Markets At New Highs but for How Long?

The month of September turned out to be way more bullish than anyone could’ve ever expected, thanks to a larger-than-anticipated rate cut by the Federal Reserve. Fed Chairman Jerome Powell promised that they would be cutting rates while at the conference in Jackson Hole in August, but most analysts expected a 0.25 basis point rate cut. In September, the Fed cut rates by 0.5 basis points and seemed to indicate that it would be making further cuts before the end of the year.

The $QQQ, which has been leading the markets, did not make a new all-time high, which is significant, as it should have if this market is to go higher. Also, the CCI has made three lower highs, with each one descending. The MACD histogram has just turned negative. 

Rapid and larger-than-expected rate cuts could indicate that the economy is far weaker than most economists had thought. Even though economic figures have generally been good, there seems to be some doubt over the accuracy of all the data. Many economists and analysts have questioned how accurate some of the latest economic data has been, largely due to big revisions in prior months’ reports.

The $SPY has made a new all-time high, but both the leading CCI and the Lagging MACD seem to be turning bearish.  

There are lots of risks on the horizon. The US Presidential election is just over a month away. So far, it seems to be a tight race with no clear leader, and thus far, there is little indication of clear policy from either side. The war in the Middle East between Israel and Hamas and Hezbollah in Lebanon seems to be heating up. Israel could possibly invade Lebanon, which would cause further reprisals and potentially expand the war. 

Oil Slumps, Gold Rockets and Stock Diverge

Oil prices remain low due to lower-than-expected global demand, which has so far helped soften inflation. Gold and silver prices are near all-time highs, which is historically unusual as markets are also near all-time highs. This kind of divergence is usually a negative indicator, as these asset classes usually move inversely to each other. When they do move in tandem, it is usually an indication that some kind of drastic change is soon to be at hand.

The rally in gold has also taken $GLD to new highs, but the CCI and the MACD seem to be indicating a pullback is due soon. The CCI has a high and lower higher and the histogram on the MACD has just turned negative. 

Therefore, in light of all this uncertainty, it is best to be cautious even though markets are at all-time highs and the economy, at least on the surface, seems to be strong. Taking profits and hedging against potential risk is always a prudent decision in an election year, especially less than a month before the election.

Until next time, trade carefully.

Written by Michael DiGioia, Director of Education
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