All major indices closed higher on Friday with the Nasdaq outperforming.
Traders bought the dips on Friday to end the week well off the lows. With this move, investors are hoping to prevent a correction to the long uptrend.
The earlier sell-off during the week was attributed to the worries concerning the Fed’s tapering, the coronavirus, and supply chain issues.
However, the realization – or hope – that the Feds would watch for negative effects of the virus as well as supply issues, and hold off on tapering gave traders some pause to the selling.
It looked like traders came into Friday looking to catch short sellers, and immediately started buying from the open. Short covering then ensued, and the markets held on to gains.
Do take note that the markets still ended the week on a down from last week, and this could be something to think about.
Here are the closing levels on Friday: –
Dallas Fed President Kaplan mentioned that he is open to adjusting his view on how the Federal Reserve should start tapering its asset-purchase program sooner rather than later. This is if the delta variant persists, and hurts economic progress.
Traders are eagerly awaiting the Jackson Hole symposium, which will run on August 26th-28th. This may offer clues on the central bank’s timeline for tapering stimulus. The topic of this year’s event is “Macroeconomic Policy in an Uneven Economy.”
Moving on to the CBOE Volatility Index (VIX), it closed lower on Friday, which is higher than the week before. This suggests that we are not out of the woods yet in terms of volatility for the markets.
According to a Reuters report, Goldman Sachs economists recently lowered their tracking estimate of U.S. economic growth in the third quarter – from 9% to 5.5%. This is due to the impact of the Delta variant. In addition, fund managers surveyed by BofA Global Research said they boosted cash overweights to the highest level since October 2020, while adding to positions in defensive sectors such as healthcare and utilities.
Could we see another round to selling and maybe prob deeper into correction territory? Or will the buying on dips continue to plague short sellers?
It could be another interesting week.
Source: CBOE, Reuters, Bloomberg
This commentary was 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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