September Strategy Session: 3 Key Takeaways

September 7, 2023

From the Desk of Steve Strazza @sstrazza and Alfonso Depablos @Alfcharts

We held our September Monthly Strategy Session Tuesday night. Premium Members can access and rewatch it here.

Non-members can get a quick recap of the call simply by reading this post each month.

By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends. This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big-picture” point of view.

With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.

1. Messy for Longer

The S&P 500 and other large-cap averages resolved higher from textbook reversal patterns earlier this year. However, there is still plenty of price memory to work through as they climb the right-hand side of these bases.

In the case of the S&P, the present support and resistance zones are clear as day. After running right back to the early 2022 peaks of 4,600, prices have retreated toward the August 2022 highs.

This is the current range for the S&P 500:

Buyers have stepped in at former resistance at approximately 4,300 in recent weeks, creating a tradable low in the S&P 500. As long as we’re above there, the base breakout remains intact.

Another test at the summer highs of 4,600 could be in the cards in the near future. Nevertheless, the verdict remains messy for longer.

2. Seasonal Headwinds Intensify

Seasonal trends became a major tailwind for US equities in the back half of last year. The market bottomed right on cue with the 4-year presidential cycle and enjoyed three straight quarters of outsized returns.

As seasonality strikes again, the S&P 500 has turned lower this summer – right on track with the 4-year cycle.

The second half of the mid-term year and the first half of the pre-election year (shown in blue) are when stocks tend to perform the best.

This bullish seasonal period is now behind us, and the next quarter or two have been weak by historical measures.

Equity markets have followed seasonal trends to a tee since last year (red line), and we see little evidence of that changing anytime soon.

With a corrective phase in the presidential cycle coinciding with the beginning of September, which is by far the worst month based on historical returns, we wouldn’t be surprised if stocks remain a mess into the end of the year.

3. Commodities Take the Wheel

Although US equities have certainly dazzled this year, it appears commodities are ready to sit in the driver’s seat once again.

Here's the S&P 500 relative to the CRB Index:

As you can see, stocks have retraced to a multi-year downtrend line relative to commodities. This area represents a critical resistance zone and a logical place for commodities to reassert their previous leadership role.

The weight of the evidence suggests that the primary trend continues to favor commodities. Under this scenario, the commodity supercycle thesis is still in play.

Those are some of the main takeaways from this month’s strategy session.

Thanks for reading, and please let us know if you have any questions!

Allstarcharts Team