by Jason Bodner
September 6, 2023
Labor Day finally arrived. That’s the unofficial end of summer. It’s also the unofficial end of hot dog season. According to the National Hot Dog and Sausage Council, Americans will eat seven billion hot dogs between Memorial Day and Labor Day. That’s a lot of hot dogs, over 20 dogs per person.
That’s enough to make you sick. As if August’s volatility wasn’t enough to make you sick…
Well, according to history, September doesn’t offer much hope for a reprieve. August has delivered a -0.61% return for the S&P 500 (since 1990), but September is worse at -0.80%. Time for more Tums:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The good news, of course, is that markets tend to rally handsomely in the fourth quarter. The average return since 1990 for October through December is a stunning +5.08% for the S&P 500. While the first three weeks of August were unsettling, the last week was quite pleasant, with a big lift in equity prices.
The questions loom: Are we out of the woods, or is this a head fake, and are we in for more discomfort?
I’ll attempt to answer that question with a dive into the data. Since August 24th, SPY has rallied by a lovely +3.4%. This sounds great until we factor in the first part of the month, which saw the index ETF trough at -4.6%. The SPY finished August -1.5%, so we can wonder if the buying at month’s end was short covering or buying of some significance. The answer is that I notice some positive data that could continue, but like all things in life, nothing is guaranteed, and we also see some warning signs.
First, let’s check in on the Big Money Index (BMI). As predicted, it started falling from overbought, and plummeted through August, falling from 83.9% to 51.5%. If selling were to have continued, the BMI would have kept falling right into oversold territory – which is a bullish indicator. But instead, the recent lack of selling, mixed with the beginning signs of buying, has slowed the BMI’s descent considerably.
We can see the line bending from a sharp decline to a flattening:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
To contextualize this rebound, let’s look into the individual days of buying and selling. We see below that selling in stocks and ETFs suddenly stopped. Stock selling gave way to some healthy signs of buying:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This is a positive sign. That’s because if this were purely short covering, we wouldn’t necessarily see buy signals. It’s important to note that a buy signal has a breakout time component. This means that in order to make a green signal, one of the criteria is to break through a roughly 11-week high on big volume, so simply selling shares and covering lower, wouldn’t result in green buy signals. Buying shares to new their three-month highs, would. And that’s what we are starting to see.
Another interesting point is that in the last weeks of August, volumes are usually thin. As most of Wall Street is usually on vacation, it’s tumbleweed time. But not last week. If we look at a chart of unusual trading, we see amber bars denoting the cumulative number of unusually high-volume trades, according to MAPsignals data. We clearly see that last week’s rally was accompanied with a visible spike in unusual trading volume, while much of the prior ugly market action was coupled with lower volumes:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That’s a healthy early sign of a new bullish trend. Perhaps it’s too early, but it’s healthy all the same. It’s also good to look at what sectors investors bought. We see that small- and mid-cap stocks were in favor when it came to buying. This is also a healthy sign, as growth usually litters these lower market-cap tiers:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
When we look to sector leadership, a few things jump out at me. First, technology regained its top leadership position after much of August, falling further down the list, and a look at the top 4 sectors reveal that growth is still leading. Tech, energy, discretionary, and industrials are the top 4 sectors:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Things continue to get interesting when we look at the sector charts in order of their ranking. I am making #1 larger because it reveals something encouraging: Tech saw a huge single day bonanza of buying:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That’s the most buying of tech stocks we’ve seen since the sector index peaked in July. And in looking at which tech stocks saw buying, it’s a solid mix of large cap and small cap technology companies. Semiconductors, chip-makers, and software stocks got scooped up on the last day of the month.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
There are signs that this market could rise. But then again, the BMI is a 25-day moving average of all buying and selling. When we download the individual days’ worth of data, we see that strong buy-days are rolling off the data set. And what’s left is stronger selling-days that will outnumber the weaker buys and the 25-day roll-off marches on. This means, in absence of significant buying, the BMI may continue to fall. That fits the narrative for a historically volatile summer, when volume returns to the market.
We don’t know if the recent rally prefaces more. On the one hand, buying was constructive, lifting tech stocks to sector #1. Growth was accumulated in smaller and mid-sized market caps. On the other hand, the BMI needs support of strong buy-days to replace those rolling off the 25-dma. Fresh buys could start to lift the BMI, but if we start September with selling, the BMI could resume its fall.
Either way, we have the fourth-quarter lift to look forward to.
In the meantime, if you’re a hotdog eater, I hope you enjoyed the unofficial last hot dog days of summer.
Henry Rollins nicely sums up where we are now: “We know that in September, we will wander through the warm winds of summer’s wreckage. We will welcome summer’s ghost.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Conflicting Jobs Data Begin to Clear Up Over Labor Day
Income Mail by Bryan Perry
Is It Time to Consider Buying Long-Dated Bonds?
Growth Mail by Gary Alexander
Labor Day Report: When is a Job Not a Job?
Global Mail by Ivan Martchev
Wild Cards for September
Sector Spotlight by Jason Bodner
The Hot Dog Days of Summer Are Finally Over
View Full Archive
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Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
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