The market lost ground last Wednesday after the September Fed meeting. The Fed had the same message of “higher and longer” like before. And the Fed paused as expected. But the market took the opportunity to selloff to fulfill the promise of September being a bad month for the stock market. The S&P 500 and DOW both had the August low violated, with the NASDAQ closed near the August low last Friday.
With five trading days left in September, and the ongoing strikes and pending government shutdown, we don’t expect the selloff to reverse by itself. It is very likely that the selloff will drag further into mid October when the Q3 earnings season starts. If the earnings season proves to be not as bad as expected, the market will come out of the seasonal bottom and rally into year end. If the market can’t rally out of the October seasonal low, then we will be looking at the Q1 2024 low to finish the 4-year cycle.
The small to mid cap growth stocks have been in a bear market since the February 2021 high. This market has been brutal for 95% of the stocks except the magnificent 7 mega tech stocks plus a handful AI stocks this year. By February 2024 it would be 36 months bear market for the small to mid cap growth stocks. It’s time to turn the corner. Not every previous winning small to mid cap growth stock will be a winner again, but some will. The AI stock such as PLTR showed promise this year and we believe this stock will be a winner in the upcoming bull market in 2024. PLTR made a low of 13.68 last Thursday, that was near the head should neckline. The bears were trying hard to crash the neckline at 13.68. It made an inside day when the indices all made a new low last Friday, which created a little bullish divergence. Nvidia also made an inside day last Friday. It has been 24 days since the August 18 daily cycle low. The daily cycle could turn up at this location
The oil ETF XLE met resistance below 94, that has formed a triple top. The 10-year treasury yield made a new high the day after the Fed meeting. Now it looks like it’s forming a reversal. The reversal is not confirmed yet, but if it continues to go down from here, it would provide support for stocks.
Since the S&P 500 8/18/2023 low has been violated, the next level for it to try is its 200-day moving average, which is around 4200. The likelihood of the S&P 500 to try 4200 is greater than it turns around here. The little bullish divergence in PLTR and NVDA couldn’t be enough to give the turnaround indication.
Lots of conflicting information in the market right now. But it is very clear that the Fed is near or at the end of the rate hiking cycle. The Fed admitted that they don’t know what’s really ahead and will be data dependent. This gives us the confidence that the end of the 4-year cycle is close by. The 2024 election year will be good for the stock market.
Below is the S&P 500 daily chart. We are expecting the S&P 500 to test 4200 level to conclude the fall correction. 4200 is the 50% retracement of the current weekly cycle low to high.