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Asset Watch
Thursday, September 5, 2024
August’s optimism evaporated on September 3 as a meaningful sell-off gripped the S&P 500 and NASDAQ 100. And as central bank and election uncertainty collides with a historically weak seasonal period, the mood music may remain cautious for the foreseeable future.
But what levels should you monitor to gauge long-term support?
With a 55% gain frequency and a seasonal return of -0.7%, September is one of the worst months of the year for the S&P 500. Typically, the index rallies into mid-September before reversing sharply and ending the month noticeably lower.
However, with investors seemingly front-running the action on September 3, it could set up a counterintuitive rally during the back half of the month.
Because traders often use history to guide their future decisions, the weakness exhibited in previous years could be an issue again. The vertical white lines highlight how the S&P 500 suffered monthly declines in September 2020, 2021, 2022, and 2023.
As a result, history is not on the bulls’ side, and caution may be warranted if you trade over shorter time horizons.
The blue and yellow lines represent the S&P 500’s 5 and 10-month moving averages. When the index is trending, the 5-month MA is a solid support level. However, when larger corrections occur, the 10-month MA often becomes reliable support.
So, you should monitor both levels to determine if they become sources of strength.
Risk-averse traders may want to place a stop-loss order slightly below the 5-month MA to manage risk and remain level-headed if the correction continues. If you can tolerate more volatility or have a longer time horizon, a stop-loss order slightly below the 10-month MA may be more appropriate.
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