Morning Comment:

When I was in high school, the only sport that had a very early “pre-season” was football. (Some people called it “double sessions”...we called it “hell week.”) The other sports started before school got going as well, but not as early as football. However, in more recent decades, all of the fall sports start early (both men’s and women’s). Therefore, a lot more people now know what I’m talking about when I highlight “the smell” that exists early in the mornings of late in August.

Back in the day, when we got up early on those late August mornings, it was usually quite cool. (Somehow, it always got ridiculously hot during the day...especially during wind sprints...but it was always cool in the morning.) The grass was always still wet when we headed out for practice...and there was a certain “smell” in the air that was unique to this time of year. Having smelled that smell in high school...and four years of college, it’s something that has stayed with me ever since.

I still notice that smell on late-August mornings every year...and it brings back great memories (especially since I don’t have to run wind sprints any more). It’s neat to know that so many more people know what I’m talking about when I mention “the smell”...since football players are not the only ones who experience it any more. Of course, a lot fewer young athletes are experiencing it this year, but it will return next year...and for years to come. (Ahhh, the simple things in life really are fabulous!)

Of course, even though the week before Labor Day weekend is usually a very active one for young athletes, it’s usually a VERY quiet week for the markets. This year should be no different. Today is the last day of the month, so it could be a little bit busier than most Monday’s in August...but the rest of the week could/should be quiet. That doesn’t mean we will definitely have a boring week. We could get some good or bad news on several fronts that been shrouded in uncertainty for several weeks (like the fiscal deal, a vaccine, the employment picture, etc.), but unless we get a big surprise it should be a boring week.

The big news of the day is actually old the stock splits for AAPL & TSLA and changes in the membership of the DJIA have been known for a while now. Therefore these development will probably not have much of an impact today. Instead, people will be watching to see how these stocks trade for the rest of the case we get a “sell the news” reaction on these stocks as we move into September.

One area of that could see some movement this week is in the credit markets. As we mentioned in our weekend piece, the yield on the U.S. 10yr note...and on yields in other parts of the world (like Germany & Japan)...have been rising recently. They are not yet at levels that should cause some serious problems for the broad stock market yet, but if those rates continue to rise, they’re going to catch a lot of people offsides...and should have a negative impact on the stock market......We’d also note that the yield curve has been steepening since March. The 2yr/10yr spread has broken well above its multi-year trend-line...and now stands above 60 basis points. That’s still pretty flat, but if this spread can move above its “double-top” highs of 70 basis points, it just might be enough to have an impact on certain parts of the equity market.

We’re talking about the bank stocks. Of course, there have been several times over the past two years where it looked like the bank stocks were finally going to play catch-up...including in late May and early June of this year. Each time, however, it was a head fake...and the group fell back into the funk it has been in for the last two years. (It’s funny, the KBE is up 40% since the March lows. That’s obviously a great return...but it’s still much less than the 56% gain for the S&P 500 since then.)

We have been cautious on this group for the vast majority of the last two years, so we are not ready to raise a green flag on this group. However, we do think that it’s important to point out that the KBE bank ETF is close to testing the top line of a “symmetrical triangle” pattern. A break above that pattern would be positive. That said, we’d want to see it break above its August highs of $35 before we’d get overly enthusiastic about the group. In fact, since we’ve seen so many head fakes in this group over the past two years, we’d want to see it break above its 200 DMA (and probably above its June highs of 37.85) before we sent a compelling green flag up the flag pole on the group...but there is definitely some upside potential for the banks later this year...and we wanted to highlight this potential this morning.

Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Aug 31, 2020 — 8:08 AM
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