Transports are not confirming the bullish action on the S&P 500. With the S&P 500 making all-time highs, you would expect Transports to be doing the same. Instead, Transports are clearly under-performing the S&P 500.
Semiconductors could start putting in a top over the next week. For the week ending September 22, 2017, we could see sideways action next week to about 1% – 2% higher by the end of the week. After that, we could see the seasonal month of September (weakest month of the year for stocks) kick in and take SOXX back down to its long term uptrend line near $151.
Biotech stocks are following the market prediction perfectly. It looks like next week we will continue the chop out sideways action and then we will get the pullback at the end of September (week ending September 29).
The Russell 2000 had a stronger upward move last week than the predicted path from last Saturday. I predicted the upward move but did not expect the previous $140.89 resistance level to be broke. Here is an updated prediction path for the Russell 2000.
The S&P 500 prediction is flat to slightly up by the end of next week (September 22), then down the week of September 25 – 29th.
The predicted projected path for the S&P 500:
The Biotechnology ETF IBB has a falling PPO which is signaling that a pullback is likely coming. I can’t believe IBB is not already falling with the PPO dropping as much as it has. I’m thinking we get sideways choppy action before a larger pullback at the end of September going into the first week or so in October.
The S&P 500 did a breakout today but I’m thinking it will turn into a headfake as the market goes down the week of September 25 – 29th. Be careful buying the S&P 500 because it did a breakout today. I’m thinking we get a sideways chop out for the rest of the week and then next week we get a sell off.
The main reason I think this will happen is that September is the worst month of the year for the stock market. Specifically, it’s the last week or so in September that gives the month its bad reputation. But it’s more than seasonality.
Notice the big negative divergence on the CMF. We should have stronger buying pressure with the S&P 500 doing a breakout and hitting a record high. That’s really pathetic buying pressure as evidenced by the CMF which means we have an elevated risk of a headfake move.
S&P 100 Index Put/Call Ratio
The S&P 100 Index looks like a possible exhaustion gap up. Notice how the Equity Put/Call ratio chart looks like a coiled spring ready to pop to the upside:
If the gap up on the S&P 500 is an exhaustion gap, then tomorrow we would expect the gap to fill. If it’s a more bullish breakaway gap up, then tomorrow could gap up again as the S&P 500 hits new all-time highs.
What is the catalyst for driving the market higher? President Trump’s corporate tax cut may not happen as Mnuchin admits here. Here is a stock trading lesson on catalysts for your review.
The market exists to screw the greatest number of amateur traders at any given time. The S&P 500 hitting all-time highs during the weakest month of the year smells foul. What a great way for professional traders to really screw a lot of amateur traders! Buyer beware.
The Dow Jones Transportation Index fired off a buy signal on the AROON indicator today. The chart shows a breakaway gap up candlestick with a shaven top and bottom.
D L Carlson Investment Group increased its stake in shares of the iShares Dow Jones Transportation Average (IYT) by 19.9% in the second quarter, according to its most recent filing with the Securities and Exchange Commission (SEC). The Ledger Gazette also reports other large investors buying up Dow Transports in the second quarter when it dipped.
Dow Jones Transportation
September is the worst month of the year for the stock market and the last week is often bad. I’m thinking we could be setting up for a headfake move to the upside this week, but then a sharp move down the week of September 25th – 29th:
High yield debt has taken a hard break to the downside and that supports the prediction that a pullback in markets is coming. Usually when a strong break either up or down occurs on the chart of HYG, the stock market follows within a 3 – 5 days. Using the high yield debt bond market as a leading indicator for short term swing trading is something you should be doing if you aren’t already.
High Yield Debt Chart
The hard break down in HYG is indicative of a market pullback. The move lower seems a bit ahead of the September 25 – September 29th market pullback that I predict is coming. We could see HYG chop out a little before continuing the plunge lower as drawn on the chart above.
The goal is to get out of the way of a market pullback, and then go long once the stock market reverses. Since September is the worst month of the year for stocks, you have to be careful to not chase anything higher. Ideally you want to look for oversold stocks to go long as the market pulls back. I did a stock trading lesson on oversold patterns here.