My stock market outlook for the rest of August 2021 has a couple red flags that could be warning of an oncoming correction…
Right now, we’re looking at a slow trading week on the events calendar. With 94% of earnings reports behind us, there are fewer news bombs to move Wall Street.
We saw the recent surge in global volatility last week break on Friday as bullish investors took back control. Friday’s trading session ended with stocks climbing higher as dip-buyers emerged to stake a claim.
Now I’m looking at the market carefully to see if the VIX — which got smoked on Friday — will retreat back to the lows it made earlier in August.
The Federal Reserve will take part in the Jackson Hole symposium this week, where it will play its usual game: talk a lot while saying nothing!
I expect nothing new or earth-shattering to come out of it. A caveat would be if the Fed mentions that it’s reversing views on inflation based on recent commodities weakness — of which I doubt it will.
Stock Market Outlook for the Rest of August 2021: Charts to Watch
The oil chart below is a leading factor in the market as well. Most of the weakness we’ve seen in recent weeks started in commodities as fears of deflation took over.
We saw economic metals like copper and aluminum sell off, but crude oil was the real headliner. After being down for seven days in a row I’m looking to see a bounce this week in oil — all the way back up to the 100-day moving average level of $66.57 a barrel.
If oil can’t rally, I expect to see the bears coming back into stocks.
Besides crude oil’s chart, I’m also paying attention to the Invesco QQQ Trust Series 1 (Nasdaq: QQQ), an index fund that tracks the Nasdaq.
Even when the markets were getting hit last week, the Nasdaq — filled with tech growth stocks — was the best-performing index. My stock market outlook for the rest of August 2021 has me looking to see if the Nasdaq will break out to all-time highs this week.
Which, if we look at the chart above, would mean a move above $380.
We also have big economic data coming out on Thursday morning in initial jobless claims and GDP annualized.
This week’s jobless claims number matters more now than ever, as we need to see the worst in unemployment news behind us for the Fed to continue its path to tapering.
A high jobless claims number would be bullish for stocks. The weekly number is, of course, much less watched than the monthly number — which will be locked in on Sept. 3.
The annualized GDP is actually a number that is going to be reflected in the markets in a straight fashion — i.e. a strong GDP should rally stocks, and a terrible number would see the market initially sell off.
The expectation is for 6.7% annualized. A low 5% should see a significant hit to stocks and it could trigger a correction…
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