“If I’d only followed CNBC’s advice, I’d have a million dollars today.

Provided I’d started with a hundred million dollars.”

~Jon Stewart

Good Morning,

Ahh yes, this one will leave a mark.  Don’t fret, I wrote down the license number of the truck that will hit the market this morning on the open.  The title implies that things will get a good jolt this morning.  If there was any sense of remaining summer haze, that will be all but eliminated when you get the smelling salts boost after what looks like about a 700-point adjustments on the DOW this morning.

With the weak open today – here and across the globe – we have officially “entered” the price bands covered last week in a couple of your charts.  Mind you these are just technical targets.  Those ranges drawn were not intended to imply a given but should provide a real battle for good and evil.

This is sounding like Star Wars more and more every day

 

It’s Ugly

I know – I hate watching it too.  But watch it we must.  I say “Don’t Blink” in the title today because so many forget how quickly these selloffs tend to repair themselves over time.  They never, ever feel like that in the middle of the event – but repair themselves they do.  Time is the element in play.

Recall that the reason so many miss most of the gains over time in the markets is because their emotions take control – and they forget that the best days in the markets are (90% of the time) within 5-8 trading days of the worst days in the markets.

The good news?  We can most assuredly count on the idea that sentiment into ranges rarely seen – and only at or near very important lows.  Yes, as stated, I know it can cause tension but it becomes valuable with patience.

Keep in mind, this flush is not too much of a surprise.  We have been highlighting these realities for a bit now and patience will pay off as we wash this process out and reset the foundation as previously noted.

It is helpful to recall that for the broader market (NYSE Comp), we are sitting in a very lengthy trade range – now retesting April prices

 

Fear Running High

As expected, the 20’s are here again – in sentiment.  Note the data on Fear and Greed.  The readings in the 20’s are great for long-term investors.  It means over 75% of the audience no longer likes the market

 

We have seen these waves of manic-depressive reactions for many years now.  Note there are VERY few spots on that sentiment data where we have felt worse than we do now.  Wow.  Do we REALLY think that we are in the same shape as we were in during all the other times with lower worse fear readings (those very few periods below the red line on the second graph above)?   I suspect not.

Yes – these windows are always ugly – but they serve a purpose – and a valuable one at that.  They let you strengthen your patience muscles.  They let you flex and stand tall against the storm.  It’s is what all successful investors eventually must learn.  Heck, I would not be surprised to see Warren step up to the plate soon and buy something.

Embrace this for what it is doing:  the emotional, panic-driven transfer of stocks from short-term traders’ hands – to long-term investors’ hands.

The Internals Are Folding Too

For those who like charts – it is important – and beneficial – to note that we now see only 28% of the market above its 50-day morning average, and less than 40% above its 150-day moving average, both hinting at panic selling pressure even as earnings set records

 

Again, remember what you want to train your eye on at extremes like this:

a) how few times we were much lower than now – over the last 2 decades!

b) what happened shortly AFTER those other periods?

The answer to (b) is that each one of those other low readings led to significant “surprises to the upside” afterward.

Earnings – Exactly What You Want

Finally, we are setting the stage for an earnings season by selling into its beginning.  Fantastic.  This is a much better stance than seeing all things rally into the numbers.  Now, we are steadily putting in a foundation which sets the stage for “upside surprise” – the always classic, but easy to dance too – “Gosh, that was not as bad as we expected…”

As of the latest week – from Refinitiv:

The forward 4-quarter estimate for S&P 500 earnings rose again to $207.06 as of this past week, versus $206.88 last week.

More interesting?  The forward estimate was $199.34 on July 2 ’21, and $176.54 on April 2 ’21.

That is a 17% increase for the S&P 500’s forward estimate just since April 2, 21.

The PE ratio on the forward estimate is now 21.4x versus last week’s 21.8x and the 21.5x print on July 2, 2021.

The S&P 500 earnings yield was 4.67% this week, versus 4.58% last week – this against the 10-year yield at 1.31%.

The Q3 ’21 bottom-up EPS estimate is now $49.14.

We expect that estimate to trade well over $50 once Q3 ’21 earnings season begins.

One or Two More Earnings Elements

Expanding margins are on track as we peer into the mist and look for the earnings season as October dawns.  The steady increases are driven by one thing:  Generation Y and wave after wave of technology enhancements

 

As to the collective earnings bar in billions (net) for the S&P 500?

It keeps growing and growing – and growing.  Recall the 2Q column expanded by nearly $100 Billion as the season unfolded with surprises.  The $429 Billion in orange is set to grow this time around as well.

This is why we want to let this selling pressure come in and set the stage for positives as Q4 unfolds on the calendar

 

In Closing

You bet this stinks.  Sadly, it is the underbelly of building wealth.

Over time, we take the good and the bad – and in doing so gain what the market delivers, and then some.

And if you thought things were standing still while the audience frets over the latest false ghost from the financial media – think again.

Last week, 4 (non) astronauts – yes, regular souls like you and me – took off in a SpaceX rocket from Florida.  In 10 minutes, they were in orbit – 355 miles above Earth, traveling at 25,000 miles an hour – where they then spent three days orbiting this blue rock.

They landed safely back on Earth yesterday morning – in a perfect splashdown

 

Mark the day, the heavens have opened up – and Star Trek, my friends, is much, much closer than we think.

 

Until we see you again, may your journey be grand

and your legacy significant.