Looking Ahead to Q4

With Q3 in the books, the all time highs continued and we closed out the least volatile September in history. All the potential for a pullback or Summer weakness never showed up leaving the bear case with one option left: the notorious October.

this-september-could-be-the-least-volatile-ever.pngSource: LPL Research
october-is-the-most-volatile-month-of-the-year.png

Unfortunately for bears, new all time highs continue for S&P 500, Dow Jones Industrial, Dow Jones Transportation, NASDAQ, Russell 2000, Russell 3000 and Russell Microcap Indexes. The trend is up. I will be keeping a close eye on how coming earning season reactions play out.

SPX.png

Its also important to recall that we experienced a bear market in 2015 – 2016. It may be a distant memory by now, but we are just over a year into this new bull market. Many won’t acknowledge this, but it is what it is only adding more fuel to the fire.

If we do see a correction come in Q4, I will be a buyer. My priority will be watching for how leading stocks act and which new stocks may become leaders.

The breakout in small caps on an absolute and relative basis is huge considering they have done nothing but consolidate for ~9 months.

Semiconductors look great whether its the index or individual names. They consolidated gains sideways over the summer and are now breaking higher. We are seeing big volume inflows into names like MU, UCTT, AMAT, etc. I am long a few of these.

Gold and Silver are a mess.  I am in the camp that we see more downside before there is any new bull market breakout. I am also bullish on the the US Dollar – how much that affects precious metal remains to be seen. With the Dollar falling 12% into last month (a big move for a currency IMO), precious metals were only able to remain range bound. I would have expected a nice rip but that never came. Commercial hedgers are extremely long the US Dollar and I have a feeling they may be on the right side of the trade again.

Lastly but not least.. every single year since 1887 (130 years), each year ending in 7 has some sort of weakness in the later part of the year. Will it happen this year? I am not sure but if you gave me a free bet, I wouldn’t bet against this trend. It would take a lot for everything to fail and reverse, but anything is possible. Fascinating chart…

7 Years.jpg

Thanks for reading.

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