QQQ weekly: 2-6 Sep
Price action
QQQ started September with a bearish trend day, breaking down from its consolidation area circa 475. It held tight just below its 100dma Wednesday and Thursday before breaking lower again on Friday after a weak NFP release. Friday’s selling was fast until the 12.30pm turn then 450 held to the close.
The primary trend remains bullish, but recent price action is looking wide, loose, and “toppy”. This may just be a case of challenging seasonality, which is particularly acute in Election years, or we may be seeing a longer term complex top forming. Whichever it turns out to be, the expectation is for further sharp moves both up and down as September unfolds.
The Fed
Jobs data released last week was weak rather than disastrous. The market-implied probability for the FFR after the coming 18 September Fed day is split 70/30 between a 25bps or 50bps cut. Last week Fed speakers refused to commit to either, suggesting it is still an open question. The Fed is now in blackout, so look out for a back-channel market steer ahead of the Fed meeting to prep the market for its decision. Recently this has come via Nick Timiraos of the WSJ.
Breadth
A poor week for breadth. But note the selling was much broader on Tuesday than Friday.
T2108, aka % stocks above 40dma: falling, but still some way away from the oversold 20 level, or very oversold 10 level. These are the levels that set up the best buying opportunities.
Sentiment
Sentiment indicators show deteriorating sentiment from elevated bullish levels. These are not yet at extremes consistent with a significant swing low. If we see a fast move lower to 425 accompanied by washout in sentiment, that may be a nice set up for a tactical long.
GS Sentiment Indicator: positioning has dropped steadily for six weeks.
Put/call ratio: rising rapidly
Seasonality
Seasonality challenging through till the end of October.
Summary
Price action: QQQ was unable to hold its tight consolidation at 475. The primary bullish channel remains intact, but price action has become loose and toppy.
The Fed: as the Fed enters its blackout period ahead of its Sep 18 decision, it remains an open question whether they will cut 25bps or 50bps.
Breadth & Sentiment: both deteriorating but neither yet at an extreme level that is contrarian bullish
Seasonality: headwinds
Key events next week: CPI and PPI, but the Fed and the market care more about jobs now. The next major event is the 18 Sep Fed day.