Why September May Be Key for the Long-Term Outlook on Stocks

Thu, Sep 1, 2016 - 4:58pm

We just spoke with technician Erin Heim of Stockscharts.com on our podcast to get her outlook on US stocks, gold, oil, and the US dollar. Erin outlined why she is currently neutral to bearish on most of the broad US stock market indices but then went on to say something that many may find unthinkable: “It’s not out of the question that we are beginning a new bull market.”

This is a bit hard to believe when we consider the Everything Bubble chart or even the fact that earnings and stock prices have clearly started to diverge for over a year now.

However, when we examine the technical picture of the market via the long-term MACD (Moving Average Convergence/Divergence) oscillator—one of the most popular indicators used in technical analysis—it is very close to forming a long-term bullish crossover (or “buy signal” as technicians will sometimes say) on the S&P 500 similar to what we saw in 2003 and 2009.

Though Erin and her father, Carl Swenlin, regularly say that “technical analysis is a windsock, not a crystal ball,” the long-term MACD has probably been one of the best timing indicators of major tops and bottoms for the S&P 500 over the past two decades.

That being said, the most recent “sell signal” came in June of 2015 and yet the S&P 500 has now managed to push above its March 2015 record high...with a lot of volatility and double-digit moves along the way.

Should another bullish crossover take place, this certainly does not guarantee another bull market is in the works; however, as Erin said on the show, such technical signals should gain our attention and get us to think more closely about our investment outlook.

There is another possibility too. The US stock market, as Sandy Jadeja recently forecasted on our show, may be about to hit a barrier. Historically speaking, stocks tend to see weakness in the month of September so this is certainly not out of the question.

Thus, if we are to put any merit in the long-term MACD indicator, a pullback this month could very well derail a “buy signal” from taking place and further validate the bearish crossover or “sell signal” issued last year.

For that reason, the next month or two may be key in adjusting technical perceptions about the long-term outlook for the US stock market. Was the recent push to new all-time highs simply a blow-off top or the beginning stages of a new, and perhaps widely unanticipated, bull market? We may know the answer to that question shortly.

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