September is historically the worst month of the year for stocks, but so far stocks are rising. The charts are bullish, and market sentiment is greedy. After the drop we had in August, will the market break the historical trend and actually continue to rise this September, or was the bullishness over the past two weeks just a bull trap?
Last Week Recap
Last week saw jobs come in worse than expected, with the unemployment rate rising at the same time inflation was rising. When the economy slows down (stagnates) at the same time inflation is rising, that is called stagflation, and it’s the worst possible scenario for the Federal Reserve. That’s because the Fed has a difficult decision to make. Raise interest rates to fight inflation and make the economy worse, or lower interest rates to stimulate the economy and make inflation worse. No matter what the Fed does, it’s bad for the economy. And that’s making the chances of a soft landing (inflation getting back to 2% without a recession) highly unlikely.
Market Sentiment
Market sentiment (https://www.cnn.com/markets/fear-and-greed) has returned to the greed stage, although just slightly. The finish at just 1 point into greed was helped by market momentum increasing last week at the same time options traders became slightly less bearish. Most of the inputs to the fear and greed index remain neutral though, so it’s fairly safe to say that market sentiment is still neutral.
The volatility index (VIX) fell every day last week as the market rallied. With the S&P up 2.5% last week, and the NASDAQ up nearly 4% last week, the VIX fell sharply to close at the 2nd lowest level in 3 years. This indicated extreme bullishness, but isn’t backed up by the put / call ratio on the S&P. So I think the fall in the VIX was more a result of options traders rolling options at the end of the month, rather than an actual increase in bullishness.
Technical Analysis
All 4 major indices have turned 100% bullish on the daily charts. This would indicate that the VIX is correct and that stocks will continue to rise. And if this was any month other than September, I would believe the technicals and expect the rally to continue. But because this is September, which is historically the worst month of the year for stocks, I would avoid planning on a prolonged market rally. Other investors know September is historically bad, and that will limit how strong of a rally we get. You’ll also notice how the S&P bounced off of a long standing resistance level going back to 2021, and that could be a sign that last week’s rally might not continue into this week.
The weekly technicals are mostly bullish, but do have some bearish signals to watch out for. While the candles and RSI are both bullish on all 4 major indices, the MACD on the S&P and NASDAQ are both still negative and bearish. Overall, I would put the market at 90% bullish. So if we do get a sell-off in September like we historically do, I would expect the sell-off to be minor and short lived, with stocks bottoming out in October and rebounding.
Economic News
This is a quiet week for economic news, but we do have a lot of Fed members speaking this week, with 6 speaking on Thursday alone. So watch out for any signs from the Federal Reserve of remaining hawkish despite last week’s labor report, as that could cause the market to go down. On the other hand, if the Fed speakers are dovish, that could cause the market to rally for the 3rd week in a row.
Here’s the full list of all of the economic news coming out this week as well as the time each report is being released: https://www.marketwatch.com/economy-politics/calendar
Here’s what time each Fed member is speaking this week: https://www.federalreserve.gov/newsevents/calendar.htm
Earnings
Although earnings season is over, there are still a few companies reporting this week that retail investors might be interested in. Wednesday after the close, C3.ai, GameStop, and ChargePoint all report earnings. And Thursday after the close, DocuSign, Planet, and RH report. If you want more details on the C3.ai earnings and what to expect, make sure you watch this video here: https://youtu.be/MpbHpOPOz3A
Other Things to Know
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Wishing you the best of success trading this week,
Stock Curry