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Q4 Stock Market Potential: What Could Set This Year Apart?

/ October 2, 2023

Ryan Belanger, a strategist from Claro Advisors, has expressed concerns that the fourth quarter of 2023 might not live up to historical averages. He cites macroeconomic forces indicating a potential recession as the reason behind this apprehension. While the third quarter of 2023 adhered closely to stock-market seasonality patterns, with both August and September proving to be challenging months for U.S. equities, some market experts see the possibility of a stock-market resurgence in the final quarter. Historically, the fourth quarter has been the strongest quarter for the U.S. stock market, with the S&P 500 index showing remarkable gains, nearly 80% since 1950, and an average increase of more than 4%, double the next best quarter, according to Ryan Detrick, Chief Market Strategist at Carson Group. October is renowned for its extreme volatility and historical stock-market crashes, including the Panic of 1907, the Wall Street Crash of 1929, and Black Monday in 1987, all occurring in October. However, Detrick suggests that, in general, October has been a “fairly decent month,” especially following two consecutive months of stock declines. Recent increases in Treasury yields and the strength of the U.S. dollar, along with seasonal market weakness, contributed to the stock market’s downturn in September. The Federal Reserve’s interest rate decisions and Jerome Powell’s press conference further accelerated these trends. Simultaneously, energy prices remained high in September, hovering above $90 a barrel, creating concerns about inflation and the potential need for more interest rate hikes. As a result, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all posted losses in both August and September. Ryan Belanger, founder of Claro Advisors, anticipates that despite strong seasonal factors, the fourth quarter of 2023 may fall short of historical performance due to indicators pointing toward a recession, such as elevated bond yields and the Federal Reserve’s contemplation of raising interest rates. However, Ryan Detrick of Carson Group remains cautiously optimistic, noting that historical data indicates a potential stock-market rally in the fourth quarter, especially after weak August and September performances. Detrick points out that in the past, when stocks declined 1% or more in the preceding two months, October rebounded with gains of 10.8%, 8.3%, and 8.0%, respectively. Furthermore, the fourth quarter has shown positive returns in 12 out of 13 instances since 1950, with an average increase of more than 7.0%. Moreover, when the S&P 500 has risen between 10-20% for the year leading into the traditionally strong fourth quarter, Detrick expects even more significant gains, averaging over 5%. In 2023, the S&P 500 has already advanced over 12%, indicating a potentially promising outlook for the final quarter of the year. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

? S&P 500 Alert: The Mother of All Trend Lines Unveiled

/ September 29, 2023

Following what appears to be the most challenging month for stocks this year, some investors are closely analyzing a chart that signals an impending showdown for the S&P 500 SPX. This chart was shared by a stock market commentator on X, known as Heisenberg, who goes by the handle @Mr_Derivatives: The S&P 500 has experienced a 5.1% decline so far this month, following a 1.7% drop in August, which ended a streak of five consecutive months of gains. Rising bond yields and the possibility of higher interest rates in the coming year have significantly impacted high-performing tech stocks, leaving investors feeling apprehensive. Other contributing factors to this decline include surging oil prices and concerns about potential slowing consumer spending, particularly as student loan payment moratoriums conclude. October is historically known as the most volatile month of the year. Michael Kramer, the founder of Mott Capital Management, emphasized that the chart represents a “major trendline stemming from the October lows.” He pointed out that the Nasdaq Composite has already broken a significant uptrend, which is a bearish sign, coupled with the presence of a head-and-shoulders and diamond reversal pattern. The head-and-shoulders pattern often signals a shift from a bullish to a bearish market, while the diamond reversal pattern suggests a trend reversal following an extended period (learn more here). Kramer’s chart illustrates how these patterns have affected the Nasdaq Composite, which has fallen by 6.7% in September, making it the worst month of 2023: Kramer expressed skepticism about the next significant move for the S&P 500 off that trendline, stating, “If that breaks, we could see a sharp drop back to 4,100.” He also highlighted the climbing 30-year Treasury yield (BX:TMUBMUSD30Y) as a critical factor. “If 4.8% breaks, there is no resistance until 5.4%,” potentially leading to more significant stock declines, including the Nasdaq-100 index (NDX) dropping to around 13,300 from its current 14,580. See his chart for reference: Regarding the 10-year Treasury yield (BX:TMUBMUSD10Y), Kramer noted key resistance at 4.69%, with no significant resistance until it reaches 5.25%. He attributed the onset of market stress to changes in the Bank of Japan’s negative interest rate policy in July, allowing the 10-year JGB (BX:TMBMKJP-10Y) to rise to 1%. “This whole thing started after the July BOJ meeting,” he observed. Kramer also pointed out international developments, referring to it as a “global reset.” The U.K. 10-year gilt yield (BX:TMBMKGB-10Y) surged from a low of 3.08% to 4.5%. He added, “Additionally, I think the market is saying the Fed policy is not restrictive enough.” However, there might be a silver lining in the “mother of all trend lines” chart for the S&P 500, according to Adam Kobeissi from The Kobeissi Letter. He cautioned against assuming that if the trendline breaks, the entire market will collapse. Instead, he sees a different scenario. “If that trendline holds, we should prepare for the next significant upward move,” Kobeissi suggested. Nevertheless, he acknowledged that the near-term trend has been leaning downward, with the S&P 500 establishing lower lows and lower highs. In his analysis, the 4,200 level is crucial support for the index, as it aligns with the high from February 2023. Kobeissi believes that the technical indicators are showing signs of being oversold and anticipates “some sort of a bounce in the 4200-4250 range, which may have already started yesterday, leading into 4335. A rejection of that level would form a lower high and open the door for new lows, while breaking above that level opens the path to 4400. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

The Road to Recovery: 3 Indicators to Gauge Stock-Market Pain’s Departure

/ September 27, 2023

Many investors are eagerly seeking signs of the stock market downtrend nearing its end, despite the S&P 500 only witnessing a 5.5% decrease since reaching its highest point in late July. Considering this, Victor Cossel from Seaport Research Partners has presented a few technical charts that could offer some understanding about when a possible reversal may happen. Nonetheless, the crucial idea is that, at present, there is an anticipation of encountering further challenges unless the ongoing rise in Treasury yields and the U.S. dollar ceases. At first, it is important for the proportion of Nasdaq 100 companies that are currently trading below their 200-day average to match the number of S&P 500 and Russell 2000 members that are also trading below their 200 DMAs. Analysts utilize moving averages to evaluate the speed and trajectory of a specific financial asset. Through analyzing these trends in the constituents of an index, analysts can ascertain the degree to which the performance of said index is dependent on a chosen few stocks. This trend has been especially prevalent in the U.S. stock markets over the year, largely attributable to the emergence of the renowned “Magnificent Seven.” The term “Magnificent Seven” is used to describe a group of prominent technology stocks that have seen substantial growth as a result of the increasing popularity of artificial intelligence. This group encompasses companies like Nvidia Corp., Microsoft Corp., Apple Inc., Meta Platforms Inc., Tesla Inc., Amazon.com Inc., and Alphabet Inc.’s Class A and Class C shares. According to the latest information from Cossell, which was current until the close of trading on Monday, 61% of Nasdaq 100 NDX members were above their 200-day moving averages. In comparison, the percentages were 45% for the S&P 500 SPX and 35% for the Russell 2000 IWM. However, these percentages may have altered slightly due to a notable drop in U.S. stock prices on Tuesday. If there is more pressure to sell, traders will closely monitor whether the S&P 500 can continue to stay at 4,200 points, a level that has served as a solid base for the large-cap index for a long time. If the stock market goes down to a level lower than 4,200, it may suggest negative outcomes for the future. Traders would perceive this decrease as a sign that the downwards trend is becoming more powerful. However, the excessive excitement and speculation in the market, which potentially impacted the Federal Reserve’s decision to signal consistent increases in interest rates, are slowly decreasing. One example of this can be seen when the information-technology section of the S&P 500 experienced a correction on Tuesday. It closed at 2,869.6, a decrease of 1.8% in value. This drop caused the index to decline by 10.5% from its highest point in the past year, which was 3,207.29. When a stock or index falls by 10% or more from its recent peak, it is categorized as being in correction territory. The interest rate plans revealed by the central bank after its September policy meeting have been widely cited as the main reason behind the recent changes in Treasury yields and the value of the dollar. The stock market may encounter difficulties if bond yields adjusted for inflation, known as real rates, continue to rise. This was illustrated by Cossel in a chart depicting the S&P 500’s valuation based on the future price-to-earnings ratio, which reveals a significant disparity compared to the current trading of 10-year real rates. In this particular situation, Cossel used the actual rate of interest, known as the 10-year nominal Treasury yield BX:TMUBMUSD10Y. However, this rate has been adjusted by considering the difference between the 10-year Treasury yield and the expected inflation rate, also known as the 10-year breakeven spread. Cossel indicated in the message that if rates do not go down, there is a chance that the S&P 500 could face some vulnerability while remaining at its present levels. The U.S. stock market faced notable declines on Tuesday, as the Dow Jones Industrial Average saw its biggest drop in a single day since March. Additionally, Treasury yields rose and the ICE U.S. Dollar Index reached its highest point in 10 months, indicating a stronger value for the U.S. dollar. Specifically, the ICE U.S. Dollar Index increased by 0.2% to 106.18, as mentioned. The Dow Jones Industrial Average fell by 338 points, indicating a 1.1% decrease to its present value of 33,618.88. In a similar vein, the S&P 500 index dropped by 63.91 points, or 1.5%, reaching 4,273.53. Likewise, the Nasdaq Composite index experienced a decrease of 207.71 points, reflecting a 1.6% decline, resulting in a new level of 13,063.61. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Market Meltdown? A Closer Look at September’s Stock Market

/ September 26, 2023

Wall Street Witnesses Earnings Forecast Downturn as S&P 500 Declines by 4% in September As apprehension grows among stock market investors due to the surge in Treasury yields and its impact on equities, the downward revisions in S&P 500 earnings forecasts are further fueling concerns. Nicholas Colas, co-founder of DataTrek Research, observed that after several weeks of Wall Street analysts either increasing or maintaining their 2023 and 2024 S&P 500 earnings estimates, there was a reversal in this trend last week. This shift may have played a less recognized role in the recent market selloff. In the past week, Wall Street reduced its third-quarter earnings estimate for the S&P 500 to $55.74 per share, representing a 0.6% decrease from the prior week. This effectively erased all the positive revisions made over the past seven weeks. For the fourth quarter, analysts lowered their forecast by 0.4% to $57.85 per share, essentially returning Wall Street’s estimate to where it stood at the beginning of June, as noted by Colas. The changes in earnings forecasts signify a shift from the earlier optimism stemming from the upward trajectory in estimates, according to DataTrek. Colas pointed out that many trading algorithms give significant weight to revisions in earnings forecasts. “While minor adjustments to earnings estimates typically go unnoticed, trends in this data can sometimes carry substantial implications,” he explained. “We anticipate further downward revisions in the upcoming week as analysts finalize their Q3 estimates.” On Monday, the S&P 500 managed to eke out a modest gain but still recorded a 3.8% loss for September, marking the third consecutive weekly decline. Most sectors within the S&P 500 incurred losses this month, with only the energy and utilities sectors showing positive performance. Utilities saw a 1% gain, while energy stocks rose by 2.5%, partly due to increased oil prices in September. The recent decline in the S&P 500 is attributed, in part, to the surge in bond yields, which have exerted pressure on equity valuations following the Federal Reserve’s late-September policy meeting. The yield on the 10-year Treasury note reached its highest level since 2007 after the Fed indicated its intention to raise interest rates and maintain them at elevated levels for longer than initially anticipated. Higher bond yields result in increased borrowing costs, which can weigh on companies and their earnings. With regard to corporate earnings expectations for the upcoming year, DataTrek highlighted a trend of downward revisions. Wall Street analysts reduced their 2024 earnings estimate for the S&P 500 by 0.3% last week, bringing it to $247.90 per share, marking the first reduction in nine weeks. For the first half of the next year, analysts revised their earnings estimate for the S&P 500 to $57.93 per share for the first quarter and $60.90 per share for the second quarter, according to DataTrek. Despite the climb in Treasury bond yields, U.S. stocks managed to close higher on Monday, with the Dow Jones Industrial Average edging up 0.1%, the S&P 500 rising by 0.4%, and the Nasdaq Composite advancing by 0.5%, according to FactSet data. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

S&P 500 Futures Show No Signs of Recovery, Extend Three-Month Low

/ September 25, 2023

Monday morning witnessed a shift in U.S. stock futures‘ fortunes as they relinquished their early gains. Here’s a concise breakdown of the events: To recap Friday’s performance, the Dow Jones Industrial Average (DJIA) recorded a loss of 107 points, equating to a 0.31% decline, landing at 33,964. The S&P 500 (SPX) also experienced a decline of 10 points, equivalent to a 0.23% drop, reaching 4,320, while the Nasdaq Composite (COMP) registered a 12-point fall, or 0.09%, closing at 13,212. Last week painted a bleak picture for the S&P 500, as it recorded a 2.9% decrease, marking its worst week since the period ending March 10 and hitting its lowest level since June 9. Monday’s market lacked significant catalysts; however, the tentative resolution of a writers’ strike provided a boost to media companies like Paramount Global (PARA, -4.96%) and Netflix (NFLX, -1.13%) during premarket trading. Additionally, President Joe Biden announced plans to show support for the United Auto Workers strike against the Big Three automakers during his visit to Michigan. Nonetheless, the primary narrative in recent times has been the rapid ascent of long-term interest rates. Technical strategists at Bank of America noted that while they lack conclusive evidence that the upward movement in the 10-year yield is complete, it is beginning to appear stretched. The yield on the 10-year Treasury (BX:TMUBMUSD10Y) increased by 5 basis points to 4.49%. China’s housing crisis returned to the spotlight, with Evergrande (3333, -21.82%) shares plummeting as the company abandoned a $35 billion debt restructuring plan. Additionally, shares of China Aoyuan Group experienced a sharp decline on Monday, marking their first day of trading in over a year. In Hong Kong trade, the Hang Seng (HK:HSI) skidded 1.8%. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Dollar’s Recent ‘Golden Cross’ Spells Trouble for Stock Traders

/ September 23, 2023

The U.S. Dollar Extends Its Winning Streak for the 10th Week in a Row, the Longest Since 2014 In a significant development, the U.S. dollar has achieved its first “golden cross” since July 2021, raising the possibility of further upward momentum and potential challenges for the stock market. As we approach the end of the week, the 50-day moving average of the ICE U.S. Dollar Index (DXY), a key measure of the dollar’s strength against a basket of major currencies, with a strong emphasis on the euro, stands at 103.15. Notably, this surpasses the 200-day moving average, which registers at 103.11. The index itself concluded the week at 105.56, reaching its highest level since March 10, 2023, a day that witnessed the collapse of Silicon Valley Bank, triggering a brief surge in safe-haven assets like the dollar. Over the course of the week, it edged up by 0.2%, marking its 10th consecutive weekly gain, a streak not seen since the 12-week run ending in October 2014. The “golden cross” formation materialized when the 50-day moving average closed above the 200-day moving average, a widely recognized signal among technical analysts that often implies an emerging trend in a particular direction. Conversely, a “death cross” occurs when the 50-day moving average crosses below the 200-day moving average. In the case of the U.S. dollar, a “death cross” occurred on January 10. Subsequently, the dollar trended downward for the following six months, ultimately hitting its lowest point in 2023 on July 14. Since then, it has been on a sustained uptrend, a trajectory that some currency experts believe has the potential to continue, especially after the Federal Reserve revised its interest rate forecasts to remain above 5% through 2024. Based on analysis by Dow Jones Market Data, following a golden cross, the dollar typically continues to rise during the subsequent three months, posting an average gain of 1.9% and trading higher approximately 79.2% of the time. Performance becomes more mixed over a one-year horizon, with the dollar trading higher 58.3% of the time and averaging a gain of 1.5%. Drawing from a previous golden cross on July 29, 2021, the dollar index surged by approximately 25%, advancing from around 91 to nearly 115 in late September 2022, when it reached its highest level in two decades, according to FactSet data. However, some analysts have issued caution about the dollar’s ascent, particularly in conjunction with rising Treasury yields, which could pose additional challenges for the stock market. On Thursday, the S&P 500 experienced a drop of more than 1.6%, marking its most substantial single-day decline since March 22, as reported by Dow Jones Market Data. Jeffrey deGraaf, a technical strategist at Renaissance Macro Research, remarked in a note to clients, “A new cycle high in yields and a golden cross in the dollar are strong headwinds for the market.” John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

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