The Week Of Aug 21 - Aug 25: A 'Punchball Market'?

Introduction

What is the “Punchball"?

According to Wikipedia:

“Punchball is a sport spawned by and similar to baseball, but without a pitcher, catcher, or bat.

The "batter" essentially plays "fungo" without a bat, bouncing or tossing up the ball and then using a volleyball-type approach….in play, punching the ball with his fist. Base stealing and bunting are not allowed.

Popular in New York, especially among poor Jewish children who could not afford bats or baseballs, historian and baseball enthusiast Stephen Jay Gould referred to it as "the canonical recess game", and in The Boys in Summer baseball writer Roger Kahn described how when he grew up. it was a boy’s game,..

Baseball Hall of Famers Nick Hoffman, Sandy Koufax, and Yogi Berra played it growing up, as did sports team owner Jerry [R], educator Frank [M], Senator Bernie Sanders, and former US Secretary of State and general Colin Powell.

Major league outfielder Rocky [C], when asked if he played punchball, answered "Play it? Man, that was my game. I liked to play that more than anything else ... anything. We used to play for money, too. It was also a pastime of football announcer Al Michaels, who often played with former Chicago Bears quarterback Sid Luckman.” (Wikipedia)

What happened last week in the Stock Market

Last week from Aug 21 (Monday) to Aug 25 (Friday) was not a typical week: It was really looks like a "punchball" market, showing 1) Monday(Aug 21) positive+0.69, 2) Tuesday (Aug 22) negative -0.28, 3) Wednesday (Aug 23) Whoppingly Positive +1.10%, 4) Thursday (Aug 24) Enormously Negative -1.35%, and then 5) Friday (Aug 25, the last Friday in Aug) positive+0.67%.

Table 1 demonstrated that two camps, Bears and Bulls, had a very-close body-to-body combat for four weeks. The price range was wide from 4,582 on Jul 28 (Fri) to 4,370 on Aug 18 (Fri) (-6.8%).

The gyration was really dynamic: 1) the above 4,500 from 7/28 - 8/03, 2) below 4.500 on 8/04, 3) above 4,500 on 8/07 (Mon), 4) the 4,400 level from 8/08 - 8/16, 5) the 4,300 level from 8/17 - 8/22, 6) above 4,400, on 8/23, 7) below 4,400 on 8/24, and again above 4,400 on 8/25 (Fri).

The Bears' 3 weekly gain streak was snapped on Aug 25 (Fri), by Bulls’ gain (+0.82%) For 4 weeks from Jul 28 (Fri) to Aug 25 (Fri), The S&P 500 descent only less than 4% which was better than less than 5% a week ago.

As a consequence, we become more Bullish this week

What does the yo-yo type oscillation session by session imply?

If any investor observed the S&P 500 index last week during all sessions, she/he should be very excited more than any video games.

My contemplation is that both Bears and Bulls bring up all munitions and strategies to dominate the market at every session when the TDI (Trifecta Distribution Index) and the S&P 500 move in the completely opposite direction: The former has been in the more bearish road while the latter in the more bullish route.

If you want to view the definition of the TDI, the SDI, and the Paper-And-Pencil-Only (PPO), please click this.

The TDI Front

As shown in Table 2, the TDI Tp vs. Tm during seven months 2023 (Jan – Jul) was: Jan 12 vs. 7, Feb 7 vs. 7 (tie), Mar 12 vs. 5, Apr 6 vs. 4, May 8 vs. 6, Jun 12 vs. 3 (best), and Jul 11 vs. 4 (second best).

In Aug, however, the TDI Tp vs. Tm was as of 25 (Fri) was 5 vs. 10 (worst) as printed in Table 3. This is very unambiguous signal for a bear market. In Q2 (Jul & Aug 04 – 25), the TDI Tp vs. Tm was 16 vs. 14. So, it was near the bear surface, having only 2 points short.

If you want to reconcile Table 2 and Table 3 with their data, view Table 22 and Table 33 in “TABLEs” in the next of the main text.

The SDI Movement as of Aug 25

As of Aug 25, Table 4 reported that the SDI backed to the neutral zone, rising to 40% from 35% on Aug 22.

If you want to reconcile Table 4 with Jul data, view Table 44 “TABLEs” in the next of the main text.

The 5-months Old Uptrend as of Aug 25

Table 5 summarized that Bullish points vs. Bearish points was 19 vs. 20. Bears led 1 point. The remaining 4 sessions (Aug 28 - Aug 31), nevertheless, will determine the fate of the Current Uptrend.

Notice that Table 1 and Table 5 share the same data, the S&P 600 Index, but Table 1 is on the Weight (of the size of prices) Domain while Table 5 is on the PPO Domain.

Hence Two Tables displayed a Polar Case: Table 1 was very Bullish while Table 5 was very Bearish.

If you want to reconcile Table 5 with the July data, please view Table 55 in TABLES in the next the main text.

The secondary (supplemental) criterion, the Friday votes were in the Bears favor as Bulls vs. Bears was 4 vs. 8. But the 4 vs. 8 actually improved from 3 vs. 8 a week ago, adding 1 vote for Bulls on Aug 23 (FRI), as seen in Table 6.

As a result, the uptrend weakened, but was not toppled yet in Aug.

The Economy

As Reported on August 25 and 23:

“The stock market had its ups and downs today, [Aug 25, Friday], but ultimately, it finished the day in an upbeat manner that saw the major indices settle near their best levels of the session. The positive session, which came on another day of low volume, was in question shortly after Fed Chair Powell gave his much-anticipated speech at the Jackson Hole Symposium. There were some efforts to spin that speech as being more hawkish than expected as the market retreated into negative territory, yet the speech didn't contain any surprising revelations.

The Fed Chair stuck by the Fed's 2.0% inflation target; he reiterated that the process of getting inflation back down to 2.0% still has a long way to go; and he acknowledged that the Fed will raise rates again if it is appropriate. These are all things he said following the last FOMC meeting.

His concluding remark that the Fed "...will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data" was a bit of a sticking point for the market, not because of what it revealed, but because of what it did not say. Specifically, there was no mention here, or anywhere in the speech, that the Fed is thinking about cutting rates.

Again, though, following the July 25-26 FOMC meeting the Fed Chair said it is unlikely that the Fed would cut rates this year, so the omission of any rate-cut possibility in today's speech should not have been regarded as a truly hawkish omission.

Seemingly resigned to accept what it heard in the speech at its unsurprising face value, the stock market regrouped and got back on a winning track. It did so with the help of renewed buying interest in the mega-cap stocks and some generally broad-based buying interest that left all 11 S&P 500 sectors in positive territory by the closing bell.

The Invesco S&P 500 Equal Weight ETF (RSP) increased 0.5%; the Russell 3000 Value Index added 0.5%; and the Russell 3000 Growth Index rose 0.7%.

The best-performing sectors were consumer discretionary (+1.1%), energy (+1.1%), industrials (+0.9%), information technology (+0.8%), and utilities (+0.8%). Gains for the other sectors ranged from 0.2-0.6%.

The communication services sector (+0.2%) was a relative laggard but deserves some praise for rebounding from a 1.7% loss at its worst levels of the day.

Boeing (BA 223.42, +6.11, +2.8%) was the best-performing component in the Dow Jones Industrial Average one day after being the worst performing component in the Dow Jones Industrial Average. Today's turnaround was helped by a Bloomberg report that Boeing is getting ready to resume deliveries of its 737 MAX to China. 25 of the 30 Dow Jones Industrial Average components finished higher.

Away from the stock market, the Treasury market endured its own gyrations. The 2-yr note yield went as high as 5.10% before settling at 5.05%, up four basis points from yesterday's settlement. The 10-yr note yield touched 4.27% soon after Fed Chair Powell's speech but settled the day unchanged at 4.24%.

Strikingly, the low for the S&P 500 today coincided roughly with the 10-yr note yield hitting its high for the day.

Nasdaq Composite: +29.8% YTD S&P 500: +14.7% YTD S&P Midcap 400: +6.1% YTD Russell 2000: +5.2% YTD Dow Jones Industrial Average: +3.6% YTD (source)

Stocks had a strong showing today, [Aug 23] supported by a drop in market rates and strong mega caps. The major indices all closed with gains ranging from 0.5% to 1.6%, although volume was still light at the NYSE. Today's upside moves brought the S&P 500 back above 4,400, which acted an area of resistance yesterday.

Market rates started to move lower overnight in response to a batch of soft August PMI data out of Europe. Treasuries extended their rally following the release of some softening Manufacturing and Services PMI readings for the US after the stock market opened. The 2-yr note yield fell 11 basis points to 4.93% and the 10-yr note yield fell 13 basis points to 4.20%.

NVIDIA (NVDA 471.16, +14.48, +3.2%) was among the top performers from the mega cap space ahead of its earnings report after today's close. Apple (AAPL 181.22, +3.89, +2.2%) and Microsoft (MSFT 327.00, +4.54, +1.4%) also logged sizable gains on no news. Those moves helped to fuel a 1.6% gain in the Vanguard Mega Cap Growth ETF (MGK) and a 1.1% gain in the market-cap weighted S&P 500.

Market internals reflected fairly broad buying interest under the index surface. Advancers outpaced decliners by a 7-to-2 margin at the NYSE and a 2-to-1 margin at the Nasdaq.

Ten of the 11 S&P 500 sectors logged a gain led by information technology (+1.9%), which was boosted by its mega cap components. Communication services (+1.9%) was another top performer, drawing added support from a big gain in Netflix (NFLX 427.55, +14.38, +3.5%) after it garnered some supportive comments from Oppenheimer.

The energy sector (-0.3%) was the lone holdout in negative territory by the close.

Retailers headlined the earnings calendar since yesterday's close. Foot Locker (FL 16.64, -6.56, -28.3%) and Peloton (PTON 5.41, -1.58, -22.6%) sank following their earnings results and/or guidance while Abercrombie & Fitch (ANF 50.86, +9.69, +23.5%) registered an outsized gain after beating earnings estimates and raising guidance.

Nasdaq Composite: +31.10% YTDS&P 500: +15.5% YTDS&P Midcap 400: +6.9% YTD Russell 2000: +6.2% YTD Dow Jones Industrial Average: +4.0% YTD (source)

James Picerno posted as:

“This week's release of the PMI Composite Output Index, a GDP proxy, indicates that US growth slowed to a crawl this month. .

PMI survey data is hardly the last word on economic activity for any one month, but the latest numbers certainly make a case for managing expectations down for some of the more robust estimates for Q3 until we see more hard data for August. Notably, the Atlanta Fed's current nowcast for Q3 is a red-hot 5.9% increase for GDP, based on the GNPNOW Model as of Aug. 24. The latest PMI update…certainly presents a sharp contrast to the opposite extreme.

As usual, focusing on any one data point tends to be misleading and so our best guestimate, as always, remains the median nowcast. By that standard, there's still a solid case for expecting that Q3 economic activity will post growth in line with the previous quarter.

There are still two months to go before the U.S. Bureau of Economic Analysis publishes its initial Q3 GDP data on Oct. 26. For the moment, the median nowcast suggests that the recent trend of moderate growth continues. If and when there's a convincing case for revising that estimate, up or down, we'll see it in changes to the median estimate.

(From “U.S. Economic Data Still Point To Moderate Growth For Q3“, Aug 25, 2023)

The Conclusion

The economy (the S&P 500, SPY) has strengthened last week, and the SDI got back to the neutral zone (40%), but the 5-months old Uptrend was shaken.

Although the TDI still in the very near distance from the bear surface, the market, in my opinion, is favorable for bulls in the remaining 4 sessions (Aug 28 - 31), and in the coming 4 months (Sep, Oct, Nov, and Dec) in 2023.

TABLES