Tactical Perspective Equities: Sept 2

September kicked off with a bang in the US Equities Market as strong buying pushed the market through resistance around 1,065 (S&P Cash).  In reality, nearly all of this strength was confined to 30 minute period surrounding the 10:00 release of Consumer Confidence numbers, but it is significant that there was enough buying pressure to support the market at elevated levels for the rest of the day. 

At this point, we are taking a bit of a “wait and see” approach.  We wrote a few days ago that our short-term bias on the market was up, but frankly we envisioned the 1,080 area as a first target to be achieved on a 3-10 day rally, not in a 30 minute spike.  The question to be answered is whether the bulls will falter, the market drifts below 1,060 again, and then down to 1,040.  In our estimation, this is very unlikely, but the downside potential under this scenario is extreme.  Far more likely is that the market consolidates in a generally sideways fashion, perhaps pulls back but holds above 1,060, and then makes another rally attempt toward the 1,100 area.

The 1,060 area (not an exact price) will be the critical inflection points for long swing positions in this market.  The pullbacks and consolidations in this market should be buyable, and most market participants in most timeframes will likely be best served be leaning long while the market is able to hold above that level.  It is also likely that the market will return to its late-summer hibernation mode until after Labor Day, so intraday traders should not assume that it is time to go back to full size and full risk. 

On a related note, the supposed seasonal tendencies for strength around the Labor Day holiday are not well supported by the data.  There is a very slightly bullish bias to the days before and after the holiday, but it is statistically insignificant for the level of noise.  What is significant is a tendency for increased volatility after the holiday, but that is probably a return of volume more than anything else.

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