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Are you tired of hearing that the average monthly return data for September is often bearish? You may even be tired of saying it by now. I know I am. The phrase “September is a bearish month” also frustrates me when it’s not followed by some context or perspective that is helpful.

The data used to support the claim “September is a bearish month” typically looks like the chart below.
 

Everything about that chart above is true, but it hardly provides enough context or perspective to be helpful. In fact, it’s dangerous, considering that missing a big up-move can be just as frustrating and costly in your efforts to build your wealth as getting hurt by a big down-move.

You can find the chart above and others like it on the major indexes and sectors in our section here, but I wouldn’t click on that link before completing this article.

We are often very repetitive in saying the following when presenting any data or trade opportunity that is described by a single chart: “What’s your risk?”

If you can answer this as we teach, you’ll have considered the chart’s context and your perspective. As a result, the focus of most weekly outlook articles extends this question to, “what’s the context and perspective?”

“Context” vs. “Perspective”

At the risk of sounding like an English professor (which I am not) with an obsession with data-driven results from both discretionary and algorithmic models and systems, I’m going to take a look at September a little more completely.

To be clear, this will still be a high-level look at how we look at markets in our internal processes. First, I realized that I’ve never described the underlying thought process by which I like to construct the weekly commentary. It’s based on this principle:

• “Context × Perspective = Insight à Edge à consistent, predictable results”

Improve your context, understand your perspective, and you’ll get better results.

Additionally, context and perspective are not synonyms. Each perform a different job. For example, below you’ll find a chart that shows some context for the same 10 years considered in the chart above. It shows the relative year-to-date performance of each of the last 10 years up to the end of August. It answers a simple question – how were these years performing before September?
 

You’ll likely notice that some of the years are formatted as dashed lines while others are solid. There is a significance to this. The current year is defined by solid magenta to highlight it, but its formatting as solid vs. dashed is not relevant. Can you figure out why I would have formatted some years differently?

Now, I'll hand things over to Keith.

Every week, we review the big picture of the market's technical condition as seen through the lens of our data charts. The bullets below provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral.
 

Summary

Markets have still maintained some risk-on sentiment, with strong breadth and low volatility. Small-caps and the retail space have been firm, and we’re watching the QQQ’s 50-day average and the Sept. 2 lows as key support. Factors that offset this included the sharp gold breakout, Treasuries (TLT) moving above the 200-day, mixed sector rotation, and short-term froth—which altogether have been nudging our gauges toward the weak to neutral range.

Risk-On

• Markets were seen treading water this week right around their all-time highs as bullish trends remained intact. A key level to watch would be the 50-day moving average and the lows set on Sept. 2 in the QQQs.
• Volume patterns moved to marginally bullish, with the biggest strength seen in QQQ.
• Market internals are looking positive, and the cumulative advance decline line hit multi-year highs.
• The new high/new low ratio has been maintaining its bullish configuration over the intermediate-term. It may be a bit overbought in the short-term.
• The moving average of stocks above key moving averages looks to be positive for the small-caps and more mixed-to-positive for SPY and QQQ.
• Volatility remains in a bear phase near its lowest recent levels.
• Value and growth stocks have been performing about the same as the overall market, and they appear to be in bullish phases. On a longer-term basis, growth stocks have been outperforming value stocks.
• Bull phases have been seen across the board in the major sectors, with new yearly highs recorded in retail, IWM, and biotech.
• Emerging and developed markets remain in bull phases, and they have been matching the recent performance of U.S. equities.

Neutral

• The sector summary is giving a mixed read, with more sectors up than down. However, this was an inconsistent mix, with gold miners and retail up, while semiconductors and technology were down. We are seeing more weakness in short-term momentum, as measured by real motion indicators, across many sectors.
• A big breakout occurred in TLT this week. This is the first time we have seen it above the 200-day moving average and in an accumulation phase since April. If it can sustain it, it would mark the first major action above the 200-day moving average since last fall. The market seems to be interpreting rates cuts as bullish, though a steepening of the yield curve is often associated with major corrections in the past, such as the 50% drop in 2008.

Risk-Off

• A parabolic move was seen in gold this week, as it broke out of the compression it's been stuck in for the last five months.
• Markets are entering their seasonally weakest month of the year.
• Risk gauges moved to risk-on due to the strength in gold and treasuries.

For actionable trading ideas, please refer to the strategies discussed below.

Market Stance & Exposure

• Bias: Maintain a moderate risk-on position, while watching for signs of short-term exhaustion.
• Target equity exposure: ~75%-85% of max risk allocation.
• Cash reserve: Keep 15%-25% in cash to deploy on pullbacks or confirmation breakouts.

Key Technical Levels to Watch

• QQQ 50-day moving average and the Sept. 2 lows are critical supports.
• A decisive break below both would suggest reducing exposure in tech/growth by 25%-50%.
• Volume leadership in QQQ suggests staying tilted toward large-cap growth until that support breaks.
• The cumulative advance-decline line reaching multi-year highs would confirm internal breadth strength.

Equities

Traders can focus long positions on the following:

• IWM (Russell 2000) – small-caps have been showing the strongest breadth. Add or overweight.
• XRT (Retail) and XBI (Biotech) – new yearly highs suggest leadership. Consider 1%-2% tactical additions.
• SPY/QQQ – maintain core exposure; do not increase unless new highs break with volume.
• Caution on Tech & Semis (XLK/SMH) – these were flat or down this week. Hold existing assets, but avoid fresh additions until relative strength improves.

Global Equities

• Maintain exposure to EFA (Developed) and EEM (Emerging): Both in confirmed bull phases.
• Target: 5%-10% total allocation between them.
• Monitor 50-DMA for any breakdown.

Rates & Treasuries

• TLT's breakout above the 200-DMA is notable.
• Initial position: 3%-5% allocation in TLT, with a stop just below the 200-DMA.
• Add on confirmation: Add to positioning if higher highs, strong volume, and follow-through are seen next week.
• Watch for yield curve steepening, as this is historically tied to market corrections. Be ready to raise cash if TLT surges while equities fade.

Style Tilt: Growth vs. Value

• Both growth and value stocks appear to be in bullish phases in the short-term, but growth stocks are still leading over the long-term.
• It may be wise to maintain slight growth overweight (QQQ over DIA or IWD).
• Avoid big shifts until leadership reverses or internals deteriorate.

Caution Flags/Transition Triggers

Reduce risk exposure if two or more of the following events occur:

• The QQQ closes below 50-DMA and volume reaches the Sept. 2 low.
• The A/D line rolls over, or the NH/NL ratio turns negative.
• Risk gauges shift fully to a neutral or risk-off reading.
• The VIX closes higher than the recent low, or it enters a bull phase.
• The TLT surges while the SPY drops more than 2% in a single day.

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