Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Week Ahead: Fresh Catalysts Could Trigger Added Equity Market Volatility

Published 09/26/2021, 05:58 AM
Updated 09/02/2020, 02:05 AM
  • 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

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

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.

Latest comments

Once it establishes below 4330, we’ll see 3850-4050.
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..
Hello
First time follower of your post. Your article presents the most logical analysis of the state of the market. Great work.
hey guys
Thanx👍
Yep, cc has run dry and defaults will result! Free credit os over!!
I wouldn't be so sure about that.
Appreciate your market outlook. Thanks
I appreciate
I appreciate outlook.
excellent summarization!!
Thank you, Rajen!
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..
yes
You're right. The market is fickle. In a normal economy, good is good and bad is bad. However, QE messes all that up.
So market will remain volatility until November!
or always
 If the market will always remain volatile, that will be the new norm and won't be considered volatile.
I don't see the payrolls listed in the event calendar mmm
It will be posted on the 8th https://www.bls.gov/schedule/news_release/empsit.htm
This could prove to be good reasoning. Thanks for the overview. 👍
Max doom 24-7
I didn't say to buy canned food and guns, did I?
but if you were which can foods and which guns? lol
 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.
What # is the 100 day on spx you are referring too and what time frame?
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.
 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.
ma's are also psychological reference s some traders like to use to see if they are support or resistance kind of things
Nice review as usual, Thanks! Did you miss listing Friday payrol?
Thanks, Manuel. No.
Calisalaan
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.