EB Daily Market Report - Pre-Vacation Update - Tuesday, September 17, 2024
Vacation Schedule
Just a quick reminder - I will be traveling tomorrow to begin a brief vacation. I'll return next Monday, September 23rd and we'll be back to our normal schedule on Tuesday, September 24th. I listed several schedule changes for the upcoming 6 days in the EB Weekly Market Report, published yesterday. Please refer to that for scheduled changes. I did leave off one Wednesday service - our Live Trading Room, which typically begins at 10am ET every Wednesday. Obviously, we will be canceling our Live Trading Room tomorrow as I'll be in travel mode.
Brief Market Update
Here's the good news! The Dow Jones ($INDU) has broken out to an all-time high, rather easily clearing the late-August high. Monday's volume was high to confirm the breakout as well. Check it out:
As our indices get more aggressive, performance tails off. For instance, the S&P 500's highest all-time close is 5667. Its INTRADAY all-time high was 5669. Today's high, as of this writing, is 5670.81, a new record. Can we hold it into the close? How about tomorrow, after the Fed policy decision and statement?
So the more aggressive S&P 500 (vs. the Dow Jones) is challenging all-time highs, while the Dow Jones has already seen a new all-time high close and is tacking on more gains today. If we move to the more aggressive NASDAQ 100 and Russell 2000 (IWM), we are much further away from all-time highs.
The IWM, however, is performing best today among our major indices, perhaps anticipating the start of rate cuts tomorrow? Regardless of what's happening today, I believe the short-term market reaction to the Fed announcement will be much more important, providing us some clues as to how the balance of year will unfold.
What are our sustainability ratios doing as we prep for tomorrow's big developments?
If I'm being totally honest, it's REALLY hard to get behind the current rally when our sustainability ratios look like these. Even last week's nice rally in aggressive areas of the market didn't turn around the short-term direction of these ratios, which are down. The XLY:XLP, probably my favorite ratios out of all of these, is showing more bullish potential, but it too is up against serious relative price resistance.
We also need to consider sentiment and September options expiration.
The last three readings on the equity only put call ratio ($CPCE) have been .57, .54, and .52. Two more days of low CPCE readings would provide us a topping signal. If you recall, we had climbed above .75 on this ratio (5-day average) just a little over a week ago, suggesting a market bottom and our major indices immediately rallied. Now, we're approaching extreme complacency again just as the Fed announcement AND options expiration approach.
False breakouts/reversing candlesticks could provide us a short-term warning signal at a time when sentiment is also suggesting a top. Throw in all of the net in-the-money put premium, the 2nd worst calendar period of the year, key overhead price resistance, and mostly weak sustainability ratios and you can see why it's so hard to just go full throttle here on the long side.
One last sentiment consideration. The Volatility Index ($VIX) is at 17.09 right now. If we do see a market reversal after the Fed AND the VIX moves back above 20, PLEASE keep in mind the historical significance of this time of year.
While I'm on vacation, I will be watching U.S. equities from afar. I'll be sure to let John Hopkins know what I'm seeing and, if anything appears out of the ordinary or something we haven't already discussed, I'll be sure to pass it along.
Have a great week and weekend ahead, I'll be back ready for business on Tuesday, September 24th!
Happy trading!
Tom