As markets drew to a close on Friday, Sept.  21, the telltale signs of uncertainty crept in as most short-term technical tools depicted minimal “bullish fuel” left to keep us pointed up in the front half of the week ahead, says Ziad Jasani Sunday.

View my Market Strategy Session here.

video

Recorded: Sept. 21, 2018.
Duration: 1:39:55.

At the Independent Investor Institute our online community of affluent and active investors recognized a higher probability for an equity market bounce led by markets outside of North America (ACWX, EFA, EEM) starting on September 7, and have since played it out successfully.

As markets drew to a close on Friday, Sept.  21, the telltale signs of uncertainty crept in as most short-term technical tools depicted minimal “bullish fuel” left to keep us pointed up in the front half of the week ahead.

As such, our community got defensive ahead of the weekend, closing our swing trades from Sept. 7 onwards and/or tightening up stops.

We enter this week with our eyes on U.S. interest rate policy, and the potential impact of a more or less hawkish FOMC Monetary Policy Statement on Wednesday September 26, at 2 pm (EDT).

This report discusses the set-up for Equities, Bonds, Commodities & Currencies into Fed Day (Sept. 26) to help our community prepare for short-term swing trades and identify risks and opportunities for longer-term investors.

Equity market set-up into the FOMC Statement

The Global Equity Market (ACWI)
Limped-over and closed at the top-end of the sideways range it has been trading in since the late Jan. 2018 market correction; the globe is currently overbought (RSI 65) & one-half standard deviation away on the expensive side of normal (L52Wks).

U.S. Markets (SPY)
They have largely under-performed Markets out-side of North America (ACWX) over the last 2 weeks even as the S&P 500 and Dow made new all-time-highs. The Dow moved neutrally to the globe, leaving it the most expensive on behavioral routines; while the Nasdaq (QQQ) and Russell 2000 (IWM) under-performed and remain relatively cheaper.

Within US markets, Cyclical Sectors (ex Industrials, Healthcare) remain relatively cheaper while Defensive Sectors remain relatively expensive.

Canadian Markets (TSX)
They have also under-performed the globe since late June 2018, leaving the TSX relatively cheaper versus the S&P 500 and ACWI on annual routines.

However, Financials (XFN), Industrials (ZIN) and Defensive Sectors (ZUT, XRE, Telecom, XST) have gotten relatively expensive while Energy (XEG), Materials (XMA, XGD) and Technology (XIT) remain cheaper.

For the TSX to rise over the next two weeks a strong bounce from Energy & Materials would be necessary while Financials and Industrials at minimum hold up all while the TSX defends support at 16,095.

Markets outside of North America (ACWX, EFA, EEM)
They have been shining since Sept. 7 despite an escalation in the U.S.-China wrade war.

Chinese markets defended important support lines last week, as their plunge protection team got to work. Is this an indication of the “financial economy growth baton” being passed from the U.S. to the rest of the world?

Or just a temporary reprieve prior to a further correction? With both EFA (International Developed Markets) and EEM (Emerging Markets) breaking their down-trend formations and rising despite a rising USD and weaker economic data from the Eurozone (PMIs) many strategists are speculating that Jerome Powell’s Monetary Policy Statement this week will be more accommodative (less-hawkish) and that the dot plot will not show signs of a trigger-happy Fed for 2019.

Equity Market summary
If Powell is less hawkish on Sept. 26, we could see the current consolidation pattern the USD is playing out turn into a confirmed ceiling, accompanied by a short-to-mid-term decline in nominal interest rates, which together would unlock value in Commodities (DBC, DBB, GLD, SLV), Currencies on the other side of the USD (yen in particular FXY), Equities outside of North America (ACWX, EFA, FEZ, EEM) and long-duration North American Government Bonds (TLT, XBB).

We believe the favorable disconnect between economic performance and equity market performance can persist if Powell delivers a less-hawkish statement which dovetails into a positive Q3 earnings season.

But we are more likely going to get stronger bounces in Bonds, Precious Metals and the yen vs. Equities.

Entering this week, we are expecting Equities to present mixed to negative as volatility rises until we’ve heard from the Fed on Sept. 26.

Enjoy a complimentary-no-strings-attached 30-day subscription to Ziad Jasani’s Daily Insights. Simply send Ziad an email with FREE TRIAL in the subject: ziad.jasani@educatedtrader.com