The September correction that acted as a beacon in the dark for a despondent population of bears has occurred in August.
As a result, not only are investors afraid of their own shadows, but they have also become psychologically handicapped by everything from the perceived technical formations that are ominous in nature to seasonality and of course, the ever present spider demon that is Jerome Powell.
The wall of worry that has been so prominent morphed into an avalanche of late.
In the meantime, if you step back for just a brief moment, in an attempt, however futile, to shut off all the noise, nothing has changed.
- We are nearing the end of the tightening cycle
- The economy, while faltering, will avoid a recession in 2022
- Yields are calling Powell a liar
- The US Dollar is putting in a compelling top of some significance
- Commodities have already melted down, with the exception of oil that is also putting in a topping pattern of some significance
- Pessimism is rife, with the put/call ratio closing near the June highs today
- Positive divergences abound in both volume and price
What this all adds up to is a flip of the script, and with that a flip of the calendar, as well.
September is shaping up to be quite a bit different than the past two Septembers that had the market falling significantly, with both 2020 & 2021 down around 4% for the S&P.
All Powell did on on Friday was to push forward a correction that the market seemed eager to make prior to everyone catching onto another September swoon. As a result, Powell was used as a crutch to complete the September correction during August.
Where does that leave September?
In all probability, quite a bit stronger than most anyone suspects.
In the Zenolytics portfolio we have recently increased risk in some high beta names that are further up the risk curve, in preparation for further upside.
The target for September is 4400-4500, which I am expecting to get hit fairly quickly in the weeks ahead.
Markets move while nobody is looking, and especially when nobody is positioned for it.
Here we are again, another chance to be absurdly long that nearly everyone will miss.
Goodnight.
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