Big Picture

Our overall Primary Trend Indicator remains Neutral.   

We believe stock markets are at risk of moving lower over the short to medium term.  After a rally this week to work off oversold conditions, it was accompanied by low volume readings, meaning the attempt to recapture resistance (breakdown level) was not widely bought.  

Technically, the S&P500, Russell 2000, NYSE, and Nasdaq indexes are trading below key daily moving average levels and a test from the bulls to breakthrough back above 4522 is the key for a change to Positive.   

We ultimately feel the retest will fail and another leg lower in stock markets will come.    The selloff will be supported by rising interest rates, default risks in credit and consumer loans, weakening global economic conditions, China Corporate Bond default risks, and a reduction in open market bond buying from the Federal Reserve of the United States as well as other global Central banks.

Changing Fundamentals

Monday:

US - Durable Goods Orders (Aug) estimated +0.6%

Japan - Bank of Japan Monetary Policy **Potential catalysts from continued ETF and bond buying**

No Major Corporate Earnings

Tuesday:

US - Case Shiller Housing Price Index estimated +1.6%

US - Consumer Confidence 

Earnings - Micron

Wednesday:

Europe - Consumer Confidence

Earnings - Jabil Circuit

Thursday:

China - Manufacturing PMI (Sept) estimated +50.2  **Last 3 readings have been misses to the downside, potential catalyst for selloff in cyclicals if this misses down again**

China - National Day **Could see political rhetoric increase, military parade, etc**

Europe - Consumer Price Index (YoY Sept)

US - Gross Domestic Product (Q2) 

No Major Corporate Earnings

Friday:

Europe - Retail Sales (August) estimated + 3.7%

Europe - Various Manufacturing PMI's

US - ISM Manufacturing (Sept) estimated +59.9

No Major Corporate Earnings

Focus List

Next Week in Stock Markets

Stocks rallied last week to end at a pivotal juncture.  After starting September on a rough note stocks have shown strength heading into the end of the month.  With news of Evergrande default risk seemingly not systemic (at this point) investors will focus on the upcoming deadline for the US Debt Ceiling which has far greater importance and ramifications if a deal to raise the limit is not reached by September 30.  The last government shutdown began in December 2018 and lasted 35 days.  During that time the S&P500 declined by 10%.  This time however the stakes cannot be higher.

Q3 earnings season will begin Oct 10 with the investors looking for clues leading up.  With the last 2-3 months of global economic data weaker we could see companies begin to reflect within this reporting season.  Higher inflation, higher energy costs and higher shipping costs will all show up and its going to be interesting to see how the corporations will pass on these higher costs to the consumer.   Consumers themselves are showing weakness in spending and sentiment so equity markets are at risk for a deeper selloff if forward looking profits estimates do not satisfy.

While we wait for the above to transpire we still see many opportunities.  For one, the price of Natural Gas continues to outperform relative to other commodities.  The rolling 5 and 10 year average supply levels have decreased by 10 and 17% respectively.  About 20% of US production is actually exported into international markets.  Oil prices have also shown strength on improving demand and tighter supplies.   We continue to like the setups in many of the producing companies in both Canada and the US.  And with recent M&A activity in the sector also adding to the bullish sentiment.