Friday certainly wasn’t too inspiring to build upon Thursday’s big rally, and prices gave back nearly all of the prior days gains to close right into this key $SPX-3920-5 zone. While many suspected being bullish in September was clearly the wrong call given Fridays activity, there wasn’t too much damage done that suggests it’s wrong to bet higher into mid-month. Prices failed to undercut Thursday’s lows, and Advance/Decline data was largely flat on Friday, not meaningfully negative. Overall, my thinking of index direction in the first couple of weeks remains unchanged. I feel that recent weakness has overshot on the downside, and prices are at/near important inflection points in price and time which argue for a sharp bounce. (See $QQQ chart below with prices into strong Ichimoku support). Most of my work on sentiment, cycles and Elliott-wave projections suggest that prices are likely to counter the bearish seasonal forces of September during the next couple weeks, and it should be right to play long for a rally into 9/14. While technical trends remain pointing lower, there remain important points to argue for a reversal higher at a time when very few expect it. Much of this should become quite evident early next week. Technology is likely to rebound over the next couple weeks on $QQQ rally.
A few key takeaways given this past week’s turbulence
$SPX and $QQQ have both retraced 61.8% of the prior June-August advance, an area that’s likely to lend support for stabilization and trend reversal as time comes into play early next week.
Bearish sentiment per AAII data and Negative S&P Futures positioning in CFTC data both suggest lows are around the corner.
Important time-based studies based on Gann and key anniversary of last year’s peaks should cause this decline to stop in its tracks and head higher into mid-month.
DeMark counter-trend readings and Elliott-wave projections are also suggestive of bounces from here near 3900, not a continued decline to test June lows. These might offset normal bearish seasonality trends for September until mid-month.
Extreme breadth readings should likely lead to a bounce. Yet, an upward breadth thrust will be needed to suggest the start of a more sustainable rally.
1 year anniversary of last year’s Sept peak could now offer lows to recent weakness as Markets approach a 38.2% Time retracement of the 3/23/00-1/3/22 rally.
US Treasury yields and Equities have shown a nearly perfect negative correlation.
McClellan Oscillator below has hit the lowest point since Spring 2020.
While breadth gauges like these are effective when signaling breadth thrusts and divergences, extreme readings like this normally result in a decent oversold rally. I expect rallies into mid-September.
Ethereum and many Cryptocurrencies likely to join Equities in rallying into mid-month
Ethereum and many other Cryptocurrencies have turned up sharply to join the rally being seen in global Equities and failed to give back too much of the rally even during the late day decline for $SPX. Overall, a sharp bounce looks likely into mid-September and should help $ETHUSD to test and likely exceed the highs from mid-August.
Looking back, recent weakness from mid-August successfully rebounded right at the 50% retracement of the June-August advance (1455) and the slight undercut of this by a mere 30 points allowed the pullback from 8/25 to hit a 61.8% Fibonacci retracement of the prior leg down from 8/14. Importantly, Friday’s (9/2) breakout of the downtrend from last month is an important and bullish technical development which suggests this move higher to hit new monthly highs is underway. While minor resistance could appear near $1725, I don’t feel this poses much challenge and bigger levels hit near $2030.
In the bigger scheme of things, a move above that level should drive rallies up to $2400-2500, which for now, remains an intermediate-term forecast. Dips in the days ahead should be used to buy ETHUSD with support coming in at 1560.