Weekly Trading Plan (September 23–27, 2024)

"It's not about the cards you're dealt, but how you play the hand."

trying this out. i see this as known knowns. part of the job is to see how strong some of these hands are.

Market Overview

The market begins this week riding the momentum of the Federal Reserve’s first rate cut in four years, slashing rates by 50 basis points. Investors are optimistic, pushing the S&P 500 and Dow to new all-time highs. Despite this bullish sentiment, the forward P/E ratio of 21 suggests the market may already be pricing in this good news, and caution is warranted. Bearish seasonality and uncertainties surrounding the upcoming U.S. presidential election loom in the background, reminding traders that the current rally could face headwinds.

---

Macro Pulse: The Poker Hand

The theme of this week is optimistic but cautious—the market is reacting positively to the Fed’s actions, but there are risks that could lead to reversals or corrections. Think of it as a poker game where the table is bullish, but several players (the global economies) might be bluffing.

• The Fed’s Rate Cut: The Fed’s 50-bps rate cut has brought short-term confidence, similar to a big stack dominating the table. But this move might already be priced in, and the market could soon ask, “What’s next?” With seasonality turning bearish, any unexpected data or negative economic news could challenge the current rally. The takeaway here is that while the Fed’s move boosts optimism, there’s still uncertainty ahead.

• China’s Rebalancing: China is trying to shift its economy from real estate and finance toward high-tech industries like EVs and lithium batteries. The stock market there, however, is struggling, making this look like a bluff—China’s long-term strategy might take time to bear fruit, and its current economic weakness is something to be cautious about.

• Japan’s Delayed Action: Japan is signaling rate hikes, but they keep pushing them back. This is like a player who’s hesitant to commit but is keeping their options open. Japan’s inflation is still above 2%, and when they finally act, it could be a significant move that shifts market sentiment.

• Emerging Markets Independence: Emerging markets, usually followers of the Fed’s moves, are now playing their own game. Brazil raised rates as the Fed cut them, showing independence. This divergence could offer opportunities if these markets manage to stabilize, but it also adds complexity to global market dynamics.

• Market Breadth - Caution on the Horizon: With 80% of S&P 500 stocks trading above their 200-day moving average, the market appears strong on the surface. However, this expansion could be misleading if sentiment changes abruptly. The takeaway? While things look good now, don’t ignore the possibility of a market correction if breadth starts to narrow or external factors (like geopolitical risks or economic data) create a shift.

Overall Sentiment: The market is cautiously optimistic, driven by the Fed’s rate cut and global economic moves. However, the rally feels a bit fragile given the high P/E ratio and looming uncertainties. Traders should enjoy the upside but be prepared for sudden shifts, keeping their risk management tight.

---

SPX Pulse: 30-Day

Here’s a summary of the most reliable patterns in the SPX over the last 30 days:

1. Midday Strength (12-1 PM): 68% probability of positive returns, the highest of any hourly period.

2. Opening Gap: 65% probability of a positive return at the open, with an average gain of +0.22%.

3. End-of-Day (3-4 PM): 65% probability of positive returns during the final trading hour.

4. Open to High Move: 65% probability of a positive move from the open to the day's high, with an average gain of +0.54%.

Takeaway: The market’s midday and end-of-day sessions offer the best probabilities for gains, while the early morning tends to show weakness.

---

Key Events and Trading Strategies

1. Economic Reports:

   • Tuesday, September 24: Consumer Confidence, Housing Price Indices (FHFA and S&P Case-Shiller).

   • Wednesday, September 25: New Home Sales, EIA Crude Oil Inventories.

   • Thursday, September 26: Durable Goods Orders, GDP (Third Estimate), Initial Claims.

   • Friday, September 27: PCE Price Index, Personal Income/Spending, University of Michigan Consumer Sentiment.

   Strategy: The Fed’s rate cut should be supportive of housing and consumer spending, which will make Tuesday’s Consumer Confidence and housing data important. Durable Goods Orders will be a key metric for industrial strength, and Friday’s PCE Price Index will give a better idea of inflationary trends. Stay alert to any data suggesting inflation is stronger than expected, which could challenge the bullish narrative.

2. Earnings Reports:

   • Tuesday, September 24: AutoZone (AZO), Thor Industries (THO), KB Home (KBH), Progress Software (PRGS).

   • Wednesday, September 25: Micron Technology (MU), Jefferies Financial (JEF), Cintas (CTAS).

   • Thursday, September 26: Accenture (ACN), Costco (COST), CarMax (KMX), Jabil (JBL).

   Strategy: Tech earnings like Micron (MU) could offer insights into semiconductors, and retailers like Costco (COST) and AutoZone (AZO) will give a read on consumer strength. Pay attention to any earnings guidance that hints at inflation or interest rate concerns impacting future profits.

---

Technical Analysis

1. S&P 500 (SPX): The SPX closed at 5,701, a fresh all-time high. It needs to hold above 5,667 (July’s previous high) for bullish confirmation.

   • Strategy: Stay long if SPX holds above 5,667. If it drops below this level, consider hedging or reducing exposure, as it could signal a false breakout.

2. Nasdaq 100 (NDX): The NDX broke out of a bullish pennant pattern, with 20,000 being the next major resistance.

   • Strategy: Look for opportunities in lagging tech stocks as the broader tech rally continues, but be cautious if NDX struggles near the 20,000 resistance.

     

---

Risk Management

1. Bearish Seasonality: While the market is currently riding high, bearish seasonality remains a factor. Be prepared for potential pullbacks, especially with key economic data coming later in the week.

---

Conclusion

This week’s theme is optimism with caution. The market has responded well to the Fed’s rate cut, but with a high P/E ratio and potential for negative seasonality, the rally could be fragile. Use midday and end-of-day sessions to trade with higher probabilities, and stay alert for any shifts in global sentiment or economic data that might reveal if this rally is more bluff than substance. Keep a flexible strategy—there’s potential for more upside, but protecting gains is key in this uncertain environment.