September Mid-Month Conference Call: 5 Key Takeaways

1. All About the Dollar

It’s still a US dollar story. Check out the charts below. Notice how one of them doesn’t look like the others? That’s right, it’s the US Dollar!

Stocks, bonds, bitcoin, gold, and the yen are all trending lower. Meanwhile, the dollar is printing fresh 20-year highs.

USD has been the only safe haven this past year, wreaking havoc across financial markets. Without a healthy rotation between stocks and bonds, broad selling pressure persists. 

Making money in any of these asset classes is going to be a challenge as long as dollar strength remains a headwind. 

With that said, risk assets jump every time we witness the slightest pullback in the dollar. Just imagine what’s in store when it finally rolls over.

2. A Catalyst on the Calendar

September is the worst month for stocks, based on more than 70 years of S&P 500 price history. As shown in the chart below, it’s not even close. 

While all other months show an average performance that is either positive or flat, September is the only month that is deeply in the red.

When we drill into the average performance by day, we find that the negative returns are concentrated between September 23rd and the end of the month. We’re there now.

While the toughest seasonal period for stocks is upon us, as soon as we get to October, it all changes. October ushers in the best period of the year for stocks. Not only that, but based on our four-year cycle composite, the best time to buy is during the late summer of mid-term election years. Read more about it here. 

3. No Confirmation From Banks

When we zoom out on our charts, we can point to plenty of long-term levels that remain intact. From a structural standpoint, there is nothing more important than the prior-cycle highs.

The chart below shows the Large-Cap Financial Sector SPDR $XLF rebounding off a shelf of former resistance turned support.

This polarity zone represents a major confluence of interest as prices peaked here back in 2007 and then again in 2018 and 2020. As long as financials are above this level, the world isn’t coming to an end. 

With that said, when we look at an index of the big 6 US banks, we’re seeing a slightly different story. Some of the largest and most important stocks in the financial sector never reclaimed their pre-financial crisis highs. Bulls want to see these stocks catch higher and confirm the price action in XLF. Until they do, the jury is out for the whole group.

4. International Indexes Lead Lower

When it comes to global equities, there are very few positives these days. While things aren’t good in the US, the damage is far worse for stocks abroad.

Although many indexes around the world enjoyed a nice bounce this summer, the recent volatility has undone all of that progress… and more.

The All Country World Ex-US Index $ACWX and the Developed Markets Ex-North America Index $EFA are both breaching their summer lows as momentum accelerates to the downside.

If bulls don't step in and repair the damage quickly, we need to be prepared for increased volatility and elevated downside risk for stocks around the world.

These international indexes provided a great leading signal earlier in the year as they were among the first to complete distribution patterns and break down. The US indexes eventually followed. Now that they are resolving lower from their latest bearish continuation patterns, we have to wonder if the US indexes will follow once again. This would mean fresh lows for the S&P and Nasdaq in the near future.

5. Shooting the Generals

When we dive beneath the surface looking for clues as to whether the US will follow international stocks lower, we want to focus on the largest and most important names. When we do this, we see a lot of weakness. This is best illustrated by the new lows from a handful of mega-cap growth stocks over the past few weeks. 

Below is a quad pane chart showing four of the seven largest stocks in the Nasdaq 100. Notice how they are all undercutting their summer lows.

This action not only speaks to a risk-off environment but is conducive to further selling pressure for stocks and risk assets in general. It is also a potential roadmap for where the indexes are headed.

As long as these mega-cap stocks remain under pressure, it will be hard for the major averages to make any progress. If this damage isn’t repaired very soon, we expect the S&P and Nasdaq to follow.

That’s it for this month’s key takeaways!

As always, Premium Members can rewatch the Conference Call and view the slides here!

We hope you enjoyed our recap of this month’s call. Thanks for reading, and please reach out to us with any questions!

Allstarcharts Team