Carve another notch in the “monthly winners” column.
The S&P 500 closed higher for August, making it the seventh month in a row of gains. That’s the longest monthly winning streak in over 30 years.
But, can the index make it eight in a row by rallying even more in September?
I’m going to say “no.”
Look at this long-term monthly chart of the S&P 500 (SPX)…
The stock market has rallied almost straight up over the past year.
So, if you’re piling into the stock market right here in anticipation of a “melt-up” phase – you’re too late. The melt-up has already happened, and the chart reflects it.
This action has created a “parabolic” move on the chart. Parabolic moves are unsustainable. And, when they burn out, the ensuing decline often wipes out nearly the entire rally.
So, let’s just throw this chart on top of the pile of things that concerns me about the stock market.
The question for today, though, is “can the S&P 500 continue its winning streak for another month?”
The problem is that the index is already overbought and overextended. It’s trading historically far above its 9-month and 20-month exponential moving averages (EMA). And, the MACD momentum indicator is as far into overbought territory as it’s ever been.
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In other words, the stock market is more overbought today than it was at the top of the “dot-com” bubble in 2000, and at the start of the Great Financial Crisis in late 2007.
Given the overbought and overextended conditions on this monthly chart of the S&P 500 – and given all of the other concerns we’ve written about the stock market over the past few weeks – it sure seems unlikely to me the S&P 500 can blast even higher for another month.
Yes, it’s possible, and anything can happen…
But, the current setup looks dangerous. I expect the S&P 500 will end September lower than where it started.
Best regards and good trading,
Jeff Clark
P.S. While the current market looks dangerous, one thing my colleague and legendary hedge fund trader Larry Benedict knows is guaranteed to happen is something he calls the “7-day blitz.”
During this strange week-long phenomenon, over $1.2 trillion will exchange hands in the market. And if you follow Larry’s technique, you could see the chance to profit from it…
Not a lot of people know about this window, but it’s one of the most profitable times of the year for traders. On Wednesday, September 8 at 8 p.m. ET, Larry will share all the details… just click here to reserve your free spot, it won’t be available for long.
Reader Mailbag
Are you a firm believer that the market will continue to keep going higher, or that it has to drop off soon?
Let us know your thoughts – and any questions you have – at [email protected].