well by the fact that “many stocks are trading below their 200-day moving average.”

Only 59% of stocks on the New York Stock Exchange remain above their 200-DMA, or in an uptrend, according to wealth management company Wellington Shields. That's a bearish indicator, as breadth weakens.

In other words, major indices such as the S&P 500, Dow Jones and NASDAQ, are all up based primarily on gains by bigger, mega-cap companies, as participation slips, diminishing support. Wellington analysts noted:

“The rule is that when this 200-day number drops from above 80% to below 60%, it usually goes below 30%.”

Case in point: the S&P 500. The broad benchmark is showing cracks from a variety of angles. Remember, these analysts have been referring to individual stocks that are not keeping up with the overall index. Is this breakdown visible via the index itself, the face of the US stock market?

SPX Daily
SPX Daily

The SPX has fallen below the 50-DMA for the first time since Mar. 4 and touched the 100 DMA for the first time since Nov. 3, 2020. The price is now struggling to remain above the 50-DMA.

In other words, the index hasn’t maintained its rate of ascent since early November, and its next line of support may become the 100-DMA. That's a step down within the uptrend.

Should that fail, we’ll look for the 200-DMA—currently at 4,120—to be the next, and perhaps final, support line. Here's what the longer view is telling us:

SPX Weekly
SPX Weekly

Notice the breakdown in the Advance/Decline Line. It measures the breadth of the market meaning how many stocks rose, and how many fell.

The greater the number of companies participating in a rally, the more reliable it is. The fewer that take part...well, you get the picture.

What's patently clear is the negative divergence between market breadth, as measured by the indicator, and the price. The more the benchmark accelerated, the less successfully the indicator was able to keep pace, going back all the way to December.

As well, the A/D has found resistance by its previous support, suggesting it may yet drop further.

The Week Ahead

All times listed are EDT

Monday

7:45: Eurozone – ECB President Lagarde Speaks

8:30: US – Core Durable Goods Orders: expected to decline to 0.5% from 0.8%.

14:00: UK – BoE Gov Bailey Speaks

21:30: Australia – Retail Sales: seen to come in a bit higher, at -2.4%, from -3.1% previously.

Tuesday

2:00: Germany – GFK Consumer Climate: anticipated to have slumped to -1.8 from -1.2.

10:00: US – CB Consumer Confidence: to rise to 114.5 from 113.8.

Wednesday

10:00: US – Pending Home Sales: likely jumped to 1.3% from -1.8%.

10:30: US – Crude Oil Inventories: previous print came in at -3.481M bbl.

11:45: US – Fed Chair Powell Speaks

11:45: Japan – BoJ Governor Kuroda Speaks

21:00: China – Caixin Manufacturing PMI: forecast to edge up to 49.6 from 49.2.

Thursday

2:00: UK – GDP: expected to remain flat at 4.8% MoM, 22.2% YoY.

3:55: Germany – Unemployment Change: predicted to rise to -35K from -53K.

8:30: US – GDP: seen to stay at 6.6% QoQ.

8:30: US – Initial Jobless Claims: forecast to fall to 328K from 351K.

19:50: Japan – Tankan Large Non-Manufacturers Index: predicted to jump to 3 from 1.

Friday

Markets in Hong Kong, China closed for holidays

3:55: Germany – Manufacturing PMI: predicted to remain flat at 58.5.

4:30: UK – Manufacturing PMI: expected to remain unchanged at 56.3.

5:00: Eurozone – CPI: seen to have moved higher, to 3.3% from 3.0% YoY.

8:30: Canada – GDP: forecast to drop to -0.2% from 0.7% MoM.

10:00: US – ISM Manufacturing PMI: to edge down to 59.5 from 59.9.

Week Ahead: Fresh Catalysts Could Trigger Added Equity Market Volatility
 

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Week Ahead: Fresh Catalysts Could Trigger Added Equity Market Volatility

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Comments (16)
Doug Favell
Doug Favell Sep 26, 2021 7:15PM ET
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Once it establishes below 4330, we’ll see 3850-4050.
Thachappully Aravind
Thachappully Aravind Sep 26, 2021 3:49PM ET
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Your posts gives an overall picture about the global market.. I trade in only Indian market still these inputs are so reflexive. Great.. I have been watching your posts for almost a month now. So helpful.. Thank You..
Gilead Taylor
Gilead Taylor Sep 26, 2021 3:49PM ET
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Hello
Hello Georgy
Hello Georgy Sep 26, 2021 3:36PM ET
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First time follower of your post. Your article presents the most logical analysis of the state of the market. Great work.
Gilead Taylor
Gilead Taylor Sep 26, 2021 3:36PM ET
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hey guys
Waqar Aslam
Waqar Aslam Sep 26, 2021 1:16PM ET
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Thanx👍
William Bailey
William Bailey Sep 26, 2021 12:49PM ET
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Yep, cc has run dry and defaults will result! Free credit os over!!
David Smith
David Smith Sep 26, 2021 12:49PM ET
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I wouldn't be so sure about that.
Jayson Segovia
Jayson Segovia Sep 26, 2021 12:01PM ET
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Appreciate your market outlook. Thanks
Optimum integrated Services
Optimum integrated Services Sep 26, 2021 10:53AM ET
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I appreciate
Shahid Ahmed
Shahid Ahmed Sep 26, 2021 10:27AM ET
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I appreciate outlook.
Rajen Doshi
Rajen Doshi Sep 26, 2021 10:14AM ET
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excellent summarization!!
Pinchas Cohen
Pinchas Cohen Sep 26, 2021 10:14AM ET
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Thank you, Rajen!
Honest Abe
HonestyPays Sep 26, 2021 10:10AM ET
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are good payroll numbers good or are they bad? conversely are bad numbers good or are they bad? these last 18 months 18 months have definitely defied logic..
Nick Burns
Nick Burns Sep 26, 2021 10:10AM ET
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yes
Pinchas Cohen
Pinchas Cohen Sep 26, 2021 10:10AM ET
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You're right. The market is fickle. In a normal economy, good is good and bad is bad. However, QE messes all that up.
Akbar Karimi
Akbar Karimi Sep 26, 2021 9:49AM ET
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So market will remain volatility until November!
Nick Burns
Nick Burns Sep 26, 2021 9:49AM ET
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or always
Pinchas Cohen
Pinchas Cohen Sep 26, 2021 9:49AM ET
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Nick Burns  If the market will always remain volatile, that will be the new norm and won't be considered volatile.
Mario tragik
Mario tragik Sep 26, 2021 9:31AM ET
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I don't see the payrolls listed in the event calendar mmm
Pinchas Cohen
Pinchas Cohen Sep 26, 2021 9:31AM ET
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It will be posted on the 8th https://www.bls.gov/schedule/news_release/empsit.htm
Andrew Bevan
Andrew Bevan Sep 26, 2021 9:30AM ET
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This could prove to be good reasoning. Thanks for the overview. 👍
Ron Love
Ron Love Sep 26, 2021 9:03AM ET
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Max doom 24-7
Pinchas Cohen
Pinchas Cohen Sep 26, 2021 9:03AM ET
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I didn't say to buy canned food and guns, did I?
Nick Burns
Nick Burns Sep 26, 2021 9:03AM ET
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Pinchas Cohen but if you were which can foods and which guns? lol
Pinchas Cohen
Pinchas Cohen Sep 26, 2021 9:03AM ET
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Nick Burns  Pink salmon cans. High on fat and protein. I know nothing about guns. I guess I won't stand a chance. I do think that swords will come back, though.
jason xx
jason xx Sep 26, 2021 8:21AM ET
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What # is the 100 day on spx you are referring too and what time frame?
Show previous replies (1)
jason xx
jason xx Sep 26, 2021 8:21AM ET
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Yeah but if you do a 200 day moving average on a daily chart it's different than it would be on a weekly chart isn't it?
jason xx
jason xx Sep 26, 2021 8:21AM ET
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So break of the 100 day below 4337?
Mario tragik
Mario tragik Sep 26, 2021 8:21AM ET
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the moving average is 200 "daily" means the daily chart. remember the indicator measures period depending on time-frame you're in. 200 ma in a weekly is last 200 weeks, 200 ma in a daily 200 days, 200 in an hourly chart is the last 200 bars .. or hours etc.
Pinchas Cohen
Pinchas Cohen Sep 26, 2021 8:21AM ET
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jason xx  as Mario already pointed out to you, "day" is part of the name, Jason. By the way, there is no significance for a 200 ma on an hourly chart. These MAs are not magic. They have historical reasons for being what they are, specifically.
Nick Burns
Nick Burns Sep 26, 2021 8:21AM ET
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Mario tragik ma's are also psychological reference s some traders like to use to see if they are support or resistance kind of things
Manuel Lera
Manuel Lera Sep 26, 2021 8:04AM ET
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Nice review as usual, Thanks! Did you miss listing Friday payrol?
Pinchas Cohen
Pinchas Cohen Sep 26, 2021 8:04AM ET
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Thanks, Manuel. No.
Cali Salaan
Cali Salaan Sep 26, 2021 8:04AM ET
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Calisalaan
 
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