Breakin’ Out is Hard to Do
Courtesy of Daniel Sckolnik of ETF Periscope
“To know yet to think that one does not know is best; not to know yet to think that one knows will lead to difficulty.” ~ Lao Tzu
September is trying hard to make a statement, at least as far as the markets go. The question is, will the statement turn out to be a clear one, or segue instead into yet another round of sideways muddle?
On the face of it, September is, at least at first glance, demonstrating bona fide Bullish tendencies. The Dow Jones Industrial Average (DJIA) ended the short holiday week at 10,462, up about 1% for the week, and about 4% on the month. Not surprisingly, considering the basic correlation between the two, the benchmark S&P 500 Index was about 0.5% higher, with a Friday closing at 1,109, putting it up about 5% so far for September. Crude-oil futures for October delivery ended the week at about $76, its best numbers in over a month. Gold, which has been testing new highs recently, and has been more closely synched with equities than has historically been the case, has remained mostly flat for the month, arguably in a consolidation mode before deciding what it wants to do next.
The week’s news cycle didn’t seem to affect traders very much, either one way or the other. Tuesday’s revelation that the Euro Banks did a poor job of self-evaluation in regard to its stress tests phased the markets for a day, but most of the losses were recovered by Wednesday. ??That reversal could likely be pegged to Portugal’s successful sovereign debt auction, which seemed to allay some of Tuesday’s concerns. The Federal Reserve’s “Beige Book” report that the U.S. economy continues to plod along hardly shocked investors, but possibly kept a lid on any significant upward push of U.S. equities. Even the U.S. Dept of Labor’s relatively positive news that jobless claims for the previous week fell by 27,000 to 451,000 failed to excite. So at least for the moment, the level of good and bad news seems to be factored in, as long as it’s within the realm of the expected. As often is the case, when the markets take things more or less in stride, it often is a telltale sign that some fear has been squeezed out of the sentiment equation. And that can bode well for the Bulls.
But if you look underneath the hood, you might notice that so far, the month is unusual for several reasons, which, taken together, make it hard to get a good read on the trend. Besides being one session short due to Labor Day, both Thursday and Friday saw many of its key Wall Street players absent from the markets in honor of Rosh Hashanah, the Jewish New Year. Subsequently, trading volume, traditionally on the low side during the summer months, continues to be weak. In fact, the NYSE had its sixth straight session below the billion-share mark, an amount generally considered to indicate a level regarded as on the “lightly- traded” side of the scale.
If you consider the extended low trading volume, there seems to be something going on besides the usual seasonal cycle of things. Are retail investors lying low and hoarding their cash, waiting for a stronger signal? Could it be that these current volume levels shall become the new standard rather than the exception?
It would be historically safe to say that investors love jumping on a fast moving bandwagon. Is it possible that September will defy expectations and show them what they want to see?
Looking at a chart of the DJIA, a few points of interest emerge. First off, the Dow has pushed nicely above its 50-day moving average, where it has remained over the course of the last six sessions. More significantly, Friday’s close at 10,462 placed it just over its 200-day MA for the first time in over six weeks. What we have here is a classic testing of resistance, and if the push continues past the 10,500 mark, the Dow might be ready to move on past the even stronger level of resistance of 10,750, which has effectively stymied the Bulls three times already this year. If a true upward trend is emerging, this will be one of the milestones to watch for.
Breaking out of the extended sideways malaise that has dominated the recent conversation will be required. Is resistance futile? Whether the markets are marshalling the forces to push on through to the other side will become clearer over the coming week.
Note: For those who trade SPY (SPDR S&P 500) for the purposes of either hedging or simply for directional trading on the markets in general, it may be worth noting that there is now a new kid on the block. VOO (Vanguard S&P 500 ETF) is being introduced as a less expensive alternative to SPY, which happens to be the biggest ETF on the market, as well as being the first. Will it track the S&P 500 closely enough to serve the purpose of SPY? Time will tell, and it will be a while before it talks. It might be a good idea to keep tabs on this before investing or trading it, but eventually it may prove to be another worthwhile tool for your ETF toolbox.
ETF Periscope
Full disclosure: The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”
Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.
