Weekly Economic and Stock Market Commentary – September 14, 2020
As for the stock market specifically:
The Nasdaq Composite entered the level known as a correction last week, meaning that it fell more than 10% from a recent high. For the week, the Nasdaq Composite fell more than 4%. The other domestic market averages fell multiple percentage points, too. Believe it or not, international markets turned in a gain last week.
Nothing came to me last week with suggesting there was anything particularly wrong with technology stocks.
The simplest explanation I have is my metaphorical spring was stretched too far in the “buy” direction. As of Wednesday’s close, the level was overbought at the 55% level. And as of Friday’s close, the spring was in the neutral position, meaning the market is neither overbought nor oversold.
As with loads attached to springs, we frequently get oscillations between stretched (overbought) and compressed (oversold).
Let’s revert to common English as opposed to English spoken in physics class.
The selling may (no prediction) continue. The tough part is that I am not smart enough to tell you in advance what will happen.
I am smart enough only to tell you if the spring is compressed, in a neutral state, or stretched.
The bullish percent indicators all are on defense right now. Given the rest of the research I have, at this time I am going to leave things as they are. I recommend WEALTH PRESERVATION in all areas. All long-term indicators remain positive, so keep an eye on them for reversals. Any reversal in long-term indicators could be very meaningful.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of September 11, 2020 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Department of Labor gave us the only report to make it past my spam filter. They said Consumer Prices rose 0.4% in August, marking the third consecutive month of strong inflationary pressure. This was above the 0.3% level anticipated by economists. During the past 12 months the level of inflation came in at 1.3%, well below what the Federal Reserve said they were willing to tolerate. Used vehicles provided the substantial portion of the gain during the month, with a 5.4% increase during the month. Gasoline prices rose 2%.