Will This Be The Best September In 12 Years?

While market sentiment remains largely positive with major indices showing monthly gains and broad advance/decline lines confirming an uptrend, recent technical analysis reveals emerging short-term warnings, particularly for tech-heavy Invesco QQQ Trust (QQQ). SPY has demonstrated strength, closing above key resistance with its A/D lines at new highs, yet QQQ's daily performance is weaker, showing A/D line divergences and a loss of momentum since mid-August. Investors are advised to consider raising stops and taking profits given significant gains since April, especially with uncertainty surrounding a potential September rate cut, leading to a tempered outlook for a record-breaking September.

Analysis

The market's technical posture presents a bifurcated outlook, characterized by broad underlying strength but emerging weakness in the technology sector. While dovish Federal Reserve commentary has fostered positive sentiment, monthly performance data reveals a rotation, with small-caps (IWM +5.6%) and value stocks (Dow Industrials +2.0%) outperforming the tech-heavy Nasdaq 100 (QQQ +0.4%). The S&P 500's primary trend remains bullish, confirmed by the SPDR S&P 500 ETF (SPY) closing above its yearly R1 resistance and its monthly advance/decline (A/D) line reaching new highs. However, significant short-term warning signals are appearing in the Invesco QQQ Trust (QQQ). Its daily Nasdaq 100 A/D line has been diverging negatively from price since July, and its relative performance versus SPY has deteriorated since mid-August, indicating a loss of leadership momentum. A break below its monthly pivot at $561.43 could trigger a deeper pullback. While broad market A/D lines do not yet signal a major correction, risks are elevated by low institutional cash levels and uncertainty surrounding a potential September rate cut, tempering the outlook for continued strong market gains.

Key Decisions for Investors

• Given the significant gains since the April A/D line buy signals and emerging short-term risks, consider raising stop-loss orders on long positions and taking partial profits to reduce equity exposure.
• Monitor the developing relative weakness in the Invesco QQQ Trust (QQQ) compared to the SPDR S&P 500 ETF (SPY), as technical divergences suggest a potential tactical rotation away from large-cap growth.
• Pay close attention to key technical levels in QQQ, specifically a potential break below the $561.43 monthly pivot, which would confirm a near-term bearish shift and could precede a decline toward the $548 support zone.