Good morning,
After a straight ride higher to within a hair of all-time highs, September seasonality delivered the goods last week, sending a swift kick to the head of bulls and the worst week for the S&P 500 since March 2023.
The potential reasons? Numerous.
The AI/semiconductor trade remains under pressure, as Nvidia broke support hard on Tuesday and a disappointing earnings report from Broadcom added more selling on Friday.
Rates and the yen were also back in focus, as the yen strengthened back to last month’s highs and the 10-year fell to its lowest level in over a year.
But, perhaps the simplest explanation is the most realistic: $hit just happens this time of year.
That’s not meant to make light of the legitimate bearish action we have seen. Defensives have been showing relative strength for far more than the past month, and semiconductors remain guilty until proven innocent.
More tactically, the selling pressure was broad last week, as defensives and bond proxies joined the action to the downside on Thursday and Friday. However, market internals are far from oversold, suggesting more downside could be in the cards.
Despite all that, it’s important we not get sucked into talk of a double top. Not because it can’t happen but because it hasn’t happened yet. Today’s report includes verbiage straight from the CMT textbook but the headline is: It’s not a double-top until the August lows are broken.
For now, my base case remains we are entering the second leg of a “W” bottom, also known as the “whimper” in a bang and whimper correction. If we do retest the August lows, internals will be the key to proving that thesis.
This week’s report will review:
Last week’s selling pressure
The yen and rates
Major index technicals
Messages from the S&B 20
Why you shouldn’t chase bond proxies
and more!
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