The market had a little pop going into September, and now, all the market talk seems to be about how equities are once again on solid ground.
We have retired finance professor Jeremy Siegel, the “Wizard of Wharton” saying that a bright earnings outlook and no more rate hikes until at least December should both be good news for stocks.
And just yesterday, Goldman Sachs released a special note saying the chance of a U.S. recession in the next year had dropped to only 15%. Many other Wall Street firms, as well as the economists at Bank of America, seem to agree.
And yet, historically, September is the worst month for traders, with a number of stocks showing bearish seasonal patterns.
How do you determine your market outlook when you have two seemingly distinct set of facts?
I’ll show you exactly how I do it…
Here’s What’s Going On in the “Four Corners” of the Market
Stocks, bonds, futures, and currencies — they all forecast where the market is and where it’s going. That forecast becomes even clearer when you see them all together. And, if you’re able to take a broad look at all of that, you can unlock the opportunities the stock market is offering each wee
That’s why I’m always checking in on these asset groups — what I like to call the “Four Corners”. They’re my favorite tool to track (and even predict) the markets. Altogether, they give you a nice overview of what’s coming, and how to prepare for it.
And here’s what they’re saying…
U.S. Equities:
Last week, we saw two important technical signs on SPDR S&P 500 ETF Trust (SPY).
First, we saw SPY hold above the $435 pivot low that I highlighted in my previous “Four Corners” commentary. In that article, I wrote…
“That’s because there’s another pivot low at $435 (circled in yellow with the green arrow pointing to it), and it’s also acting as support… For now, the line in the sand for SPY is that pivot low around $435. As long as SPY trades up or even sideways from here but does not breach or take out that pivot low on a closing basis, I will continue to lean bullish in my market sentiment.”
As you can see in the year-to-date chart above, SPY has continued to trade higher than that level. As long as the ETF continues to stay above $435, the path of least resistance should be to the upside.
But that’s not the only bullish sign I’m seeing…
Last week, we also saw SPY cross above its 50-day moving average, which I’ve included in light blue on the YTD chart above.
Now, the moving average is one of the most important indicators that many — if not all — technical analysts use to identify overall trends, as well as support and resistance levels. Earlier this summer, I explained how expert analysts use these lines to spot big profit opportunities right as they’re getting started. You can check it out here.
A security crossing above its 50-day moving average is considered a bullish move, and it should now hold as an additional support level if we see prices soften a bit.
As I mentioned earlier, September can be a notoriously difficult month for short-term traders… but it can be an incredible time for making longer-term investments.
Any selloffs we see should provide an excellent opportunity to buy some of your favorite stocks at a discount. But my long-time friend and colleague Chris Johnson recently put together a presentation on how you can invest in today’s leading companies — even pricey AI names! — at a fraction of the cost of traditional methods…
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History shows September could be your last chance for months to get discounts like these.
Bonds:
Last week’s bounce in iShares 20+ Year Treasury Bond ETF (TLT) was short lived, and it is once again trading close to its recent low around $93.
At this point, it’s likely that TLT’s old support around $99 will become a new resistance level, as you can see in the chart above.
This level also coincides nicely with the Fibonacci retracement levels, which I’ve drawn on the next chart.
As I explain in this in-depth writeup, traders apply Fibonacci ratios to determine price levels, or where price may retrace or project to – identifying potential levels of support and resistance. Fibonacci trading has much to do with price activity breaking up or down and then following through to a particular price target.
For TLT, the 38.2% retracement level will likely serve as a new resistance line.
Currencies:
The last time we checked in on the Dollar Index Fund (UUP), it had just completed a bearish engulfing pattern. Following that, it looked poised to test old resistance line around $28.60, as shown below.
Sure enough, UUP traded within pennies of that level before bouncing back to $29. That old resistance line will now likely serve as new support.
I’ve drawn Fibonacci retracement levels on the next chart of UUP. If we do get a pullback below that old resistance/new support level, these retracement lines could act as possible further price support. While I’m not expecting a breakdown below $28.60, as technical analysts, it’s important to keep these things in mind.
Commodities:
SPDR Gold Shares (GLD) resolved higher out of the zig zag and broke above its 50-day moving average.
As stated previously, the 50-day MA is deemed a major moving average where tech analysts and investors see a close above it as bullish. As of today’s close (not pictured on the chart), GLD has pulled right back to its 50-day MA; if it manages to hold this support and close higher, it would be a bullish sign of higher prices to come.
And then, we could see gold prices really take off…
To your continued success,
Tom Gentile
America’s #1 Pattern Trader
