Will This Be The Best September In 12 Years?

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The Jackson Hole comments from Fed Chair Powell were just what the stock market bulls were hoping for and the bearish investors had feared. Some may recall the stock market’s performance in September 2024 when many were too bearish early in the month and paid the price as the S&P 500 was up 2%. It was the best September in 11 years. Will stocks be as strong this year?

The sentiment seems quite a bit more positive this year as many are looking for opportunities on the long side, and so far, the short side of the market does not look too crowded. As we start a new month, it is always a good time to evaluate the market outlook based on the monthly, weekly and daily data.

Leading into the long weekend, the markets were not impressive as most were lower, led by the 1.9% decline in the Dow Jones Utility Average, with the Dow Jones Transportation Average losing 1.2%. The Nasdaq 100, S&P 500, and Dow Industrial Average recorded small losses.

Of the gainers, the SPDR Gold Shares (GLD) were up 2.4% as there was a good entry as the week started. The NYSE Composite was up 0.9% and the iShares Russell 2000 (IWM) was up 0.1%.

The monthly performance is also included, led by a 5.6% gain in IWM and 3.9% in GLD. The Dow Jones Industrials had a solid monthly gain of 2% as the value stocks were favored over growth. The Nasdaq 100 Index was up just 0.4% for the month, while the S&P 500 was up 1.4%. Only the Dow Jones Transportation Average was lower for the month, losing 0.6%.

The monthly chart of the Spyder Trust (SPY) shows the close well above the yearly R1 resistance at $641.98. The monthly starc+ band is at $674.56 with the yearly R2 at $695.52. The close above the yearly pivot at $549.88 at the end of April confirmed a trend change. The rising 20-month EMA is at $560.39.

My major trend tool, the monthly advance decline lines, are positive for the S&P 500, as well as the NYSE All A/D and NYSE Stocks Only A/D lines also made new highs. The WMA was not violated during the 2022 decline, but the EMA was violated. The A/D line staged a major breakout at the end of 2023 as it moved above the resistance at line a.

The weekly chart of SPY shows that the yearly R1 has been tested for the past three weeks, as a doji was formed last week. The weekly starc+ band is at $666.16, which is 3.2% above the close. In contrast, the 20-week EMA is at $612.95, which is 5% below the close. There is additional strong support in the $607-$609.59 area and the highs from early in the year.

In determining upside targets after a decline like the drop from the February highs to the April lows, the 1^st obvious target is the prior high at $609.59. Then I look at the 127.2% Fib extension target at $650.97, which has almost been reached. The 161.8% Fib target is at $697.07.

The weekly S&P 500 Advance/Decline line broke through resistance, line a, in April, indicating that the correction from the February highs was over. The A/D line recently made a new high and is well above its strongly rising EMA. In determining my stock market outlook, it is important that the NYSE All A/D line also overcame its resistance, line b, in April.

Since the March 2009 low, the QQQ has been leading the SPY by a wide margin, as indicated by this Interactive PerfChart. Since March 4, 2009, QQQ (in blue) is up 2306% versus 1119% (in red) for SPY. This approach, as well as my relative performance and growth/value analysis, are key tools in identifying the strongest and weakest ETFs or stocks.

The Invesco QQQ Trust (QQQ) formed a weekly doji last week as it has exceeded the yearly R1 at $572.08. The three-week high at $583.32 did exceed the monthly R1 at $578.21, with the R2 at $591.40. The rising 20-week EMA at $542.04 is now 4.97% below Friday’s close.

The NDX 100 Advance/Decline line was lower last week but is still above its rising EMA. The monthly A/D line (not shown) is still in a positive trend. The weekly A/D peaked in early August and is declining. There is initial support at its EMA and then the uptrend from the October 2023 low.

The daily analysis for QQQ is weaker than that for SPY, as it again tested its monthly R1 last week before declining over 1% on Friday. On a close below the monthly pivot at $561.43, we may see a drop to the S1 at $548.24. The S2 at $531.46 is below the February highs at $539.40 and is 6.8% below the close.

There are additional short-term warnings for QQQ as the NDX100 A/D line has been diverging from prices, as it has formed lower highs since it peaked in July, line c. On Friday, it did close below its EMA and has strong A/D line support at line d. The A/D line turned positive at the end of April, line a, when it moved above its downtrend.

The relative performance analysis (RS) completed its bottom formation at the same time as it identified QQQ as a new market leader. The RS continued to make a series of higher highs until the middle of August when there were early signs that QQQ had lost some of its positive momentum. It has been diverging from prices, line e, which is consistent with a decline as QQQ should be weaker than the SPY as it was last week. The weekly RS (not shown) is still positive, so there is no evidence yet of a change in the major leadership of QQQ.

Since a majority of the daily A/D lines are still positive, there are no correction warnings yet. Several days of 2-1 negative A/D numbers could change the positive short-term outlook.

The cash level from the August FMS survey of 3.9% has consistently been associated with market corrections. A September reading of 4.3-4.5% next month would be more positive for the market.

For trading positions, I continue to suggest raising some stops and taking some profits to reduce your equity exposure as the profits have been great since the April A/D line buy signals. The uncertainty over the September rate cut is an additional risk for the market right now. Unless there are breakdowns in the weekly outlook, investors should stick with their positions.

In summary, given the current technical outlook and the current low level of bearish sentiment, I think it is unlikely that this will be another record-breaking September for the bulls.