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Ron Meisels & Dave Tippin, Phases & Cycles, Montreal, QC, Canada www.phases-cycles.com

“Our Market Comment headline at the beginning of this month was “September should see a transition to a more attacking mode, and the start of a new up leg.”  September so far has been a positive month with the S&P 500 breaking the upper boundary of the trading range at 2,950 and moving last week strongly up towards its all-time high.  Other major market indices in New York such as the Dow Industrials and NASDAQ also approached previous highs.   And late last week Toronto’s S&P/TSX Composite Index – an historically strong late bull market performer – reached a new all-time high, with little fanfare.

Have the bears been completely vanquished and is the bull market off to the races once again? We listed a number of encouraging signs two weeks ago and there are more.  Last week’s rally was accompanied by new all-time highs in the NYSE daily advance/decline line.  The percentage of NYSE stocks trading above their respective 200-day Moving Averages has increased from 46% to 66% in the last few weeks, indicating that substantially more stocks are moving into positive longer-term price patterns.   New leadership is emerging and sector-rotation is underway with financial and small-cap stocks now catching up (the Russell 2000 is showing renewed strength).

While a continuation of the current advance and a quick move to new all-time highs is possible, there are good reasons to think that the upside path will not be completely straightforward.  The S&P 500 rose over 7% in just thirteen trading days and is now well above its 200-day Moving Average – the Index is well-stretched in the short term.  The 39week cycle still has two weeks before its next maturity and may still exert some downward pressure as the month ends.   Put/call ratios are low.  Options expiry looms at the end of this week and October usually has a period of market stress.  The number of NYSE stocks making new 52-week highs has been unable to keep pace with the recent rally.   These are the ingredients for a minor pullback.

We cautioned in previous Market Comments about the possibility of a “feint move” when the trading range was initially broken.  We have had the initial upside breakout and the question now is its sustainability.  With New York short-term overbought – and the weekend Saudi oil attack – we expect some pushback by sellers, so a minor retreat is likely. Whether this pushes all the way back to the 50-day Moving Average (currently at 2,950) and then into the recent trading range – which would increase investors’ confusion about the major direction – needs to be watched closely.   But regardless of how winding the short-term pattern is, the S&P 500 remains above its 200-day Moving Average and continues to track a “higher high, higher low” price pattern – this suggests a bullish resolution and new all-time highs in New York’s future. Our minimum target for the S&P 500 remains at 3,300.” (16-Sep-19)

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