September Low Is Part Of Longer Term Consolidation

As the election countdown approaches, the stark contrast in the opponents and uncertainty of a clear quick outcome have escalated. Stocks peaked on September 2nd and have been in a corrective mode throughout much of September. Our September 2nd ExecSpec letter indicated a possible immediate top with a drop into mid to late September in the SP 3200 to 3400 zone as outlined below. While a broader trading range has been our outlook into the Lame Duckpost election period, major oversold stock index levels have not appeared in the September swoon. Normally each year we see several notable oversold and overbought indications among our primary indicators (below). The pandemic crash in March and stimulus-driven rebound since have created record extremes that have altered typical behavioral responses. Overbought conditions are lasting longer and typical strong oversold metrics are failing to be reached. Some of our benchmark technical markers of overbought and oversold shown here continue to struggle to reach unanimous extremes since the pandemic panic lows, although the general time window for future market action has occurred much as expected. All-time record Bullish bets in Call option buying relative to Bearish Put buying in August favored a decline in September toward 3200 in the SP 500 Index. While sentiment did not hit an oversold condition in September, a short term low appears to be in with a likely continued trading range until the election. With post-November 3rd election volatility already being priced in by investors expecting a delayed and contentious Presidential outcome, stock prices may be more news sensitive than usual. If renewed equity market plunges occur in the November to January time frame, they should be viewed as buying opportunities regardless of a Trump or Biden victory due to (1) the federal reserve promise of rock bottom interest rates and sky-high money creation, (2) fiscal stimulus and (3) promises of infrastructure spending. Our Central Bank and even our politicians can’t afford to let the economy backslide until a higher “annual” GDP growth plateau is achieved >2%.

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