Weekly Update: 13 September 2020

As September rolls on, so does the volatility as expected.  We had some big price swings this week and ended with a mixed bag.  The C and S were down sharply but, the I and F funds finished slightly up.  All 3 stock funds are fighting for support at their respective 50DMA (Day Moving Average) lines.  Next week should be decisive…  For the week the C fund was down 2.51%, S fund down 2.96%, I fund up 0.43%, and F fund up 0.23%.

This week we’ll take a look at the big picture pattern and then get into the daily, shorter term charts.  Most of the media is focused on the rally since March and when/if we will see a correction.  Now is a good time to step back and see where we are from a broader perspective.

Long Term

The first chart below is the “Ideal” Broadening Triangle or Megaphone Pattern.  It’s one of the most challenging patterns to play because of the associated bull and bear traps.  With higher highs and lower lows, its very difficult to identify when the pattern has ended.  Theoretically, we are out of the pattern once the price breaks above or below the upper or lower trend line.  Unfortunately, it’s not that clean in real-life as we will see…  Click here for more about the Broadening Triangle pattern.

The 5 year weekly chart of the S&P500 (C fund) below shows a clear 3 year old megaphone pattern.  The higher highs and lower lows are very clear.  If the pattern continues, we are looking at the beginning of a protracted move down that will take us thru the election if not the end of the year…  We talk thru the best and worst case scenarios for how this pattern will resolve in the Weekly Update Show.  It will post at 6:30EST tonight on the FB page.  You definitely want to check it out!

Short Term

The C fund had a rough week but did find support at its 50DMA.  We need to see the price get back above the 3400 level and the 10DMA line if this rally is to continue.  A daily close below the 50DMA is a serious problem.

The S fund chart is very similar to the C fund but a bit worse.  The S fund was not able to close the week above its 50DMA but it was very close.  Like the C fund, a significant close below the 50DMA is a serious problem for the S fund.

The I fund chart is probably the best of the 3 stock funds.  The I fund is firmly in its horizontal consolidation range.  It found support at its 50DMA and is sitting on its 10DMA.  A breakdown below 64 or a breakout above 66 would get the I fund out of its current pattern and we would know the next direction.  Maybe we will find out this coming week…

Bottom Line: I’m not optimistic BUT, I haven’t thrown in the towel just yet.  Based on the Megaphone Pattern, it looks like the market is headed lower.  In the short term, the market is still fighting to find support and move higher.  Next week will likely be pivotal!

Stay tuned…

Jerry