Geopolitics are back in focus on this first trading day of September. North Korea's push forward with another test on the nuclear front over the weekend caused U.S. Ambassador Nikki Haley to suggest that Kim Jong Un is "begging for war." And given that South Korea is saying that the North is prepping to launch an intercontinental ballistic missile, the situation appears to be heating up. In response, the U.S. is looking to hit Un's regime with even tougher sanctions via the U.N. In addition, it will be a busy week of "Fedspeak" with U.S. Federal Reserve officials Lael Brainard, Neel Kashkari, Robert Kaplan, and Bill Dudley (all voting members of the FOMC) slated to speak and the ECB meeting on Thursday. All of which is occurring as we enter what has historically been the weakest month of the calendar.
But before we get carried away with speculation of what might come next, let's turn our attention to our objective review the key market models and indicators and see where things stand. To review, the primary goal of this weekly exercise is to remove any subjective notions one might have in an effort to stay in line with what "is" happening in the markets. So, let's get started.
The State of the Trend
We start each week with a look at the "state of the trend." These indicators are designed to give us a feel for the overall health of the current short- and intermediate-term trend models.
The State of Internal Momentum
Next up are the momentum indicators, which are designed to tell us whether there is any "oomph" behind the current trend...
The State of the "Trade"
We also focus each week on the "early warning" board, which is designed to indicate when traders may start to "go the other way" -- for a trade.
The State of the Macro Picture
Now let's move on to the market's "external factors" - the indicators designed to tell us the state of the big-picture market drivers including monetary conditions, the economy, inflation, and valuations.
The State of the Big-Picture Market Models
Finally, let's review our favorite big-picture market models, which are designed to tell us which team is in control of the prevailing major trend.
The keys this week are (a) the trend and momentum indicators have improved a bit but are nowhere near robust, (b), rates continue to be a tailwind for this market, (c) seasonality clearly favors the bears, (d) valuation levels suggest risk is high, (e) event risk remains, and (f) it's a bull market until proven otherwise.
Publishing Note: I am traveling with early commitments the rest of the week and will publish reports as my schedule permits.
Thought For The Day:
To be old & wise, you must first have been young & stupid. -Unknown
Current Market Drivers
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of Geopolitics
2. The State of the Economic/Earnings Growth (Fast enough to justify valuations?)
3. The State of the Trump Administration
4. The State of Fed Policy
Wishing you green screens and all the best for a great day,
David D. Moenning
Chief Investment Officer
Sowell Management Services
Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.
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