Traders And Investors Are Awaiting A September Selloff…

Traders and investors are awaiting a September selloff that actually may not come. Stocks continue to demonstrate strength and resiliency despite the political turmoil in Washington DC, rising interest rates and a seasonality headwind that just isn’t happening. August and September are typically weaker months for the stock market, instead the S&P 500 (see chart below), the Nasdaq Composite (chart) and the small-cap Russell 2000 (chart) hit all-time record highs and the end of August and despite a mini pullback shortly thereafter, the markets appear to have stabilized near all time highs. The Dow Jones Industrial Average (chart) did not make an all-time high in August, however, this index remains within striking distance of its all time high. The pundits are speaking to the strength of corporate America where earnings and profits are at their highest levels in decades as to the reason why the markets are not selling off. What is undeniable is that any time stocks have experienced a pull back it has been met with support from institutional investors and retail investors alike.

Speaking of support, let’s take a closer look at the technical shape of the aforementioned key indexes. Let’s start with the S&P 500 (chart). After pulling back to its 20-day moving average the S&P is right back at a breakout point. Next week we should see if the S&P can indeed breakout or fail and head back to its 20-day. The Nasdaq Composite index (chart) has similar chart pattern although it traded a bit below its 20-day support line for a few days before recapturing its 20-day and is now trading above it. A look at the Russell 2000 (chart), it too closed above its 20-day moving average and last but not least the Dow Jones Industrial Average (chart) also closed above its 20-day and this index is also right at a breakout or breakdown point. These bellwether indexes are also not in an extreme overbought condition according to the Relative Strength Index. The RSI tracks overbought or oversold conditions and is a momentum indicator that measures the degree and velocity of recent price changes to determine what is overbought and what may be oversold. We are simply not in any extreme condition according to the RSI principle.

Let’s see how the back half of September plays out and we will revisit the technical set-up of the markets in October. Good luck to all 🙂

~George

S&P 500 - George Mahfouz Jr

 

 

 

Bellwether Indexes Surge To All Time Highs!

Bellwether indexes surge to all time highs as the S&P 500 (chart) closed the month of August at 2901, the Nasdaq Composite (chart) closed at 8109, the small-cap Russell 2000 (chart) closed at 1740 and the Dow Jones Industrial Average (chart) is within striking distance of its all time high. I thought August is supposed to be a tough month for stocks? Not this year! New highs are happening while the political environment in our country is at a seemingly all-time low, the word impeachment surfaces daily now, tariffs are in the headlines daily, interest rates have been on the rise and now it seems that any type of progress made over the summer with North Korea may be in jeopardy. One would think that the aforementioned risks would be enough for an outright 10-20 percent market correction. Add in the seasonality factor and we should indeed be going red, not making all-time highs.

Now I am afraid to even mention that the month of September is historically the weakest month of the year for stocks right alongside with August. Do I dare say that September will be the month that our markets correct in a meaningful way? Do I have the courage to predict that this will be the month where the markets recognize and adjust for all of the risks that are present in our current environment? I don’t know people, I am as baffled as the next guy as to how these markets keep shrugging off real market issues. Oh by the way I forgot to mention we have mid-term elections forthcoming, the markets are not pricing in any risk there either. These markets are priced and acting like there is no absolute risks at all out there. Ok enough banter already!

How to play the markets now? I am a fan of the old adage “the trend is your friend” but folks I just can’t hop on this train at this point in time. I am heading to the sidelines until I see any type of technical breakdown to possibly consider implementing a short thesis or just wait for the inevitable pullback/sell-off to identify any potential long set-ups. Until then, Paula and I wish everyone a very safe and Happy Labor Day weekend 🙂

~George