Story

Bears on the Bench as September Kicks Off

On The Edge (Monthly)

MARKET REVIEW – SEPTEMBER 2021

Although August has been a historically low point for the broader averages for decades, investors shook off concerns of Federal Reserve tapering, the spread of the Delta variant and expiring unemployment benefits sending the market to new highs during the period. The major averages blasted into August as better than expected economic data and blowout earnings trumped rising Covid variant cases and the NASDAQ opened the month on a four-day win streak. A strong jobs report showed the economy added 943k to payrolls in July and the Unemployment Rate had fallen to 5.4%. Rates ticked higher, boosting financial stocks, and Wells Fargo (WFC), Morgan Stanley (MS) and Goldman Sachs (GS) all traded at new 52-week highs. Led by a rotation into cyclical stocks the DJIA, S&P 500 and NYSE took the reins and punched new record highs mid-month but a big drop in Consumer Sentiment on soaring Covid cases stalled the rally and sent rates lower again. Investors threw a mini taper-tantrum the following week after the Federal Reserve signaled they wanted to taper bond purchases before the end of the year and the Dow Jones tumbled 731.28-points (-2.0%)  before finding support at its 50-day moving average (MA). The major averages turned it around from there and rallied into the end of the month after the FDA gave full approval to the Pfizer (PFE) and BioNTech (BNTX) vaccine and Fed Chair Jerome Powell’s dovish remarks on tapering and rates at the Jackson Hole Economic Symposium. The S&P 500, NYSE, NASDAQ and NASDAQ 100 all touched record highs again as August was coming to a close as investors rotated back into big cap technology and growth stocks, but remained cautious as defensive sectors also outperformed. Utilities (XLU) was the strongest market sector jumping +5.12%, while Communication Services (XLC), Financials (XLF), REITs (XLRE) and Technology (XLK) all gained more than +4%. Energy (XLE) was the lone sector in the red on declining crude oil prices. For the month, the DJIA was higher for a second straight month and posted six new all-time highs gaining 425.26 points (+1.22%) and settled at 35360.73. The S&P 500 posted its 7th straight month of gains as it jumped 127.42 points (+2.90%), its best monthly gain since April, finishing at 4522.68. The DJ Transportation Index turned it around following a 2-month losing streak as it was higher by 200.68 points (+1.39%) and settled at 14661.48.

 

A back and forth rotation from growth to cyclical and back into technology stocks fed the rally for both the NASDAQ and NDX 100. With yields backing off along with strong earnings beats from the likes of Workday (WDAY +16.5%) and Nvidia (NVDA +14.8%), NASDAQ and NDX 100 were the biggest percentage gainers in August and each recorded six new all-time highs. The NASDAQ Biotechnology ETF (IBB) also outperformed, led by Regeneron Pharmaceuticals (RGEN +17.9%), as it gained 3.76% for the month. Demand for micro processing chips led to solid gains for the Philadelphia Semiconductor Index (SOX) as it jumped 2.13%, with leadership from Microchip Technology (+9.95%) and Advanced Micro Devices (+4.27%). The NASDAQ was higher for a third consecutive month jumping 586.56 points (+4.0%) to finish at 15259.24. The small cap Russell 2000 returned to its winning ways and moved higher by 47.52 points (+2.13%), as it finished at 2273.77.

 

MARKET OUTLOOK

The technical condition of the market was mixed in August despite several of the major averages able to finish the period at new record highs. The technical indicators for the different indexes were in bullish ground as August ended and Momentum, as measured by the 14-day RSI, was positive and moving higher. While some negative divergence was seen in the underperformance of the small cap Russell 2000, DJ transportation Index and Philadelphia Semiconductor Index, the Russell 2000 was able to blast through key moving average resistance levels the final week of August, which also bodes well for the market going forward. The DJ transportation Index however, remained below its 100-day MA a month’s end. The Dow Jones was also showing signs of negative divergence on its weekly chart with MACD bearish and Momentum slowing. We’ll need to see improvement in those areas if the market is going to move much higher in September. The rally was broad based however, as Communication Services (XLC), Consumer Staples (XLP), Financials (XLF), Healthcare (XLV), Technology (XLK), REITs (XLRE) and Utilities (XLU) notched new highs during the period. Although it improved as the month was ending, internal breadth also showed negative divergence as despite the market gains, the NYSE Advance/Decline line, a leading indicator of market direction, only added 773 units and last made a new high on July 1. The NASDAQ A/D line lost units in August. New 52-week highs were also anemic as the NYSE and NASDAQ recorded more new lows than highs on several sessions mid-month. Investor Sentiment remains firmly in the bull camp but has backed off extreme levels seen weeks ago.

 

Last month’s full FDA approval of the vaccine could be a game-changer and should hasten the reopening of global economies. Add to that Fed Chair Powell's preference to let inflation run hot before tapping on the brakes to taper bond purchases and the stock market has a floor underneath it to keep selling limited. While the major averages have not seen a 5% correction since last October, there has been a revolving correction and rotation under the water line within the different indexes and the DJ Transportation Index and Russell 2000 have both corrected about -10% at one time over the summer months. While the stock market isn’t cheap, analysts are raising Q3 earnings, interest rates remain low and the Federal Reserve isn’t in a hurry to tap the brakes on inflation or economic growth. September is one of the worst months of the year for the major averages and we may be lacking a catalyst to move much higher, but unless we get an unexpected spike in Covid Delta variant cases, the market can nudge higher from here.

 

CYCLICAL TREND INDEX (CTI): Bullish

Presently the CTI is Positive at +14, unchanged from the previous month. The counts for Cycles B, C, D and E are bullish while counts for Cycle A is bearish.

 

Cycle

Average # Of Weeks

In The Cycle

# Of Weeks Since

Previous Bottom

Bullish Or Bearish

Connotation

A

6 +  or    -1 Week

5 Weeks

Bearish

B

18 +  or    -2 Weeks

5 Weeks

Bullish

C

36 +  or    -4 Weeks

5 Weeks

Bullish

D

72 + or    -7 Weeks

5 Weeks

Bullish

E

216 + or   -20 Weeks

74 Weeks

Bullish

 

The following are projected CTI readings through the week ending 11/26/21. 

 

Week Ending

CTI

Connotation

8/27/21 (Actual)

+14

Bullish

9/03/21 (Projected)

+12

Bullish

9/10/21 (Projected)

+12

Bullish

9/17/21 (Projected)

+12

Bullish

9/24/21 (Projected)

+10

Bullish

 

** The CTI is the total of the plus and minus values assigned to each cycle based on the number of weeks that have passed since their previous cyclical bottom.  For a detailed explanation of the market timing models, click on "Market Letter Help" located on the top of the 'Market Letter'.

 

 

Market Posture Performance 2019-2021

The following is the performance record of the Market Edge ‘Market Posture’ for 2019 - 2021

 

Projected Strong Periods:

 

Actual Results – DJIA

01/04/19 - 03/15/19   (23433.16 – 25887.38)

DJIA Gain/Loss

+2454.22

04/18/19 - 08/02/19   (26559.54 – 26485.01)

DJIA Gain/Loss

-74.53

09/03/19 - 11/22/19   (27219.52 – 27865.62)

DJIA Gain/Loss

+646.10

04/09/20 - 10/23/20   (23719.37 – 28335.57)

DJIA Gain/Loss

+4616.20

11/13/20 - 05/28/21   (29410.00 – 34529.45)

DJIA Gain/Loss

+5119.45

07/30/21 -     ???        (34935.47  –  ???      )

DJIA Gain/Loss

???

 

Projected Weak Periods:

 

Actual Results – DJIA

09/28/18  - 01/04/19  (26458.31 – 23433.16)

DJIA Gain/Loss

-3025.15

08/01/19  - 09/03/19  (26485.01 – 27219.52)

DJIA Gain/Loss

+734.51

01/03/20  - 02/14/20  (28634.88 – 29398.08)

DJIA Gain/Loss

+763.20

10/23/20  - 11/13/20  (28335.57 – 29479.81)

DJIA Gain/Loss

+1144.24

06/18/21  - 8/06/21    (33290.08 – 34935.47)

DJIA Gain/Loss

+1918.43

 

 

MOMENTUM INDEX: Neutral

As of the close on 8/27/21, the Momentum Index is Neutral at 0, down a notch from the previous month. The Momentum Index is a gauge of bullish or bearish divergence in the market.  Readings of +04 and higher are regarded as bullish signaling stronger performance from the majority of the broader indexes vs. the DJIA.  Conversely, readings of -04 or lower are regarded as bearish. Below is a chart of the performance of seven of the major, broad market indexes included in the Momentum Index vs. the DJIA since the last major cyclical low.

 

Prev. Lows

DJIA

DJTA

S&P 500

NYSE

R-2000

NASDAQ

UTIL

A/D LINE

July 2021

33290.08

14264.26

4166.45

16052.71

2130.68

14030.38

885.16

+520302

8/31/2021

35360.73

14661.48

4522.68

16806.44

2273.77

15259.24

934.30

+525363

%Change

+6.2%

+2.8%

+8.5%

+4.7%

+6.7%

+8.8%

+5.6%

+1.0%

 

Average % Change of the Broad Market Indices: +6.2%

The broader market indexes are up on average +6.2% from their July 2021 closing lows vs. +6.2% for the DJIA resulting in the Neutral 0 reading. Breadth was positive during the month at the NYSE as the Advance/Decline Line gained 773 units vs. a gain of 4228 units in July while the number of new 52-week highs surpassed the new lows on 17 of 20 sessions. The breadth at the NASDAQ was mixed as the A/D line lost 345 units vs. a gain of 8759 units in July, while the number of new highs surpassed the new lows on 13 out of 20 sessions. Finally, the percentage of stocks above their 50-day moving average increased to 49.6% from 48.2% while those above their 200-day decreased to 65.1% vs. 75.8% from the previous month. Readings above 70.0% denote an overbought condition.

 

SENTIMENT INDEX: Negative

The Sentiment Index for the month ending 8/27/21 is Negative at -1, down a notch from the previous month. The Sentiment Index tracks thirteen market indicators that measure excessive bullish or bearish conditions prevalent in the market. Whenever the crowd becomes overly optimistic (a bearish condition), the readings from the Sentiment Index will drop into negative ground. Conversely, when fear is rampant (a bullish condition), the index will be in the +3 to +8 area.

 

The Dividend Yield Spread (0.28 vs. 0.32) is Bullish. NYSE short interest was down -0.2% and 2.7 days of average volume for the period ending 8/16/21 vs. being up +1.6% and 2.9 days average volume to cover at the end of July. Short interest at the NASDAQ was up +0.8% and 2.7 days of average volume mid-August vs. a -0.8% decrease and 2.6 days average volume to cover on 7/31/21. The Fear and Greed Index (34.4 vs. 29.2), the AAII Bull-Bear Ratio (1.2 vs. 1.5), the Bullish-Bearish Investment Advisors Ratio (2.7 vs. 3.2), Percentage of Bullish Investment Advisors (50.0% vs. 52.6%) and the VIX, a measurement of fear in the market, (16.39 vs. 18.24) are Neutral. The Percentage of Bearish Investment Advisors (18.5% vs. 16.5%), NAAIM Exposure Index (92.8 vs. 78.4) and the Total Put/Call Ratio (0.87 vs. 0.91) and are Bearish. VIX readings under 13.00 are regarded as bearish while those above 30.0 are bullish.

 

U.S equity funds, including ETF activity, had outflows of $6.4 billion for the reporting period ending 8/27/21 compared to inflows of $13.9 billion the previous week.

 

**To view the charts and graphs of the major market indexes and pertinent technical indicators that are incorporated in the Momentum and Sentiment indexes go to the Market-At-A-Glance section located under Market Recap on the Market Edge home page.

 

MARKET POSTURE: Bullish

Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Bullish as of the week ending 7/30/2021 (DJIA – 34935.47). The Market Posture is expected to remain bullish through the end of November 2021. For a closer look at the technical indicators and studies that make up the market timing models, check out the 'Market Letter (Weekly)' located on the Market Edge home page. (www.marketedge.com).

 

Take a look at the new ‘Dr. Market Edge Talks Stocks’ section located on the Markets or Home Page.  Every Tuesday, the good Doctor reviews three stocks that have recently been in the news.  These articles will help you evaluate stocks when viewing Smart Charts and the Second Opinion reports.

 

ETF Center: The top performing ETF categories for the period ending 8/26/21 were: Commodity-Energy, Sector-Energy, Commodity-Blend, Sector-Internet and Sector-Alternative Energy. The weakest categories were: Shorts, Bond-Government Long Term, Sector-Utilities and Bond-Corporate Invest Grade. To review all the categories in the Market Edge universe, click on the ETFs tab.

 

Industry Group Rankings: What's Hot (47) – What’s Not (44)

Of the 91 Industry Groups that we track, 47 are rated as either Strong or Improving while 44 are regarded as Weak or Deteriorating. The previous month’s totals were 28-63. The following are the strongest and weakest groups for the period ending 8/26/21. Strongest: Advertising, Building Materials, Footwear and Media-Publishing. Weakest: Airfreight/Couriers, Oilfield-Drilling, Beverages and Internet-Software. To review all the Industry Group rankings, click on the Industries tab.

 

SUGGESTIONS FOR SELECTING BUY CANDIDATES

1) Initiating new long positions for an intermediate-term trading approach:

  1. a) Go to Stock Watch, select a list, click on the Opinion/Conditions drop down and then on Long for potential buy candidates. Click on the Situations drop down and then on Early Entry Longs.

 

  1. b) Click on the Trading Ideas tab and then on Money Runner. Select stocks from the Today's Buy list.

 

  1. c) For a more conservative approach, check out the ETF Center. Choose a category that is either 'Improving' or 'Strong' and then choose ETF's with Long Opinions as potential buys.

 

  1. d) Click on the Trading ideas tab on the toolbar and then on Prime Ideas. Choose one of the five investment styles to retrieve a list of stocks that have both favorable technical and fundamental characteristics.

 

2) Initiating new positions for a short-term trading approach:

  1. a) Click on Trading Ideas located on the toolbar. Then click on Trading Desk and select either NYSE or NASDAQ Short Term Buys.

 

  1. b) Click on the Advanced Tools tab and then on either the Point & Figure Breakouts or Point & Figure Early Alert modules. Look for stocks that have either broken or are in the process of breaking either a Triple Top or Quadruple Top and have a Long Opinion for potential buy candidates.

 

SUGGESTIONS FOR SELECTING SHORT-SALE CANDIDATES

1) Initiating new short positions for an intermediate-term trading approach:

  1. a) Go to Stock Watch, select a list, click on the Opinion/Conditions drop down and then on Avoid for potential short sale candidates. Click on the Situations drop down and then on Early Entry Shorts. 

 

  1. b) Click on the Trading Ideas tab and then on Money Runner. Select stocks from the Today's Shorts list as potential short sale candidates.

 

  1. c) For a more conservative approach, check out the ETF Center. Choose a category that is either 'Deteriorating' or 'Weak' and then choose ETF's with Avoid Opinions as potential shorts.

 

  1. d) Click on the Trading Ideas tab on the toolbar and then on Prime Ideas. Choose Short Sale Candidates for stocks that are considered to be broken momentum stocks.

 

2) Initiating new positions for a short-term trading approach:

  1. a) Click on Trading Ideas located on the toolbar. Then click on Trading Desk and select either NYSE or NASDAQ Short Term Shorts.

 

  1. b) Click on the Advanced Tools tab and then on either the Point & Figure Breakouts or Point & Figure Early Alert modules. Look for stocks that have either broken or are in the process of breaking either a Triple Bottom or Quadruple Bottom and have an Avoid Opinion for potential short sale candidates.

 

 

 

 

 

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Market Indicators

Market Posture Cyclical Trend Index
Bullish
10
As of: 07/30/2021
As of: 09/24/2021
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As of: 09/24/2021

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Market Recap - 09/24/2021

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 15047.7 -4.54 -0.03% 16.75%
DJ UTILITIES 892.8 -0.81 -0.09% 3.26%
DJ TRANSPORT 14343.49 109.09 0.77% 14.68%
DJ INDUSTRIALS 34798 33.18 0.1% 13.69%
NYSE COMPOSITE 16539.15 -28.11 -0.17% 13.87%
S & P 100 INDEX 2045.17 4.1 0.2% 18.87%
RUSSELL 2000 2248.07 -10.97 -0.49% 13.83%
S&P 500 4455.48 6.5 0.15% 18.62%
CBOE MKT VOLATILITY 17.88 -0.75 -4.03% -21.41%
AMEX COMPOSITE 3156.52 16.17 0.51% 33.7%
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