By Investor’s Yak
Definitions and Acronyms:
- DMA – Day Moving Average
- Death Cross – is a bearish signal depicted by the 50 DMA moving below the 200 DMA
Monday began with a deeper drop than the prior week but rallied through to Friday (28 August) with an impressive comeback. Presently, this appears as a bounce that will have to penetrate some heavy Resistance to transition back to a bullish scenario.
The bearish “Death Cross” has engulfed most major indices (DJIA, S&P500, Small Caps, etc.) as well as sectors such as Utilities, Semiconductor, Technology, Retail, Metals, Energy, etc. Daily Action Zones for some of these reflect an extended bounce with some potential for more short term gains. But caution should be exercised with any purchases in this challenging market.
A silver lining of hope exists in a few areas:
- Homebuilders are showing the best strength with prices above the 200 DMA even after Monday’s deep pullback.
- Healthcare, Pharmaceuticals, and Biotechnologies have 50 DMAs that remain above the 200 DMA and their prices are holding near the 200 DMA.
- Materials and Transportation, while priced below the Death Cross for months, may be establishing a price bottom.
- NASDAQ, Financials, and Consumer Goods – their 50 DMA, while starting to slope down, has not crossed below the 200 DMA. But remain vigilant because their prices are presently established below both the 50/200 DMAs.
Many of the best rallies occur following a good correction. These corrections can last weeks, months, and sometimes a few years. Most corrections frequently begin with a pullback similar to what we have experienced this week. Even if a correction ensues, an end of year rally could provide a short term entry sometime this fall (September, October, November, or even December). Watch for good price construction and Action Zone set up to reduce risk on your purchase entry.
Event calendar affecting markets in September
7 September – Labor Day
16-17 September – Fed meeting
28-30 September – End of month and quarter window dressing; could extend into October.
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