Weekend Stock Market Analysis – September 24, 2021

This week’s market analysis comes to you from 35,000 feet

I booked a flight during my usual recording time and I was planning on making the market analysis video later in the weekend, but I decided to change things up and use the flight time to write a blog post for this week’s coverage.

For routine viewers of our Market Analysis Videos, you should recognize all of the data tables below and as a helpful tip you can click on any of these images to zoom in and get a closer look. For each image, I give my thoughts in a couple of sentences below.

Enjoy!

It was a volatile week of trading and the “big surprise” was how we started off the week with a sizable gap down and more selling pressure. The pattern the market has gotten us accustomed to in 2021 has been to bottom during option expiration week, but we put a little more strain on the bulls this time around.

The good news is, dip buyers ultimately did step up and stabilize us as the week progressed and the VIX which opened up at nearly 30 ended the week in the teens, some 38% off its highs. We also saw interest rates creep up and the 10 year yield start to breakout.

We can see performance was mostly green across the major averages with the Nasdaq 100 lagging behind its peers by roughly 50bps.

The bad news is market internals remain weakly bullish.

The good news is, market internals remain weakly bullish, and they never fully flipped into bearish mode (the way we measure them) even despite the rough start to this week.  You’ll also notice that even though we did recover as the week progressed we still only have 42.37% of S&P500 stocks above a 20SMA.

The trend in 52-week highs-lows is choppier and more sideways, but like we mentioned above, it hasn’t yet turned down. My attention will be on this chart as we head into month end.

The big standout once again was energy stocks making the top performing sector on the week. It was followed by financials and technology, which makes a nice trio of risk appetite.

In the red this week, from best to worst, was healthcare, consumer staples, communication services, utilities, and real estate.

In our 10-day correlations grid we can see the story continues to be about the US Dollar. The strong inverse correlation between what the Dollar is doing and how equity market averages behave continues to persist. We also saw correlation of Bitcoin to the stock market averages weaken substantially and actually start to move inverse to one another.

VIX term structure looks a lot healthier this Friday as we’re back below 20 and well off the highs of the week. We’ll talk more about the VIX later in this blog post.

One of the big takeaways from this week’s action was interest rates and the breakouts we are starting to see, particularly in the short to mid durations. Most of these markets have been pretty choppy and lackluster in recent weeks but now they seem to be waking up. Let’s pay attention into month end to see if we get follow-through in interest rates.

Also notable, take a look at the LQD and JNK bond funds both closing in the red this week. On top of that, if you look at their weekly ranges, you’ll notice their closes were near the mid/lows of the week rather than the highs. Let’s keep an eye on these funds as well into month end to see if weakness continues.

The US Dollar closed the week higher but not by a significant amount. Oil and natural gas remain strong and notice the breakdown we got in Bitcoin this week moving all the way down to re-test the key psychological 40,000 zone.

Overall dip buyers did come to the rescue and save this market inching out a lot of green checkmarks this week. However, some of these bullish ratings are on thin ice and we also discussed the warning signs out of the credit funds we watch.

Both of our trading systems started off the week fully invested so naturally they got hit hard along side of the major averages. However, as the week progressed, so did their positive performance. We saw our short-term trading system Lamorak, begin to reduce exposure as the week went on, and even rotated into a few defensive areas of the market like utilities.

If you want to streamline your trading, or just need some help navigating these waters, check out our Trading Systems page to learn more about our strategies. We offer 14-day free trials and we post the performance of both systems every single month for you to look through.

Part 2: Trend analysis and sectors of industries of interest

If we take a look at our weekly trend model for the major averages we can see there was only change this week and it was the S&P500 downgraded from bullish to neutral. This is the first time we’ve seen the S&P500 transition lower all year long so this is notable, however not yet run for the hills, until we see a transition down to bearish.

In other news, the Russell 2000 remains in our neutral and choppy outlook just like it has nearly all year long.

These Smart Trend Filters are available for purchase if you are a Worden TC2000 or TradingView user, so click on those links if you want to get them on your platform to analyze stocks and ETFs.

Looking at our daily trend models you can see things are a lot more choppy or downright bearish across the major averages. Most of these markets started the week in neutral territory and remained there or flipped down.

I wanted to highlight the VIX chart because I think the move was quite notable. There was a lot of fear as equity markets opened this week significantly lower, but fortunately, the collapse here in thee VIX and close at the lows of the week is a good sign for the bulls and might even suggest the worst is behind us, at least for now.

For your own observations I included our usual sectors and industries of interest. In the top left you can see the list of bullish stand outs and in the bottom left you can see those that are notably bearish.

Have a great weekend!

It was a busy week out there with lots of markets moving but hopefully these charts and analysis gives you a little context and roadmap of what to pay attention to looking ahead. If I had to sum it all up in a sentence, I’d say the action was constructive to see bulls stepping up, VIX collapsing, and breadth eeking out slightly positive levels throughout.

However, if we see credit markets continue to weaken, breadth deteriorate, or an explosive move in interest rates, these could all derail the current recovery attempt and cause further weakness.

I’m not necessarily planning on continuing our usual market analysis in blog post form, but if you do have any thoughts or opinions on this format, please leave a comment below and let me know.

Have a great weekend and we’ll be back in action next week with our usual content line up and schedule.

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