The recent stalling out in most US Equity indices over the last week hasn’t taken away from the appeal of the current rally from early August lows. A bullish advance back to new all-time highs is still expected into mid-September ahead of any seasonal Fall correction. The Equal-weighted SPX has already pushed back to new all-time high territory coinciding with the breakdown in the US Dollar and Treasury yields, and Small-caps have started to kick into gear once again. Furthermore, market breadth remains constructive and sentiment is not yet bullish enough to mark a larger market peak. Cycles show strength into mid-September in both Equities and Treasuries before a selloff takes hold, and sectors like Financials, Healthcare, and Consumer Discretionary have been instrumental in serving as a “tailwind” for Equity gains at a time when Technology has been a bit wobbly. Overall, unless Technology, starts to roll over in bigger fashion it looks right to stay bullish.
Despite the excitement surrounding NVDA this week, US benchmark averages failed to please neither Bulls nor bears alike this week, trading very much range-bound in neutral consolidation that’s been persistent since 8/19. While the markets showed signs of late-day gains to end the day and week on a high note, SPX failed to yet exceed the level needed to have confidence that the consolidation from the past week has been resolved.
However, as discussed yesterday, four sectors managed to push to new all-time weekly high closes this past week: Industrials, Utilities, Healthcare, and Financials. That number rises to five when eyeing monthly all-time high closes, as Technology (despite its August volatility) also managed to churn out a new all-time high record close. (All of these are based on Equal-weighted, not cap-weighted basis)
While August has come to a close showing its fourth straight month of gains, markets are also entering the seasonally difficult month of September. Before delving into average seasonality trends or what September might look like, I’ll share the daily S&P chart below.
As can be seen, SPX is trading less than 50 points away from 8/19/24’s daily close of 5608.24. While prices managed to rally into Friday’s close to finish the month of August up more than 1.8%, SPX requires a move over 5651 to help the August rally extend to new all-time highs. Conversely, moving under 5560 would postpone gains, suggesting a bit more consolidation might be needed initially.
However, bottom line, despite the neutral pattern over the last couple weeks, it remains difficult to “short a dull market” as the saying goes, and it’s still right to expect our neutral pattern to be resolved higher, given Friday’s strong finish.
S&P 500 Index
September normally shows prices hold up until mid-month
While September tends to be one of the worst performing months of the year, Election year seasonality shows that the month normally holds up until mid-month and normally through September expiration before turning lower.
Thus, September might not be a month to simply “sell and go away” like the phrase for May is normally known for. Moreover, the fact that five sectors out of 11 managed to make new monthly all-time high closes for August looks promising towards thinking that Equity markets might hold up in the weeks to come.
While the back half of the month very well could produce a selloff, I’m skeptical that August lows are breached and feel that any volatility likely proves minimal in scope and duration before additional rallies take hold.
Implied S&P 500 Trajectory based on Sep performance of all Election Years since 1950
Small-cap IWM has confirmed relative DeMark-related buy signal vs. SPY
Two important developments are worth rehashing when viewing Small-caps again, particularly when eyeing this relative chart of IWM 0.59% vs. SPY 0.91% over the last decade.
First, the most recent downtrend in IWM vs. SPY has officially been broken when looking at trendlines from 2021 peaks.
Second, DeMark-related “TD Countdown” exhaustion signals based on TD Sequential and TD Combo have officially been confirmed as of July’s month-end close. This helped jumpstart a decent push higher for Small-caps in the month of August, and means that Small-caps likely can show further outperformance.
As seen on this monthly chart, the recently confirmed buy signal from DeMark’s indicators is the first confirmed signal since Small-caps peaked vs SPY going back since 2014.
Thus, while there have been quite a few periods of outperformance for Small-caps which proved to be tactical rallies before the downtrend reasserted itself over the years, it’s thought that the recent push higher in Small-caps very well might have some longevity given a conformed monthly exhaustion signal.
As seen below, July did officially break this downtrend line before August showed mild underperformance given Technology’s comeback in the last few weeks of August.
This recently confirmed buy signal might very well indicate a possible slowing of Technology while the rest of the market plays catchup. Such a move would certainly allow for Equal-weighted RSP to outperform SPY.
As discussed in recent weeks, it remains right to be long IWM with targets initially near $228 and intermediate-term targets near $244.
IWM vs SPY
Gann’s Mass Pressure Index looks to rise until mid-September ahead of setback
When reviewing the Mass Pressure index, a composite based on overlays of several important historical years in an attempt to gain insight as to how the last four months of 2024 might unfold, we see that trends generally remain positive, but in a stair-stepping manner.
I showed this Mass Pressure index back in 2022 and 2023, and have not discussed this year, largely due to the sideways motion over the first six months of 2024.
However, when looking closely, we see that the composite bottomed during the first week of August and moved straight higher. This looks to have aligned exactly with how US Stocks acted earlier this month.
Additionally, the sideways motion might have seemed at odds with SPX movement during the 1st half of the year. However, when looking at Equal-weighted S&P 500, this lines up much more closely, as Invesco’s RSP 0.77% ETF, as the gauge for S&P 500, has been range-bound since March before turning up sharply in August to new highs.
The key takeaway when viewing this is that the composite is expected to peak out in Mid-September, likely by the September Fed meeting at the latest.
It then likely goes lower into October expiration before turning up briefly into the US Election.
We’ll see if this continues to provide value as to the direction for SPX. At present, the fact that this model was created dozens of years ago and showed sideways motion until August before a broad-based rally began is enough reason to think this composite very well might have some credibility for the weeks and months to come. We’ll review this again in October.
S&P 500 Index
