Stock Market Update September 8, Investor sentiment took a positive turn as the trading week concluded, despite earlier concerns about regulatory pressures on Apple from China. The unease that had been plaguing Apple's stock and weighing down the broader market seemed to lift by Friday. This improvement contributed to the Dow Jones Industrial Average (DJIA) finishing in the green, marking the eighth time in the last nine Fridays it has done so. Interestingly, I conducted a study some years back on this "Friday Phenomenon," where the market tends to end either mostly up or down on Fridays. The psychology behind this lies in the optimism traders must possess to be net buyers ahead of the weekend, given that they can't liquidate their positions until the market reopens on Monday. This leaves them exposed to an entire weekend of potential events that could affect the market. Therefore, a series of positive Fridays is often indicative of a bullish undercurrent, more so than positive performances on other weekdays.
Throughout the first half of the trading day, market indices modestly ascended by about 0.5%, lacking any significant underlying catalysts to cause major swings. By afternoon, however, the gains were largely pared down, leaving the indices to close only marginally higher. In terms of other asset classes, fiat currency remained largely stable, while there was a modest uptick in the performance of long-term fixed income securities. Metals maintained their equilibrium, and the mining sector saw a slight uptick, albeit nothing noteworthy.
In the upcoming trading week, one of the key indicators that traders/investors should closely monitor is the Russell 2000 Index, as represented by the IWM ETF. Notably, this index is particularly sensitive to liquidity conditions in the market. Currently, it is trading above its 200-day moving average, a critical support level that it needs to sustain to indicate ongoing bullish sentiment. Also notice the Head & Shoulders Pattern Developing. Our premium members remain invested in the long swing ES/SPY trade. However, this position is teetering near a potential shift into a bearish cycle. Given the precarious nature of the current market conditions, we will be watching this position very closely.
In the commodities sector, our attention is increasingly focused on the commercial traders' net position in crude oil futures. While they continue to maintain a relatively modest net short position in comparison to historical norms, the velocity at which these short positions are being augmented is noteworthy. This rapid increase in net short positions could be indicative of an imminent, albeit temporary, peak in oil prices. While the long-term outlook for 2023 suggests that oil prices could continue their ascent, potentially reaching a zenith in November, the current data imply that the market may experience a brief consolidation or pullback in the near term. This warrants close monitoring by market participants and strategic recalibration if needed.