September selloff may provide a buying point

For those of us who have held cash for the summer, there may be a buy point coming to the markets fairly soon. While I typically like to hold some cash right to the end of October in respect of the seasonal “best six months” strategy, I’ve noted that the best buying opportunities can often be in that last week of September – or very early into October. Here are some statistics on the coming days leading us into the end of September:

dow

  • Sentimentrader’s Jason Goepfert recently presented in his research reports that for the past 13 years, there has never been a positive return for any major stock market sector from Septembers options expiry date (last Friday Sept 18th) to the end of the month. In contrast, the US long treasury has been positive in each of those 13 years.
  • Thackray’s guide tells us that September on the whole has been positive only 44% of the time since 1950. More importantly, the latter part of September tends to be the worst part of the month (as with Goepfert’s research), according to Brooke’s research.
  • I’ve noted throughout this blog, and in my book Sideways, that it is indeed rare for a market to make a “V” bottom. I recently suggested that the complex bottom seen during the summer of 2011 may offer some guidelines to a pattern for this summer’s market.  Given the volatility we’ve seen since the early August selloff, I would say we are on track for a similar bottom formation – as seen on today’s chart. Please read this blog for the 2011 chart comparison.
  • Note the “Shooting Star” formation on last Thursdays DJIA daily candlestick chart – above. The Fed’s decision to hold rates steady did little to add to investor confidence on that day. The shooting star is a reversal bar, meaning that the market had moved impressively higher in the morning, but traders chose to sell aggressively into that strength later in the day. Such movements can be a sign of near termed downside to come. The 2011 chart below demonstrated 2 similar candlesticks – late August, late September -both which led into a subsequent reversal before the true bottom was finally made in early October.
  • Some might call the recent formation on the daily above chart a “Rising wedge”. This formation is thought by some to be bearish, although in my experience it is a fairly unpredictable formation-so I didn’t draw lines on the chart to highlight it. Nonetheless, if a few traders out there think its bearish, that may add another self-fulfilling reason for more downside to come.

dow 2011

Should the market selloff into the August lows of around 1880, I would look for a confirmation rally off of that level for a few days, and begin to buy select stocks. A low that tests or slightly overshoots the August lows would likely suggest a double bottom formation.

By the way – a few investors have asked me if I consider the break of the 200 day MA as a sign of the end of the bull market. While such violations do suggest a break in trend and a correction to come (which we got!)- it does not imply the end of the secular bull market. Case in point – the correction of 2011 saw the market remain below the 200 day MA from August until December of that year–see the Dow 2011 chart  ( 200 day MA is the blue line) . The proceeding 60% rise on the S&P500 into 2015 proved that the break of that MA is a good tool for trend verification, but not a tool to make secular market directional calls.

 

If you agree with my thesis of a near termed buying opportunity, you might want to take advantage of the potential volatility to come. On our shopping list at ValueTrend are technology, consumer discretionary and other individual positions. You might want to start lining up your shopping list too.

 

Heads-up

I will be on BNN’s call-in show MarketCall Tonight on Wednesday September 30th from 6:00pm to 7:00pm. Tune in to BNN to catch me live on BNN’s premier call-in show, where viewers like yourself can ask my technical opinion on the stocks you hold.

You can email questions now to [email protected] – its important that you specify they are for me – or you can call in with questions during the show’s live taping between 6:00 and 7:00 pm. The toll free number for questions is 1 855 326 6266

3 Comments

  • When you pull up the monthly chart of the spx the MACD looks to be pointing down. Do you put much weight in that or is that too long term

    Reply

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