Our Lean

The ES average July range is 6.19% from the previous month’s close, the average August range was 6.92%, and September is a 6.57% average range — or 371 points of the prior month’s close.   

September has never taken out the July lows when July and August close higher. I know this sounds bullish — and to a degree, it is — but it also goes with a warning: There will be down days. Buybacks will slow after Sept 16th, so maybe some weakness after mid-month.

Our Lean: I like buying lower opens while in an uptrend. Selling gap-up opens work, but it is fighting the trend and if it does actually open higher, my concern is the buy stops that have been building up above 5660. 

MrTopStep Levels:

Today you are going to get three opinions. I am going to go first because I asked Rich Miller from @HandelStats and Jeff Hirsch from @AlmanacTrader to give their views on the next two months. Before Rich said anything to me, I told him I don’t think the ES is going to go down hard in September or October and that any 50-point pullbacks should be brought into the third week of October. I pointed out all the back-and-fill patterns the ES has used on its recovery from its August 5th low. Remember the VIX traded a 14.46 low in August and made a high at 65.73 before closing Friday back at 15.

Now, for HandelStats.

“Since 1970, in the SPX, whenever the first two quarters have been positive, there has never been a down year. This pattern has occurred 23 times in the past 54 years, and the first two quarters this year were also up.

When both July and August followed suit with positive returns after an up first two quarters, this scenario has happened 14 times. In 13 of those instances, the September high surpassed both the July and August highs, and the September low was always higher than the July low. This year, the July low was 5390.95. The only exception when the September high did not exceed the July and August highs was in 1987.

Although the third quarter has been positive with these conditions, September has been a down month over half the times, and there have been two instances of negative fourth quarters.”

To learn more about Rich’s products, please visit them here. 

Jeff Hirsch from Almanac Trader 

 Bull Still Intact But Wait for Fatter Pitch

September seasonal weakness and Octoberphobia looms large. But we have been hearing a lot of chatter about the seasonal troubles this time of year, so our contrary antennae are purring that perhaps there is just a bit too much negativity. But with the lack of clarity about the economy, the election and the Fed’s next move on interest rates, we still expect some chop and sideways action over the next 60 days or so with a likely test of the lows. But another steep August-October correction three years in a row is less likely.

 Bullish election forces remain at play, but September and October are two of the worst months of election years – even excluding 2008. October is the worst month of election years for DJIA, S&P 500 and NASDAQ. NASDAQ has been up only four times in election year October since 1971 and down the last four straight. Since 2000 DJIA is up only one out of six in both election year September and October, S&P is up twice in election year September and once in October.

We had a below average mid-July to early August election year drawdown of 8.5% on the S&P and 13.1% on NASDAQ, culminating in a mini flash crash and turnaround on August 5. Now the steep snapback rally that brought us to new all-time highs on DJIA and to within striking distance for Naz and S&P looks like it may have run its course. The market’s convention bounce may already be yielding to the realities of an uncertain election with all the gyrating economic data coming in, speculation on what the Fed will do at their next FOMC meeting on September 18 and other rhetoric swirling around The Street and financial media.

Seasonality is coming into its historically weakest period of the year while geopolitics remains tense in Russia and Ukraine, the Mideast and the Pacific Rim. But macrotrends, technicals, internals, the US economy and election year forces remain supportive. So be patient, we are well positioned and ready for the fatter pitch later in Q3 or early Q4.

With President Biden stepping aside, our Open Field election year is back in play. This does not mean we are heading into the red for the year, but it does suggest the market may continue to struggle over the next few months during the seasonal weak period and leading up to this now more uncertain election. But remember since 1952 there have been “Only Two Losses Last 7 Months of Election Years” (page 80 STA 2024). Any potential September/October market weakness could set up a solid Q4, end-of-year rally, most likely beginning after Election Day.

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