October 15, 2021
Good morning,
It looks like JPM’s earnings release Wednesday morning was a bit of a leading indicator for the group as hinted in Wednesday’s “maybe” note. On the heels of yesterday’s earning’s numbers from the broader group of financials (and others), the equity market staged one of its better rallies – the S&P 500 closed on its daily high (always a positive) and up +1.71% on the day. Was yesterday’s rally the B-side of volatility again? No one knows for sure but I lean toward … not this time.
As the overnight trading session concludes this morning, yesterday’s rally is carrying over – Futures are up 15pts or .35%.
It cannot be known if equity investors have fully priced in the slew of recent concerns ranging from rising energy prices and bond yields, to supply chain disruptions and inflation, to economic slowing and lingering COVID worries. If so, then the correction from excessive optimism is complete, and major equity indices globally will reach secondary highs above their mid-September highs on their way to new records, with rising moving averages and broadening participation. If they haven’t, then the sentiment indicators will reflect new extremes in pessimism, the benchmarks will return to lower lows, and their 50-day moving averages will indicate decisive downtrends.
Yesterday’s rally was accompanied by a strong shift in short-term sentiment from deeply pessimistic (oversold) levels. Without getting more technically geeky than that, the balance of technical/quantitative evidence still leans toward a positive outcome to our Sep/Oct correction, expecting a year-end rally. A few days of follow through would be a good market tell that we’re already there. We shall see.
Have a good weekend.
Be well,
Mike