Edition #43 - 7.9.2021
Consumer Credit Hits ATH's, Nasdaq-100 Update
Economics:
Yesterday, the Federal Reserve published their statistical release for consumer credit, as of May 2021. The full report can be viewed at the following link to see the individual line items & composition. The report made headlines for a couple of reasons. First of all, the $4.235Tn in outstanding consumer credit (which excludes mortgages) was a record high, eclipsing the prior highs from December 2019 & January 2020. For some historical context, here is the trajectory of the data over the last 20 years:
The second reason why this was significant is because the seasonally adjusted consumer credit increased by +10% on a year-over-year basis. On a month-over-month basis, the outstanding credit increased by $35Bn in May 2021 vs. estimates of only $18Bn. The April 2021 figure had an increase of $18.6Bn, so this recent data is a substantial acceleration.
If you’re interested in stocks that will benefit from the tailwind of an expanding credit system (with no signs of slowing down), here are a handful of stocks that I’ve had on my radar who are involved in this industry: $EFX $AXP $V $MA $ALLY $CDLX $DFS $UPST.
Stock Market:
On June 23, I shared the following chart of the Nasdaq-100 to highlight what I believed to be the most probable paths forward:
At the time, I wrote the following:
“The current price structure continues to rhyme with the price structure of September - December 2020. As such, I believe that the most likely scenarios are what I have drawn in dotted white lines… I believe that the height of the dotted white line is going to be a reasonable level for prices to reverse, based on a fibonacci retracement from the swing-high to swing-low extension from the correction on 4/29 - 5/12… This pattern, applied to what I’m seeing in $NDX, implies that price could rise +3.4% over the coming 7 days before experiencing a minor consolidation towards the grey range.”
Here’s where we stand now, as of the close on 7/8/2021:
First of all, this the drawings on this chart are identical to the one I published on 6/23 other than two changes: switched to solid white lines for better contrast & added the fibonacci extension to show how I was able to identify a potential peak at the 161.8% level.
The 7 day return of $NDX turned out to be +3.3%, almost spot on with my prediction of +3.4% published on 6/23. The index rose consistently up until hitting the potential reversal zone in at the yellow 161.8% level, in which we’ve begun to see some higher volatility. I still have a positive outlook on where the index is going, but I suppose I’m cautiously optimistic. I still believe the current price is an important inflection which could lead to a consolidation back to either Point F’s on my chart. As I said on 6/23, these levels would imply a drawdown of -2.5% to -5.5%, at which point there may be further downside depending on how price reacts at those lower levels.
I still believe it’s entirely possible that stocks continue to ascend from here & I might be overestimating the likelihood that stocks experience a minor consolidation at this level. I’m not remotely guaranteeing that this prediction will happen, but I thought it was the most likely path forward as of 6/23, and it has provided a strong guideline so far. Time will tell if it will continue to do so. Even if price ascends from here, these Point F levels are the most likely support levels in the future if/when price does consolidate.
Cryptocurrency:
No update.
Talk soon,
Caleb Franzen