Wait For It...

For the last couple of weeks, in our market commentary HX Daily (usually on Mondays), we have been sounding notes of caution.

However, our concerns have been different from those of many market commentators.

While they have focused on the narrative about a slowing economy potentially becoming a recession, we have been more focused on the technicals and seasonality.

On July 17, we called to take profits as we saw the market as overbought as we had seen in a long, long time. Sentiment also struck us as too one-sided to the bullish side.

That played out more quickly and violently than we expected with the sell-off at the start of August.

To the surprise of many (including ourselves), the stock market responded to the extreme volatility with a “V” recovery. It went right back up close to the highs.

This is not unprecedented, but it certainly was a lower probability bet based on history.

Two weeks ago, as the market traded near those old highs and sentiment had also recovered, we felt it was too much and too fast.

The damage from the volatility incident would not be healed that quickly, and we were still going into the most difficult month of the year: September.

Well – THAT played out pretty quickly!

The first week of September was the worst week the stock market had seen in a while. In particular, the technology-heavy NASDAQ composite got crushed. It posted one of its worst weeks in years!

So, where do we stand now with our short-term views? Let’s look at a couple of indicators.

First, here is a chart of sentiment as measured by the American Association of Individual Investors. This non-profit organization polls individual investors weekly on whether they are feeling “Bullish,” "Bearish," or "Neutral.”

Here is a chart showing the " Bulls " percentage minus the "Bears” …

The green line is the calculation, and the black line is the price of the S&P 500.

Since we launched in February, we have made THREE "take profits" calls, which are highlighted with red circles.

Our calls have matched up with this "AAII Bull-Bear" spread, which is a contrarian signal for making short-term market calls. It is not the primary indicator we use for these calls, but it is important.

Where does it stand now?

Looking at the chart, you can see that the stock market really didn't bottom until this measure got close to (or below) zero. We think we want to see that happen before we get more bullish overall on the stock market.

Here is a chart of the S&P 500 with the moving averages…

We don’t put that much value on the moving averages as a technical indicator, but we do think they “pull” a correction towards them.

On Friday, the S&P 500 breached the 50-day moving average (in green) and is now not far from the 100-day moving average (in yellow).

Our view is that it is highly likely that it DOES breach the 100-day and at least flirts with the 5200 level. This is around where the market closed on the day with the crazy volatility – August 5. That is down another -4% from here.

This week, we are going to take advantage of the sell-off in some awesome stocks, but for the market overall, we will only be more constructive once we see both of these indicators reach these levels.

Typically, this can take a couple of weeks. THAT lines up very well with the end of September, when the stock market has historically bottomed.

We posted this on X/Twitter in July when we made our "Take Profits" call then…

Want to guess when the HIGH for the S&P 500 was for this year? It was July 16.

Do you see on the chart when the BEST investment time is usually? October 6.

Many investors see seasonality indicators as another “voodoo” technical indicator.

We have written many notes, though, explaining why these patterns occur. They are driven by the vacation calendar, earnings reporting (and revisions), and money manager incentives.

We also have proven repeatedly that we can use them to make money.

Overall, we see some interesting emerging opportunities and will begin incorporating them into our trading portfolios.

We realize, though, that we may be a bit early and would advise that most "wait for it" to capitalize on what may be the BEST buying moment of 2024!

Lastly, stay tuned here at HX Daily this week. We have a huge announcement coming later this week that will help YOU take advantage of this opportunity…