Acquiescence

The opposite of quiescence. What we have here now in US equities is the sudden, explosive return of volatility, volatility that was wholly absent over most of the summer post-Brexit. With it has come a return of high inter-asset class correlation and low dispersion; a return to risk-on, risk-off behavior.

The latest bout has been Fed induced and Fed stoked, with FOMC voters and non-voters alike sending somewhat mixed signals about the course of monetary policy for the remainder of 2016. Rate hike expectations abound with little certainty as to timing. September’s will, though, be a live meeting, and the markets will be on a razor’s edge. Expect big moves next Wednesday.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

Technically, the market has brought itself down to some nice support, off of which it has bounced dramatically. The drought is over; we have seen back to back 1% + up or down days after one of the longest spells of very small daily moves in decades. The market, while at a significant support level (one that presented resistance back in June), probably still has farther to fall. The rising trend channel line (orange) at 2108 may be place to pause and bounce, like the market did in May earlier this year (see daily chart below).

S&P 500, daily bars

S&P 500, daily bars

Below 2108, the next serious support comes in around the 2050s, where the market abruptly turned after the Brexit referendum. Its possible a level in this range could present a good buying opportunity if reached as we close out the summer selling season and move into late fall. Once we’re well into the 4th quarter, we enter the beginning of the strongest seasonal period of the year, when its very likely we could get a strong rally. The election may present some road bumps, but we will be following the technical developments and keep you updated.

Good luck out there.

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