September 2024 Cycle Forecasts
Today we’ll go over market conditions and then provide September 2024 Cycle Forecasts in the Premium Section.
Market Conditions: End of Summer Chop
Last week the S&P 500 (SPY) was in a holding pattern chopping up and down between the Bollinger Bands on the 1-Hour chart. Sideways chop is typical of Summer trading, however Autumn trading begins after Labor Day as Wall Street gets back from vacation and back to business. Expect the market to become more directional in September. Which way will it go?
On the daily chart the SPY is still in an uptrend above the 9 (pink) and 21 (blue) Exponential Moving Averages. Unfortunately it is also finding resistance at the R1 Pivot Point at $564.83 and is currently unable to make a new high. On the positive side, the SPY chopped around and did a sideways correction in time as the 9 EMA played catch-up, which could set up another leg higher. Furthermore the Advance/Decline Line (ADL) made a new high, as there are Net New Highs, both telling us that breadth is strong. RSI is pointing up and that is positive, but MACD is showing waning momentum. Global Liquidity is on an uptrend also supporting the market. Overall there are no signs of a broken uptrend yet as we enter a seasonally weak part of the year.
We are in a position where technicals remain bullish, while cycles and seasonality are bearish. We believe that the cycles began pointing down in mid-July and they were pretty accurate until the market became too bearish. This forced market makers to support the market, as they did not want to pay profits to retail put option buyers. We are now in the opposite position where retail is overly bullish. This leaves the market open to a rug-pull, so market makers won’t have to pay profits to retail call buyers. The chart below shows how the market is currently heavy with call options, which market makers will probably wash out by pushing the market down over the next two months.
How can it happen?
Scenario 1: The market could push higher above the July high of $565.16 or the R2 Pivot Point on the 1-Hour chart at $569.04 to trigger stop orders of short positions. After a short squeeze pop, the market could reverse lower.
Scenario 2: The market could reverse lower this week as Wall Street changes the complexion of the market after Labor Day. This week Jobless Claims will be reported on Thursday and Nonfarm Payrolls will be reported on Friday, which are two metrics that are currently highly monitored for signs of recession. An increase in the Unemployment Rate could drop the market.
Scenario 3: There is a possibility that the market does NOT go down in September because everyone is expecting it. In this case the market will continue to trend above the 21 EMA despite bearish attempts to push the market lower. Then a “Sell the News” event is possible in November after the election is complete.
We should also mention that this is a very divergent market. Large cap growth, Nasdaq 100, AI Leaders and Semiconductors are weak, while the S&P 500 Equal Weight, Value, Financials and Industrials have relative strength.
The S&P 500 Equal Weight (RSP) shows relative strength as it was already able to break above it’s July high and the R1 Pivot Point, whereas the SPY was unable to do so.
Value (IWD) had a similar look, with enough strength to get above the July high and the R1 Pivot Point.
Financials (XLF) were the top performing sector of the week. XLF is approaching the R2 Pivot Point, showing the most relative strength.
Industrials (XLI) were the second best performing sector last week and has a lot of overlap with Value.
Strong breath is being driven by the forgotten stocks that are now playing catch-up. Meanwhile the leaders of 1H2024, namely the Large Cap Growth Leaders, are lagging.
Last week’s chop will probably not continue into September. Be flexible and expect the market to move faster and with more direction.
Disclaimer - All materials, information, and ideas from Cycles Edge are for educational purposes only and should not be considered Financial Advice. This blog may document actions done by the owners/writers of this blog, thus it should be assumed that positions are likely taken. If this is an issue, please discontinue reading. Cycles Edge takes no responsibility for possible losses, as markets can be volatile and unpredictable, leading to constantly changing opinions or forecasts.