Seasonals and technicals lining up

September 30, 20193 Comments

I thought I would start today’s blog off with a seasonal commentary by Don Vialoux – one of Canada’s leading seasonal experts:

“The weakest period for North American equity markets is from mid-September to mid-October while other developed equity markets in the world tend reach a seasonal low in the first half of October. Supplemental concerns this year include an earnings recession by major U.S. companies until the fourth quarter this year (particularly companies with extensive international operations), growing efforts by the Democrats to impeach Donald Trump, growing Middle East tensions and unsettled trade negotiations between the U.S. and China.”

Don also supports his case for a cautious neartermed outlook with another factor worth considering:

“‘Tis the season between now and the first week in October when major companies “confess” if they were unable to achieve previous guidelines.”

Now lets look at the technicals, starting with the mid-long termed basic chart formations.

Longer termed trend

The Weekly chart of the SPX below shows us a series of rising troughs – with the exception of the big break in late 2018. The market has generally put in higher peaks as well.  However, it paused in September – failing to take out the July high. While this may be a concern for the nearterm, the bigger picture of no lower lows or lower highs implies the bull market is intact. This – along with the bullish adherence by the SPX over its 40 week (200 day) SMA.

Neartermed picture

On the daily chart, we can see that momentum has slowed. Stochastics, RSI and MACD have rolled over. The top pane is that of money flow momentum. It too is showing minor signs of rolling over. This, despite the longer viewing A/D line (very bottom pane) showing positive moneyflow for the index. The picture is neartermed bearish.

 

Conclusion

Given the bullish long term trend, it might be suggested that the market will break though its old highs as the seasonally favorable time of the year begins after October. We’ve increased our cash weighting to about 30% in the VT Equity Platform. It is our intention to invest that cash upon further market volatility. Given the market’s tendency to put in higher troughs of late, it might be expected that the recent tough of around 2825 will hold. Thus, my view is to look for an entry point anywhere around 2900 – or perhaps a bit lower. We shall see….

3 Comments

  • G’Morning Keith

    A technical question: When using technical analysis what are your thought on using price adjusted data vs nonadjusted data? I am interested in dual momentum strategies, so using ROC indicator as an example, readings (in other words the signal) can have large discrepancies between the two data sets. Stockcharts makes it very easy to use either set so I was curious as to your thoughts.

    Thank you
    Carey

    Reply
    • Hi Carey–I assume you mean dividend adjusted data vs price only. For readers unfamiliar with these options on stockcharts, you can use an underscore before your symbol if you with to eliminate the dividend being added into the value of the stock on a relative performance basis – which tends to distort charts greatly in high dividend paying stocks.
      I am a fan of pure-price charts unless the stock pays a minor dividend that likely wont affect the “look” of the chart and its support/resistance points much. For high div. payers, I go with underscore (no dividend adjustment) every time.

      Reply

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