It has been no surprise to see the stock market struggle in September.  Historically, this month has the highest odds of a loss.  And so far this month, the S&P 5001 has given back most of the gains it had made in 2020.  And as of September 24th, 2020, the S&P 500 index only up 1.99% (FastTrack Data).  So much for getting back to normal.

Last month I mentioned how there are several factors (unemployment, yield curve, business failures, etc.) that can still weigh on the market.  It seems these issues may finally be catching up with us. 

Our Long-Term Trend data recently signaled that it is time to play it safe.  So we’ve been slowly backing out of our exposure to the stock market.  More on that later.

As we head into October and the coming election, it should be no surprise to see uncertainty rule the market, much like it has done before other elections.  The stock market does best when outcomes are generally known.  So the fear of the unknown can cause excessive jitters and volatility.  We’ll likely see this accelerate over the next few weeks, so again, we’re playing it safe. 

For this month’s chart, I want to re-visit the New Highs – New Lows count on the NYSE.  On my chart, when the value is net positive, the line is green.  And when the value is net negative, it turns magenta.  When the color changes, to me, it suggests paying extra attention to other data that can confirm the market is starting to roll over – like VIX volatility spikes, price support levels or moving averages getting broken, etc.  In the current situation, this signal appeared after other signals, so this data may be helping to confirm more trouble ahead. 

Three Year chart of the NYSE New Highs – New Lows above the S&P 500 Index  Source: Stockcharts.com2 

Bonds – the bond market continues, though very slowly, to give back gains made this year.  The Aggregate Bond Index AGG is still up just over 6.5% year to date.  Other bond segments, like High Yield, are still flat on the year and continue to stagnate.  

In last month’s newsletter, I had mentioned that we were starting to reduce our stock market holdings.  That was based on our Mid-Term cycle, which has remained negative continually since that time.  Now that the Long-Term trend is also signaling trouble, we’re cutting back our stock market exposure much further.  If the market starts to drop suddenly, I want to try to make sure our clients feel minimal effects.  We’ll see how this plays out, but we should be well-positioned to catch the next rebound when things calm down.