Weekly Market Outlook – We Ended the Week on a Low Note, But…

Weekly Market Outlook – September 22nd, 2019

Don’t be too quick to jump to any conclusions about Friday’s high volume lull. It was a major options expiration  day, which can skew market action, and draw out tons of trading volume.

On the other hand, sometimes futures and options expiration days force traders to play the hand they’re really holding. Or, in this case, perhaps the mass expiration of options and futures forced traders to lean in the bearish direction they were already thinking about leaning in anyway.

The calendar is certainly working against the market in any case. This is a tough time of year for stocks, usually through the early part of October. In the third year of a presidential term, on average, stocks are weak through the middle of November, once the midterm elections are over.

To that end, we’ll start this week’s analysis with a weekly chart of the S&P 500, as the bigger-picture timeframe is the one that’s more important at this time; the impact of expiration day won’t last more than a couple of days.

That’s the gentle way of pointing out that even if the bearish pressure is eased up this week, there’s still a long-term technical ceiling in play, plotted as a dashed white line on the graph.

S&P 500 Weekly Chart, with VIX, Volume

Source: TradeStation

Ditto, more or less, for the weekly chart of the NASDAQ Composite.

NASDAQ Composite Weekly Chart, with VIX, Volume

Source: TradeStation

Take note of the fact that on both weekly charts, their respective volatility indexes remain at the low end of their range. That’s a clue that Friday’s wave of option expiration wasn’t that dramatic. Indirectly, it says there’s still room for a lot more downside … IF the bears can just get that ball rolling. With the prospect of an amicable end to the tariff war though, not too many traders are willing to bet against stocks. That’s keeping the market propped up, which in fact is the one key thing keeping everyone only guessing as to what lies ahead.

To that end, also notice that both weekly charts more or less have an upside-down head-and-shoulders shape to them, which sets the stage for upside IF the neckliines — the dashed resistance line — can be hurdled.

That’s what makes the daily charts so important to watch right now… with the broad market on the fence and capable of moving in either direction, investors need to watch closely to spot the points where the indices break out or break down. For the S&P 500, the breakout line is just under 3050, though a breakdown would involve falling under several technical floors all the way down to the 200-day moving average line (green) at 2825.  There’s also something like support around 2730, where the S&P 500 bottomed a couple of different times earlier in the year.

S&P 500 Daily Chart, with VIX, Volume

Source: TradeStation

The smart-money move to make here is to do nothing… yet. They’re not showing it. They may not even know it. But, traders are very much on the fence here. A major move has been postponed for a while now, but can’t be put on hold forever. That move is just as likely to be bullish or bearish.

One final matter to absorb, however… don’t assume a bullish thrust is going to last a while. A good move could easily be a blowoff top, and the beginning of a ‘sell the news’ event. The most likely news to drive a move to the peak is a step to the end of the trade war.

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