U.S. stock markets closed strongly and higher on Friday, 1st October 2021, posting the best start in the month of October since 2019.
Putting that aside, however, the markets closed lower once again for the week and for the quarter.
According to Bloomberg, it was the biggest weekly slide since February, and the biggest monthly selloff since March 2020, marking this the worst quarter since the pandemic began.
“The S&P 500 has now gone an incredible 317 trading days in a row above its 200-day moving average, one of the longest streaks ever,” according to Ryan Detrick, Chief Market Strategist at LPL Financial. “What we are getting at is a 5-7% pullback could potentially come at any time given we haven’t had one in so long.”
The weakness we experienced last week was blamed on the government shutdown, Federal Reserve tapering, elevated inflation, supply-chain bottlenecks, a global energy crisis, and regulatory risk coming from China.
Here are the closing levels on Friday: –
| Last | Change | %Change | |
| Dow Jones | 34,326.46 | +482.54 | +1.43% |
| S&P 500 | 4357.04 | +49.5 | +1.15% |
| Nasdaq Comp | 14566.70 | +118.12 | +0.82% |
| US 10Y | 1.465% | ||
| VIX | 21.15 | -1.99 | -8.6% |
Friday’s rally or, you could call it a retracement – was on the back of Merck’s Covid Pill as this Bloomberg report suggests.
Companies that benefit from reopening trade rallied on the back of that.
Better-than-expected economic data were released on Friday. This was another factor that contributed to the rally.
As we did in last week’s commentary, I would like to look at the 50- day moving average for the S&P to give us some guidance on what to expect as we have to be aware of the technical nature of markets.
As of the close, the market is still below the 50-day. In fact, we were below that most of the week. And whenile we did penetrate below the 100- day moving average during the week, we managed to close above that by a small margin.
Technically this is bearish. Although, Friday’s price action somewhat puts a question mark on this.
Additionally, the VIX will tell you that markets are still volatile. I think the moves in the 10-year yields are also the cause of volatility. You could say the rebound was after the yields traded back below 1.5%.
With the expectation of a better payrolls number this coming Friday, 8th October 2021, our “wait and see” attitude may have to change. Either the buying on dips continue to frustrate the bears or we break technical levels and start a downtrend. Against this background, only time will tell.
Source: CBOE, Reuters, Bloomberg
This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large US bank for more than 20 years.
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