At the breakpoint ahead of Jackson Hole

As we wrote last week, there was a set-up for a downturn, and it has come with a vengeance. Indeed, markets are now at a breaking point. This means that the Fed conference at Jackson Hole on 26 August will be particularly important. It doesn´t really matter what they say at the conference. It is the reactions of the market that are decisive.

Many probably still believe that the efficient market hypothesis is valid, i.e., that markets reflect all available information at any given moment.

https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp

However, this a typical academic theory that few people working in the market believe in. All information is not at all disseminated in the markets. It is themes, trends as well as supply and demand that drives the prices of individual stocks. Moreover, since 2008, central bank support purchases have created excess liquidity in the markets, completely disrupting the price picture and thus destroying the hypothesis of efficient markets.

Central banks have also become obsessed with market movements. They have long had their own trading rooms and are following what is happening extremely closely, both through the investment banks’ trading desks and analysts, but also through their own resources. You can get a little insight here:

https://wallstreetonparade.com/2021/08/the-new-york-fed-is-not-the-only-place-obsessed-with-market-intelligence-gathering-the-u-s-treasury-does-the-same-thing-in-a-secure-markets-room/

There is no point in collecting information if you are not prepared to act on it, as we assume central banks do.

Once the conference at Jackson Hole gets underway, expect a couple of days of wrestling between the wills of the market. But as the market weighs in on technical nodes, the impact could be all the greater.

As shown in the graph below, the rising trend in the S&P500 index is now being tested. Note the nice bounce on Thursday-Friday August 19-20 on the rising lower trend line. Both the MA20 and EMA9 managed to resume, providing a weak buy signal.

S&P 500 index from January 4^th to August 20^th, 2021

Zooming in on the 60-minute-chart, we see that the bounce ended exactly at 61.8% Fibonacci. This means that the bulls have not yet managed to take control. Today’s opening could be very dramatic!

S&P 500 index from July 21^st to August 20^th, 2021

S&P 500 index, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

Tech stocks have become a little more popular in recent days. Maybe the falling interest rates has something to do with that. Tech-heavy Nasdaq also outperformed the broader S&P 500 index during Friday 20 August.

Nasdaq 100 from January 4^th to August 20^th, 2021

However, in the one-hour graph below, one can see how 61.8% Fibonacci has been regained. Bulls can thus be viewed as being in control.

Nasdaq 100 from July 22^nd to August 20^th, 2021

Nasdaq 100, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

One stock that has regained energy is Microsoft following the announcement that the company intends to raise prices on the MS Office family.

https://www.economywatch.com/news/microsoft-stock-up-7-in-august-time-to-buy-msft/

During Friday’s trading, the share gapped up. The question is if traders will close the gap or if an upside persist. See graph below:

Microsoft share price graph from January 4^th to August 20^th, 2021

Microsoft, weekly five-year share price graph

Note: Past performance is not a reliable indicator of future results.

Microsoft is also clearly outperforming the FANG-shares. Amazon is clearly under pressure trading just below Fibonacci 61.8 around the psychologically important 3 200 USD-level. See graph below. RSI is on oversold levels. However, stand alone oversold is not a signal to buy in. A more interesting opportunity may appear if EMA9 and MA200 (3 258 USD respectively 3 277 USD) can be regained.

Amazon share price graph from January 4^th to August 20^th, 2021