Market Pulse: 2020.10.02

As usual, September confirmed its seasonally bearish

September ends and he does his usual job in the markets: being a bearish month, in this case correcting the excessive rise of the SP500 and Nasdaq, artificially driven by the Fed and the FAMAGs. And October may be a key month for the immediate future on Wall Street. Seasonally, that month is known to kick off a year-end strong bullish rally, but now we are in an election year and no surprise should be ruled out.

Keep in mind the following fundamental aspects, which will define the bias of the market in this last quarter, prior to making long-term decisions. Smart money, hedge funds, and institutions will do the same this week, prior to the end of the quarter, before proceeding with their usual rebalancing of portfolios. If they do, even more so we, the retailers.

1- The US elections in November, which heat up this week with the first Trump-Biden debate. Wall Street does not trust Biden and his economic program. It now prefers, by far, Trump's victory. And investors are also concerned about post-election reactions, for eventual claims of the loser for the vote by mail.

2- Some technical indicators (as speculators positions, below) have been showing exhaustion of the September correction. It's a great contrarian indicator, a buy signal, as large speculators (Hedge funds, trend-following CTAs, etc.) haven't had this much short exposure to major equity index futures in over a decade. They're short about $47 billion worth.

3- COVID is far from over and the outbreaks have been repeating in the same previous order: starting in Europe. Vaccines will not be available this year and markets are watching the advances and falls of its phases. And speculating with this.

4- The stimulus plan for the North American economy seems to be about to be achieved. Both extremes play their cards but they understand that it is something necessary to boost an economy that is not quite taking off, judging by their latest data on services and manufacturing. By the way, this week comes important reports such as Employment, GDP, ISM, and PMI.

5- Also technically the SP500 and Nasdaq indices are forming powerful technical reversal patterns these days, as illustrated in my technical analysis, below. There are the price levels (target/stops) and patterns that I am going to follow carefully this week in the SP500 and Nasdaq, for applying my Price Action Analysis.  I think markets are ready for a reversal in October. If the fundamentals help.

SP500 SPX, close $3,298.46

This week the SP500 consolidates, moving in a narrow flat channel (3230-3320). On Friday, the price took a strong momentum that allowed it to overcome the purple downtrend line. On its 1-hour chart, shown below, forms one of my favorite patterns: a double-bottom with a later retest and an immediate trendline break. Bulls need confirmation of this movement through the next price action candlesticks (grey circle).

Targets: 3,290 (SMA200 of its 4-hour chart) > 3,300 (psychological, the key level) > 3,113 (a September support, now resistance) >  3,393.52 (its February high) > 3,420 (its important red uptrend line from February, touch many times since that month) > 3,429 (recent resistance).

Stop Loss: 3,230 (week support, the lower line of current range) > 3,200 (psychological number and also July breakout level, now important support) > SMA200 and psychological 3,000 level.

Price is now testing its crucial 4-hour chart SMA200 and the (black) EMA50, at the $3290 level. If surpasses it with authority, and escape from the channel, it could be the signal for the expected October rally.

Nasdaq Composite COMP, close $10,913.56

Its more clear that the Nasdaq has more stronger signals than the SP500: the double-bottom pattern with a next break of immediate trendline, the Fibonacci retracement 23.6%, and the SMA200-4h in the grey key zone, all of them at 10,800, is a powerful bullish signal. 

Targets: 11,000 (again, the most important now, if it's widely break could be a powerful bullish signal) > 11,600 (6-month red strong uptrend line) > $12,074 (recent all-time high) 

Stop Loss: 10,812 (its SMA200-4h) > 10,790 (Fibonacci Retracement 23.6%) > $10,369 (purple 2-month support, important as it had many touches) > $10,000 (key psychological number and also its Fibonacci Retracement 38.2%)

I will wait for the outcome of the fundamental events mentioned above, to decide my mid-term entry long in QQQ.

Gold is very attractive again.

Due to its fundamentals, Gold is a great option for the next weeks, given that its inverse counterpart, the dollar, may continue to weaken due to two certain factors: the approval, increasingly close, of the US stimulus bill and the lower trend in inflation. Its risk is still there and gold can take advantage of that situation until the end of the year.

Technically GLD, the gold ETF, presents a very attractive chart, the kind that every trader wants. In the 4-hour price, the price is located in a powerful key zone: on the one hand, a 2-month purple downtrend line with up to 4 touches. Also, its crucial SMA200 average, in light-blue hit on Thursday. And last but not least, its green Fibonacci retracement of 23.6% of its rise since March. Its black EMA50 confirms a bullish bias. Overcoming this zone will be decisive for next bullish behavior, with resistance at the psychological level 2000 of its future /GC. So, as usual, check price action before a trade decision.

Still in gold analysis, an ETF that is very attractive is the mining, GDX, where combines the strength of the commodity with how well gold mining companies are doing, many of them in the now bullish SP500, making this ETF more volatile, and so interesting than the previous one. It had a strong rise on Friday that made it reach its SMA200 average of the 4-hour chart, shown below, having now a clear path to the upper line of its 2-month bearish channel, at $42.30, if its price action helps.

Keep an eye on US Airlines Stocks

According to a recent Trump tweet (incredibly, but a good way to trade), a considerable portion of the forthcoming new stimulus bill includes more aid for the airline industry. One of the sectors that suffered the most from the pandemic was undoubtedly airlines. The ETF that follows the large airlines, JETS (now $18.07), reached levels of decline form $32 to $12 and is one of the sectors with still a large road to return to pre-COVID levels.

This news was reflected in the price that rose strongly this week and should continue to do so in the following sessions. It even surpassed the critical SMA200 average with authority, heading for the stiff resistance of its 38.2% green Fibonacci retracement of its big drop in 2020. The rising wedge formed usually is bearish, but finally, price action decides it. On my radar.

In the next posts I will briefly develop my vision of the other ETFs that make up my Q4 long portfolio and my ideas about their behavior until the end of the year.