Recently, the market has been difficult to navigate... Although the trend this week is downward, the bounces are significant, but once the range is broken, it breaks quickly...
In short, it makes you hesitant to short even if you want to, and afraid to buy even if you want to...
Recently, ETF funds have been flowing out as well, with a net outflow of 120 million the day before yesterday and 520 million yesterday...
Now, coming down from earlier days of 'falling for no apparent reason'... There is now a consensus that the market is likely avoiding risk ahead of Powell's speech at Jackson Hole this Friday.
Today, let's elaborate on this point...
What is Jackson Hole?
If the FOMC interest rate decision is the Federal Reserve's 'report card', then the Jackson Hole central bank annual meeting is more like the Federal Reserve's 'strategic release conference'.
Every year in late August, usually from Friday to Saturday, in a town in the U.S. called Jackson Hole, central bank governors, financial tycoons, and top economists are invited to discuss the global financial situation and the direction of interest rates... The venue is small but prestigious.
As a representative of the Federal Reserve, Powell's speech at Jackson Hole every year will have an impact on the following period... For example, in 2021, when inflation began to rise, Powell stated in his Jackson Hole speech that 'inflation should be temporary', and the market interpreted this as he was not in a hurry to raise interest rates... Indeed, there were no rate hikes throughout 2021.
In 2022, the rate hike cycle had already begun, and everyone was still unsure how aggressive the rate hikes would be... Powell's speech at Jackson Hole in 2022 stated, 'Some pain is necessary,' and the market immediately interpreted this as a signal for continued rate hikes... Indeed, the rate hikes continued throughout the year.
So now we know that Jackson Hole is an annual strategic guidance speech that is even more important than each FOMC meeting, and this will also be Powell's last speech before stepping down... What will he say? How will the market react? What are the bets?
We also need to see what the current market consensus is.
According to the current CME market bets, after a significant downward revision of non-farm data and decent CPI data, the market is generally betting on a 25bp rate cut in September, with a small probability of no cut and an extremely small probability of a 50bp cut.
However, before this, Powell has not done any expectation management regarding a possible rate cut in September in any setting... So everyone is betting whether at this Jackson Hole, Powell will give a heads-up like in previous instances and start to lean dovish?
However, everyone has new concerns... Previously, an analyst mentioned that if he really leans dovish and hints at a rate cut... Could this lead to 'sell the news'? A spike up could lead to a drop? Then, if he continues to be hawkish and insists on seeing the data? (After all, the PPI data is quite poor)
If he doesn't lean dovish at all and even leans hawkish, then how will the expectations for September be handled... Earlier, the surge above 120,000 had already priced in a rate cut for September... If he is hawkish, wouldn't that lead to a significant drop?
Well, since everyone is thinking this way... Should we maintain positions and wait for his speech? If there's a chance of a decline later, why continue to hold positions? Isn't it better to take profits early and avoid risks?
So, in the past couple of days, gold, Nasdaq, and cryptocurrencies have all been weak, with some feeling of risk reduction ahead of Jackson Hole... As for why gold is also falling, some analysts suggest it might be due to institutions selling gold as liquid assets to cover their margin in U.S. stocks and cryptocurrencies.
So, in short: no matter what, I will first reduce my risk (sell), and then listen to your speech... If the speech is favorable, I can still chase it later.
This has led to this wave of ten thousand points retracement...
Well, where exactly will this wave retrace to?
It's uncertain... Just a feeling, if this week's retracement is under the consensus of avoiding risk ahead of Jackson Hole... Then it's highly unlikely there will be a significant reversal before his speech (Friday, 10 PM Beijing time)... Several 1,000-2,000 point rebounds also indicate market divergence, with quite a bit of capital wanting to catch the bottom at various points.
Therefore, this week we can only note that it may either continue to fluctuate downwards or enter a consensus area and start oscillating until the speech determines the direction...
After this wave down, a series of support zones have been broken. The next stronger consensus area is only between 11,000 and 11,200... Here various gaps can be filled, including the turnover costs on the chain.
If this is a game before Jackson Hole, I lean towards a sideways movement above 110,000. Most likely during tonight, tomorrow, and the day after tomorrow.
As for what happens next, it's hard to predict. If the speech is hawkish, it might not be surprising to see a dip to around 108,000.
Let's return to yesterday and the current market...
Yesterday's movement was indeed quite orderly... After breaking the small breaker block, it went down... Yesterday's strategy of selling high at 11.57 yielded a 1000-point profit... However, the low buy order at 11.41 lost back 500 points...
This week's orders below are not easy to make; for several large orders, either they run ahead by 1000 points, or they arrive and bounce a few hundred points... It feels like if you don't catch it, once you do catch it, it won't bounce, which is hard to grasp...
Based on the current market, if we are to continue down to the turnover target... According to this week's analysis, we still need to touch the upper breaker block... Then will the trapped positions be smashed all the way down? Currently, the upper breaker block range is between 114,300 and 114,700.