The Word from Main Street

Market Update for the Week of September 9th, 2019

September means summer vacation is over, but for investors, seeing August come to an end might be a welcome sign. The volatility in the market picked up quite a bit last month, but how does this compare to the volatility in previous summers?

As we head into the fall months of 2019, we thought it would be helpful to review volatility in the S&P 500 Index (SPX) this past summer and how 2019 relates to prior years. Nasdaq Dorsey Wright examined daily returns for SPX going back to 1987 and counted the number of times the index had a gain or a loss exceeding 1%. It turns out that SPX only had a daily movement greater than 1% during one day this July, which came on the last day of the month. However, volatility picked up quite a bit in August with 11 days during which SPX moved more than 1%. This is the most volatile August we have seen since 2011 and brings the total number of +/- 1% days during the summer of 2019 to 14. While the increase in August volatility is abnormal, the total number of summer days that exhibited heightened volatility is directly in line with the historical median of 14 days, meaning that the summer volatility as a whole was relatively normal. According to Nasdaq Dorsey Wright, the 6.34% return posted by SPX from 5/31/2019 through 8/30/2019 is also significantly higher than the median return for these summer months of 2.42%.

9.9 Number of August Days.png
Source: Nasdaq Dorsey Wright

9.9 Number of Summer Days.png
Source: Nasdaq Dorsey Wright

Based on the data above, the summer of 2019 was the most volatile summer since 2014, and prior to that, 2011. In other words, it's been five years since we've experienced the number of volatile days we experienced this summer. As we head into the fall months, September and October are not historically the best months for the market, but we enter these months with a longer-term picture of Domestic Equities (stocks) being ranked number one in DALI and the long term trend chart of the major indices being positive. The back and forth action over the course of the past couple of months has led to consolidation on the chart of the S&P 500 Index, setting up a spread triple top breakout to the upside, which recently came with a move to 2,950. As of this writing on 9/9/19, the SPX closed at 2,978.

Market movement on Monday led to the Bullish Percent for the NYSE reversing back up into a column of X’s with an intraday calculation of 44%. As a reminder, this chart is used as a participation indicator, measuring the percentage of stocks in the NYSE that are on a current point & figure buy signal. After reversing higher in January to climb from a low of 16% to 58% in April, the BPNYSE reversed lower amid heightened volatility in May, and more recently in August, dropping to 38%. The reversal up on Monday leaves the chart in a column of X’s in mid-field position, indicating that we are back on offense, but still focusing on those areas of higher relative strength.

9.9 Bullish Percent for NYSE Chart.png
Source: Nasdaq Dorsey Wright

Below is the most recent DALI indicator with the buy signal changes since last week: #1 Domestic Equities (-5), #2 International Equities (+4), #3 Fixed Income (-1), #4 Commodities (+6), #5 Cash (-3), #6 Currency (+/-0).

9.9 Nasdaq Columns.png
Source: Nasdaq Dorsey Wright

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Past performance is no guarantee of future results. All investing involves risk including the loss of principal. Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.

S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock's weight in the Index proportionate to its market value.

Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Nasdaq Dorsey Wright developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.

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Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolio across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.

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