Daily Rundown: August 19

BOB LANG: Good, morning Action Alerts PLUS subscribers. It's Friday, August 19, 2022, and it's time for our rundown. We have a lot to cover, so let's get to it.

So today, the markets are starting off on a sour note. Here, the S&P 500, down about 1%, a little bit more than that. The Dow industrials and the NASDAQ also down about 1%. We've seen some good strong volume and some good strong price action from the early part of the week.

But let's face it. After a two-month run on the S&P 500 and the NASDAQ, especially, it's time for a little bit of a break. And maybe, sellers are starting to come in there and starting to hit the bid right now and sell some stocks in front of perhaps, the holiday weekend coming in. We do have Labor Day coming in.

And we'll have some bigger traders coming in after that holiday is over. And perhaps, maybe it's time to take some chips off the table after this tremendous run that we've had over the past two months. Volatility has been sliding for the past 2 and 1/2 months. We're down about 20% on the VIX right now. And that portrays a great deal of complacency right now.

And I'm sorry to tell you that when complacency is really, really high like this, and the VIX is low, it sets up a nice opportunity for sellers to take control and for people to start buying protection again. And that hasn't really been happening for the past couple of months. But certainly, with this slide in volatility, from about 36% to 37% all the way down to 20%, it certainly makes sense to buy some protection.

Stocks are up quite a bit over the past couple of months. We've seen that with strong breadth numbers. The S&P 500 stocks above their 50-day moving average, are ticking up at about 86%. So that's more than 440 names out of the S&P 500 that are out of their bear markets. Contrast that with what we saw back in the middle of June when it was about 10%, even actually lower than that, probably close to 2%, so about 15 to 20 names were out of their bear markets. And we had about 480 or 485 names that were actually in bear markets.

NASDAQ on the other hand, has come down quite a bit. It's about 70% of the names above their 20-day moving average. That's still bullish, but still coming down quite a bit. We do have oscillators starting to cross the zero line. So if the oscillators do cross that zero line here today or the next couple of days, we should see a little bit more of a downdraft.

Is that a tragedy? Of course not. The S&P 500 is up over 600 points, or roughly 17 and 1/2% since the middle of June. And listen. A pullback of even to a 61% retracement on the Fibonacci's, or even a 50% retracement, would bring us back down to about 3,900. Not too bad, even though as we've come off of the 3,600 level back in June, still a little bit disappointing for a lot of the bulls. But still, I would not be surprised to see that extreme of a pullback here.

Markets are complacent right now. They're showing a lot of bullishness. We saw some sentiment readings come out earlier this week. The AAIA survey showing us that more bulls are coming into the market right now. And again, as our good friend Helene Meisler from "Real Money" mentions all the time, price has a way of changing sentiment. So sentiment is certainly starting to get more bullish. Now again, that's not a bad thing right now, if more people continue to pile in. But, of course, when the boat gets too full and gets tilted to one side or the other, you've got to pay attention and move to the other side of the boat.

So as far as the Fed's concern-- let's say the Fed funds futures are showing about a 75% chance of a 50 basis point rate hike earlier this morning. It's come down a little bit. And we do think that the Fed could be a little bit more aggressive in September and probably raise rates 75 basis points for a third time in a row, and then possibly slow down a little bit in November and December.

But however, the Fed fund's futures are portraying about a good shot, about 3 and 1/2% interest rate by the end of the year, of end of 2022. And even more rate hikes coming at the early part of 2023. So we're not out of the woods yet as far as the aggressiveness of the Fed. Inflation is still really high. We did have those nice CPI and PPI readings last week.

But overnight, we did see some enormous inflation numbers coming from Europe. Germany one came in at a ridiculously high number, 63% annualized rate of inflation. That's just completely unsustainable. And prices are going through the roof in Europe. So they have to do something to arrest the problem. Hopefully, that sort of a price increase doesn't affect us here in the United States.

So let's talk about the earnings here for a little bit. We did have two names that reported earnings, one last night and one this morning. Let's talk about the one last night for a minute. Applied Materials came out and delivered some pretty good earnings, but guided a little bit more cautiously for the coming quarter and the rest of 2022. They did cite some cost issues and shipping cost issues, along with the supply chain problems as well too. But I think they were very encouraged about the prospects for the rest of the year and into 2023.

Now, as far as John Deere is concerned, this company missed their bottom line and slightly missed a little bit on the revenue side. They did come in and gave a modest tweak to their estimates for the rest of the year and did say that conditions are much more favorable in 2022 than they were earlier this year. So if we want to pull a positive from that, that would be it.

The stock has really had a nice run right up to that 200-day moving average. So even the stock being down today should not be much of a surprise. So we'll be looking for the stock perhaps, even to pull the trigger and add some more shares if it comes in and settles down a little bit. But we do like Deere, and we do like Applied Materials as well too.

That's going to be it. Have a great day and have a great weekend, everyone. And we'll see you back on Monday.