Here we are at the four-year anniversary of the Lehman Bros.’ demise. September in general seems to come with its own special set of ides, as Black Tuesday and even Black Monday also took place during this fateful month.
This September is quite unique, however, with its pledges of unlimited stimulus from the European Central Bank and the Federal Reserve. This means that, so far, the U.S. stock market has not followed the usual downward trajectory it normally takes in September.
But the month is far from over. Could this September have one more surprise left for us? Watch today’s video to find out!
Hi, this is JR Crooks for Uncommon Wisdom Daily.
You’ve probably heard by now that September is normally the worst month of the year for the U.S. stock market. But that hasn’t been the case so far this year. So what’s going on?
First of all, we have to credit the Federal Reserve and the European Central Bank. Their unprecedented monetary policy decisions are sure to flood the markets with liquidity, and investors have seized on those expected funds to drive up market prices.
But I’m still not convinced that this optimism, or the rally, will last.
Research firm BTIG points out that the second half of September is historically worse than the first half of the month. And October is usually pretty rough for the markets as well.
In addition, there’s an event coming up called “quadruple witching.” Despite the spooky name, it just marks a day when stock index futures, stock index options, stock options and single stock futures all expire.
In the past, we’ve seen the markets behave strangely around options expirations dates — typically the third Friday of every month. And at the end of the first quarter and the second quarter of this year, the S&P 500 has reversed course. If this pattern holds, the next reversal should be coming soon.
Another technical indicator that I watch closely also argues for the imminent end of this bear market rally. The Elliott Wave Principle says that investor psychology moves between optimism and pessimism in natural sequences.
Applying that logic to a chart of the S&P 500, we can see that optimism is about to peak, and pessimism is about to take over.
We find more evidence that we’re still in a bear market from the lack of participation among investors. The CBOE Volatility Index, or VIX, which measures fear in the market, has been trading at five-year lows, and volume has been extremely thin.
Can a bull market really start, or restart, in an environment in which investors are so concerned about even being in the market?
Finally, I want to call your attention to this simple chart of the S&P 500. To me, this looks an awful lot like a triple-top forming — a very bad sign for the market.
You might argue that the Fed’s QE3 program and the ECB’s new round of bond-buying will keep asset prices inflated. But I think that all they’ve done is emboldened the blind risk-takers among us.
Cautious investors should always be especially wary around this time of year. And my technical analysis suggests that that rule of thumb goes double this year. My conclusion is that the upside in this market has become exhausted.
I’m JR Crooks for Uncommon Wisdom Daily. Thanks for watching.