The Dog Days of Summer in the Market
Geoffrey A. Smith, DTI’s Chief Instructor
Sirius, the Dog Star (constellation Canis Major), is seen ascending in the early morning hours with the sun during the summer months. This happens during the hottest part of summer here in the US. Of course, we associate summer with kids being out of school and vacation to cooler places or the beach. This also pours over into the market and we see markets “cool down” because volume lightens up as families head to their favorite place to relax. Though we have seen some volatility this summer, the markets have really gone sideways if we look at a bigger picture.
The chart above is a S&P Futures Daily Chart from June to the Middle of August utilizing our RoadMap™ market analysis software. Notice that the 2072 area is a magnet (pivot). The market is holding it as support and resistance depending on the “mood” of the market. Coming into earnings the market was below this pivot number, and now that earnings have pretty well passed, the market is holding above this pivot number. Yet you have heard on the news that the market was way up today, or way down today based on some geopolitical or economic news, it really has gone nowhere.
So where does the market go from here? The market has been on a bull run for the past 5 years. We have seen some corrections along the way, but if you look at the all time highs, the market is not far from them. In fact, some of the biggest leaders in the S&P 500 are making new all time highs during this sideways period and many more are making 52-week highs. Based off that alone, this bull has not worn out yet, but we will have to get past the summer months to get the evidence we need to determine if indeed the markets will continue to move higher.
As we come out of summer, we will end the third quarter of the year. This takes us into October where the first couple of weeks are usually down as mutual fund and money managers “dress up” their portfolios, pitching the sour grapes and adding the fine wines to make their year look better. Then another round of earnings pour in to help feed the bull. This will be the evidence we need to see if the bears go into hibernation or if they are still hungry enough to devour the bull.
They say a picture is worth a thousand words. Whether it is or isn’t, stepping back and looking at a broader picture of the market can help put some perspective on overall direction. The summer has been, for the most part, flat, but times ahead will tell if we break up or break down and start a new trend to end the year.
Good luck trading!