Tis the Season to Fret
Folks are becoming concerned as we head into September. They're fretting about Powell, about stocks, about the election.
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NOTE: I am on vacation for the next week. My next column will be Tuesday, September 3rd.
Two weeks ago, folks turned bearish. Slowly they released that bearish view and embraced the bullish view (more on that below). However, this week has been much choppier (thanks to the overbought market coming into the week), and then Thursday came along and the beloved index movers pushed the market down.
That must be why there was a drumbeat of folks talking about ‘seasonality’ Thursday. Like they came out of the woodwork. It went something like this: well, you know, September has terrible seasonality. Or maybe it was with the election coming up the market should stay on edge, especially in September because it’s typically one of the worst months of the year.
As you can imagine, that got my antenna up, so I decided to run a quick poll. Mind you, this is not scientific at all, but last week, I drew in that big head-and-shoulders top for the SOX, noting I thought the SOX would stop around 5200 and that if we did turn south from there, it might be one of those patterns that was too obvious.
Then, on Monday of this week, I drew in a different pattern: a possible head and shoulders bottom. I was keying off the overbought condition coming into the week but the fact that I thought we should pull back and then rally again.
Therefore the picture of the SOX looks something like this. The black LS/RS represents the top and the blue represents a bottom. My question was which do folks believe will pan out. Lo and behold, even with NVDA’s earnings coming next week, 56% saw the top vs. 44% who saw the bottom.
I know this isn’t scientific and only captures a moment in time, but it pretty much confirmed my view that folks are starting to fret over the month of September despite turning more positive this week.
Now I have no idea what Chair Powell will say on Friday nor do I know what the market reaction will be but I do know that we are working off the overbought condition. You can see that the Oscillator is starting to fall.
If we can get some follow-through on Thursday’s selling next week, especially as we head into the Labor Day weekend, the Oscillator will get back to an oversold condition after Labor Day.
As I noted yesterday, the Investors Intelligence bulls levitated up to 50% this week, but so did the day traders at AAII. They clocked in at 51.6%, the highest reading since mid-July. In the last year and change, we’ve seen this up over 50% four times. Three of the four times led to a pullback in the S&P of at least five percent. The one time it did not get to five percent, it did come down nearly three percent in a few days before heading back up. The Russell was the index that took it on the chin that time.
As I indicated above, anecdotally, I hear more folks ‘concerned’ about September, so if we do get a pullback next week, I think these AAII folks will scurry away from that bullish stance. And that cry of poor seasonality in September might get quite loud just as we move back to an oversold condition.
